Voet Ma, - Foreign Currency Lending to Continue

The State Bank of Viet Nam will continue to allow credit institutions to give loans in foreign currencies to export companies and petrol wholesalers till the end of 2015.

Several people had thought that the SBV will stop the practice by the end of 2014.

SBV's Deputy Governor Nguyen Thi Hong spoke to the press about the matter, ahead of the issuance of a new circular to replace Circular No 29/2013/TT-NHNN on loans in foreign currencies.
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According to Circular No 29, which came into effect on January 1, 2014, credit institutions are allowed to provide short-term, medium-term and long-term loans in foreign currencies to help the borrowers make offshore payments for the import of products and services. 

The circular regulates several major government projects that need evaluation of loan demands and approvals by the central bank.

During 2013-14, businesses were still facing difficulties and the credit demand was low. To help the businesses tackle their difficulties, the central bank has allowed lenders to have the right to decide loans in foreign currencies for two activities, which are the production of export products and petrol imports by wholesalers. Circular No 29 said that this will be implemented till the end of December this year.

The central bank recently studied the demand for loans in foreign currencies for the two activities and found that their outstanding foreign currency loans account for 30 per cent of the total outstanding loans in foreign currencies.

Among them, the outstanding loans in foreign currencies for the production of export products comprise 24 per cent, and for petrol imports six per cent. These figures are modest.

In 2015, the National Assembly set an economic growth target of 6.2 per cent. The State Bank of Viet Nam sees that several support measures are required to achieve this goal. Accordingly, the central bank will extend the deadline for foreign currency loans by credit institutions for the two activities till the end of next year.

The central bank will ask credit institutions to submit reports about foreign currency credits to control the foreign exchange market and ensure market security, however.

What will be the impact of the extension of the deadline for loans in foreign currencies on businesses, lenders and the economy?

With stable exchange rates, the loan interest rates in Vietnamese dong being higher than in foreign currencies, the extension of the deadline for loans in foreign currencies will help businesses to reduce their interest expenses.

This will also help banks to raise their credit growth targets.

This is one of the measures to help achieve the goal of 6.2 per cent growth next year, as business will benefit from loans given in foreign currencies and import and export will be promoted.

Do you think that the loans in foreign currencies for export companies and petrol import firms will put pressure on the foreign exchange market, as the demand for foreign currencies rises?

There are many factors which will impact the foreign exchange market. However, the most important factor is the supply and demand.

The lending in foreign currencies for the two above-mentioned activities might help ease the demand for buying foreign currencies.

Regarding loans in foreign currencies for export, the concerned companies will have revenue in foreign currencies to repay their loans.

Regarding loans for petrol import, wholesalers will not have revenue in foreign currencies. However, their outstanding loans in foreign currencies comprise a mere six per cent.

As a result, the lending in foreign currencies for these two activities will not have huge impacts on the forex market.

The State Bank of Viet Nam also agrees that loans in foreign currencies should be given for several key government projects. However, any such loan will be carefully considered, based on the solvency of the firm.

An official document to replace Circular No 29/2013/TT-NHNN will be issued no later than next week. — VNS

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