SBV to ease foreign banks’ procedures

December 05, 2010 | 23:15
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The central bank is set to ease strains on foreign and locally incorporated banks in Vietnam, offering clear legal procedures for lending activities.

The State Bank of Vietnam (SBV) is drafting guidelines for the new Credit Institutions Law, in which restrictions on locally incorporated and foreign bank branches’ lending exceeding 15 per cent of their equity instead of their parent banks, as regulated under the new Credit Institutions Law, could be relaxed.

The SBV was composing a circular on procedures for accessing the prime minister’s approval for these types of loans, said SBV deputy governor Nguyen Dong Tien.

“A foreign bank branch might just need a written approval from the prime minister to provide loans exceeding the limit. That is the way out,” said Tien.

His comments came in response to last week Vietnam Business Forum (VBF) Banking Working Group’s recommendation for the SBV to provide a guideline for all banks on how to apply for the prime minister’s exceptional approval under Article 128, which the group put on top of agenda as it had asked the authority several times for an amendment.

The group represents over 30 international financial companies operating in Vietnam, comprising subsidiaries, branches and representative offices of foreign banks and consumer finance companies.

According to Article 128, the total credit balance provided to a customer shall not exceed 15 per cent of the locally-owned equity of lenders comprising a foreign bank branch or a commercial bank, in which the locally incorporated bank is considered a local commercial bank.

Tien said the lending calculation was based on the capital of each bank or branch, rejecting the group’s recommendation on allowing foreign banks with more than one branch in Vietnam to calculate the single lending limit on a consolidated basis of all the branches’ capital.

The Banking Working Groupchairman Brett Krause said lending limits to a single client were calculated based on the branch’s capital instead of the parent bank’s.

“For mitigating the impacts and ensuring smooth transitions, the State Bank should consider allowing foreign bank branches to maintain short-term credit limits as granted to corporate customers by December 31, 2012. These grandfathering arrangements will help our clients to maintain businesses and have sufficient time to seek out their financial arrangements to avoid any potential market disruptions,” said Krause.

Nguyen Dai Lai, vice head of the Credit Information Centre, said lending an amount exceeding the limit to a single borrower would require the prime minister’s written approval and was a reasonable solution to foreign bank branches.

“Domestic banks also needed to have approval from authorities to lend a single borrower more than 15 per cent of their chartered capital,” Lai said.

Foreign bank branches are playing a crucial role in providing onshore financing for foreign direct investors and infrastructure projects. 

By Bao Van

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