Will Businesses Be Affected If They Cannot Borrow Foreign Currencies?

10:49:46 AM | 23/10/2019

From October 1, 2019, credit institutions and branches of foreign banks will stop lending medium and long-term foreign currencies to some groups of customers and can consider lending in only four cases. Previously, a quarter of exporters could not borrow in foreign currencies for short-term needs.

This step materializes the anti-dollarization policy of Vietnam and gradually carries out the roadmap of shifting from mobilization - lending relation to purchase-sale relation of foreign currencies, as stipulated in Circular 42/2018 of the State Bank of Vietnam (SBV).

Four borrowable groups

According to Circular 42/2018/TT-NHNN that amends and supplements some articles of Circular 24/2015/TT-NHNN, after September 30, 2019, credit institutions and foreign bank branches will stop lending medium and long-term foreign currencies to make overseas payments for imported goods and/or services to meet domestic demands, even if borrowers have enough foreign currencies from their business revenues.

Credit institutions may consider lending foreign currencies to only cases below:

First, lending short-term loans for overseas payment for imported goods and services for making products exported through Vietnam's border gates when the borrowers have enough foreign currencies from their business revenue for loan repayment;

Second, short-term loans for petroleum importers licensed by the Ministry of Industry and Trade to settle payment for imported petroleum when they do not have or do not have enough foreign currency from business revenue to repay loans;

Third, short-term loans to meet domestic capital needs to make products exported through Vietnam's border gates when the borrowers have enough foreign currencies from their export revenue for loan repayment;

Finally, loans for offshore investment projects approved by the National Assembly or the Prime Minister and granted a certificate of offshore investment by the Ministry of Planning and Investment.

Unaffected importers and exporters

SBV Deputy Governor Dao Minh Tu said that the anti-dollarization policy has been carried out for many years, including lending restriction to gradually shift to foreign currency trading relations. With a stable economy, Vietnam has good foreign currency reserves and balances its long-term foreign currency position. These are favorable conditions for restricting foreign currency lending. This is also completely in line with government guidelines and orientation.

According to the SBV, the termination of foreign currency loans has been scheduled and should have been done sooner, but the SBV extended the time to facilitate businesses, especially those with specific conditions. Therefore, this is not a sudden policy for businesses but most of them approach this policy very proactively.

In addition, in order to support them when they are not allowed to borrow foreign currencies, the SBV allowed many commercial banks to buy and sell foreign currencies.

Businesses will have no effect when they shift from buy-selling relation to borrowing-lending relation of foreign currencies, he said. With balanced foreign currency status, banks are willing to buy and sell foreign currencies to businesses. The latter can borrow Vietnamese dong - a stable currency with good interest rates, if they cannot borrow foreign currencies. Thus, keeping the exchange rate policy stable, foreign currency buying/selling relation of importers and exporters is more favorable.

Dr. Can Van Luc, Chief Economist of the Bank for Investment and Development of Vietnam (BIDV), said, to meet their demand for foreign currencies, they will need to use more derivative instruments such as futures contracts and term contracts to minimize exchange rate risks.

Currently, many banks have provided derivatives to ensure that borrowers seeking to buy foreign currencies in the future are provided with forward contracts. This tool helps reduce risks for borrowers because future exchange rates have been determined from the beginning.

Quynh Chi