The Banking Working Group (BWG) has urged the State Bank of Vietnam, the country’s central bank, to slacken rules on credit provisions of foreign bank branches in a move to help minimize possible impacts on the local economy.
The central bank should allow foreign bank branches to continue carrying out short-term credit lines in the next two years for corporate customers borrowing capital in 2010, the BWG said.
This will help enterprises maintain operations while foreign bank branches have more time to cope with their financing agreements, it added.
BWG proposed the SBV allow foreign banks or branches to use foreign debt guarantees or a standby letter of credit from their headquarters in case the outstanding loan for a customer or a group of customers hit or nearly hit the credit cap under the local regulation.
This measure which is applied in many countries aims to finance capital for enterprises’ big projects as well as ensure credit risk management of banks, BWG said.
BWG also recommended eliminating loans guaranteed by local or foreign governments and export credit organizations from the credit line for one customer that borrows capital at a commercial bank.
The group asked the central bank to allow more than one branch of foreign banks in Vietnam to fix the credit line for a customer based on their combined capital.
The newspaper cited a source from the National Financial Supervisory Council as saying that it was asking the Government to reconsider the credit line cap for foreign bank branches.
The BWG made these proposals for fear of the Law on Credit Institutions, to be effective on January 1 next year, will cause restrictions for foreign bank branches in Vietnam in giving out loans.
The law specifies that the maximum credit line for a single customer is based on the capital of foreign bank branches, not their mother banks in foreign countries as currently permitted.
The credit line for a customer cannot exceed 15% of equity of commercial banks, foreign bank branches, people’s credit funds, and microfinance institutions. Meanwhile, the credit line for a customer and a related party cannot exceed 25% of equity of credit institutions.
This may impact strongly on the lending operations of foreign bank branches in Vietnam that have financed big projects using their mother banks’ financial resources. At the moment, legal capital of a foreign bank branch is only $15 million.
Members of the BWG are almost all wholly-foreign owned banks, representative offices of foreign banks, joint-venture banks and other credit institutions operating in Vietnam such as ANZ, Bank of Tokyo-Mitsubishi UFJ, Bangkok Bank, Calyon, CitiBank, Deutsche Bank, HSBC, JP Morgan, Maybank, Mizuho Corporate Bank, Natixis, Standard Chartered Bank, Societe Generale (SG), and United Oversea Bank (UOB). (Saigon Economic Times)
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