Foreign currency lending abolished – impact on enterprises

July 19, 2019 | 14:47
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Enterprises can borrow money in Vietnamese dong (VND) and then purchase foreign currency for payment when they need the capital to import input materials, say commercial banks.
foreign currency lending abolished impact on enterprises
The end of lending in foreign currencies will not affect the revenue and profit of enterprises.-Photo cafef.vn

According to Circular 42/2018 issued by the State Bank of Viet Nam (SBV), short-term foreign currency loans to exporters who need to import goods and services in order to implement goods production and trading plans serving domestic needs were stopped on April 1, 2019.

Commercial banks will have to stop lending foreign currency to enterprises in the medium and long term to pay for importing goods and services from October 1, 2019.

Chairman of the Vietnam Animal Feed Association Le Ba Lich said, every year, enterprises working in the animal feed industry often spend about US$4 billion on corn, soybean and wheat imports.

Currently, if commercial banks lend US dollars (USD) with interest rates of 2.8-4.7 per year (in the short term) enterprises find it relatively “easy to breathe”. However, if they have to borrow in VND with 7-9 per cent interest per year to buy USD for import orders, it will increase financial costs, Lich said.

A representative of HSBC's corporate department said that as they can no longer borrow in USD, import-export enterprises will generally have to borrow in local currency. However, for export enterprises with foreign currency revenues, they can sell foreign currency for VND to help reduce borrowing costs.

Particularly for enterprises without foreign currency revenue, because the VND/USD exchange rate increases by 1-2 per cent each year, the cost of VND loans won’t increase much compared to USD loans. Moreover, the current interest rate for VND loans at many commercial banks is quite low (6-8 per cent per year for short term), the representative added.

The forex market is also convenient and many banks are still applying solutions to support payments for importers by deferred payment letters of credit. Therefore, stopping lending in foreign currency will not affect the revenue and profit of enterprises.

According to the analysis of financial experts, the gradual narrowing of the demand for foreign currency loans by the SBV is necessary and consistent with the Government's anti-dollarisation roadmap. Since then, gradually shifting the relationship of borrowing foreign currencies to buying and selling relations, ending the foreign currency lending will minimise the distortion in the foreign exchange market when a series of free trade agreements are implemented.

VNA

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