VN gives nod to personal overseas loans

VN gives nod to personal overseas loans

Vietnamese individuals will be allowed to borrow loans from overseas as of next year, under an amended Ordinance on Foreign Exchange recently approved by the Standing Committee of the National Assembly.

Specifically, individuals will be allowed to borrow foreign loans through their own initiative, and must be responsible for their debt. The amended ordinance will also ensure the right of members of the public to use foreign currency.

It is normal for local businesses and the government to borrow foreign loans, but this is the first time the door has been opened for personal overseas liability.

This permission was in fact stipulated in the Ordinance on Foreign Exchange released in 2005, but it was never realized as the State Bank of Vietnam refused to release guidance for rule implementation.

Local residents, however, still managed to mobilize capital from overseas over the last few years, either via remittances or underground transactions.

The loans were used to help the borrowers buy houses, land, or invest in securities and realty, and were not included in the country’s national foreign debts.

Some US$10 billion worth of remittances were sent to Vietnam last year, a large amount of which was in fact lent to locals, according to some commercial banks.

Payback issue

Prior to the new ordinance, local residents were only allowed to receive foreign currency under the form of remittances, but cannot send the foreign currency back to other nations, in case they want to repay their debts.

Hence, the borrowers have to illegally transfer the foreign currency to their overseas lenders, which insiders say is very risky.

Moreover, as personal overseas lending is not legally recognized, the lenders are also at risk of losing their money as the borrowers may refuse to repay. They cannot take the borrowers to court as the transaction is illegal.

Many overseas Vietnamese asserted that a number of houses and properties owned by local residents have been bought from their loans, but they still cannot ask them to pay them back.

Now that such borrowing has been legalized, insiders said it will help reduce the risk of underground transactions between local borrowers and overseas lenders.

Accordingly, local borrowers will be allowed to pay back foreign currency to their overseas lenders via bank services. Borrowers will be able to buy foreign currency at banks if they present valid papers for their foreign loans.

As the lending is legally recognized, if the borrowers hesitate on repayment, the foreign lenders can call on local legal agencies to intervene and protect their rights. The borrowers may face lawsuits and have their properties liquidated for debt clearance.

Pros and cons

Truong Van Phuoc, CEO of Eximbank, appreciated the idea of legalizing personal overseas loans, while pressing the central bank’s role in managing these foreign debts.

The central bank should request that local borrowers register the amounts and terms of their lending for management, he said.

“When the borrowers transfer money back to their foreign lenders, they should also be required to sell the foreign currency to the central bank in order to increase the national foreign reserves,” he added.

Meanwhile, many insiders have expressed concern that the national reputation may be affected when local borrowers default on, or fail to repay, their debts.

But Dr. Vu Dinh Anh, from the Institute of Economy, said this concern is unconvincing.

“The borrowers are requested to be responsible for their own loans, not the government,” he said, adding that it is better to have the transaction legalized.

“Without official permission, local residents still illegally borrow from foreign lenders,” he explained.

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