The State Bank of Vietnam issued two important circulars on March 8, to prepare foundations for interest rate cuts and tighten control over capital flow in foreign currency
The State Bank of Vietnam issued two important circulars on March 8, to prepare foundations for interest rate cuts and tighten control over capital flow in foreign currency.
Circular No. 04/2012/TT-NHNN will take effects from May 2 and replace Decision No.742/2002/QD-NHNN, stipulating credit institutions and foreign bank branches are not allowed to take entrustments from individuals. Organizations at the entrustment time must have no outstanding loans at local banks and foreign bank branches. The new circular sharply narrows entrusting subjects and imposes stricter conditions.
Besides, Circular No. 04 requires credit institutions to include entrusted loans into total outstanding credits. The regulation will prevent banks from dodging credit growth quotas allocated and limit capability of raising profits.
Term 7 of the circular also regulates credit institutions and foreign bank branches as trustors and trustees should submit monthly data and reports on trust operations, helping management agencies to follow credit growth situation of the economy.
Management of foreign capital flows
Circular No. 04 includes detailed regulations on trust investment in foreign currency capital. Accordingly, credit institutions and foreign bank branches receiving trust funds in foreign currencies must follow the central bank’s regulations on foreign loan providing and forex management. Even a foreign bank branch who takes entrustments from its parent bank has to follow foreign capital lending and solvency rules.
To ensure serious implementation of Circular No. 04, the central bank earlier issued Circular 03/2012/TT-NHNN to regulate lending in foreign currency. Accordingly, foreign credit institutions and bank branches that are eligible for forex services are allowed to provide loans for two circumstances. Firstly, they can give short, medium and long-term foreign currency loans for overseas payment of goods and services importation for borrowers who could make repayment by their own foreign exchange revenue. Secondly, lenders may give short-term loans to borrowers carrying out cross-border goods production or trading and are able to make repayment by their own revenue. Other loans in foreign currency at the request of credit institutions must obtain the central bank’s approval in writing. Moreover, these lenders must make monthly reports on foreign loans to the central bank.
Hence, the circulars aim at many targets. Firstly, they facilitate strict control over deposit rate ceiling and credit growth quota implementation of banks, raising effects of macro policies and reducing risks for the system. Secondly, the central bank aims at management of lending in foreign currency, dollarization reduction and foreign currency flow control.
(Source: SGT)
