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Banking & Finance

Policy banks may benefit from slow disbursement of foreign funds

Released at: 17:45, 26/12/2016

Policy banks may benefit from slow disbursement of foreign funds

Photo: Duc Anh

Proposal made for foreign funds to be used to raise charter capital of Vietnam Bank for Social Policies and Vietnam Development Bank.

by Duy Anh

The government suggested raising the charter capital of two policy banks with the use of foreign funds during the fifth session of the 14th National Assembly (NA) Standing Committee on December 23.

Vietnam has been forecast to receive foreign funds totaling VND50 trillion ($2.2 billion) this year, according to Deputy Minister of Planning and Investment Nguyen The Phuong.

Disbursement, though, remains inefficient, with some localities not disbursing funds they received while others have overspent. As at November, only 74.9 per cent of funds had been disbursed. Nine ministries and agencies and 26 localities failed to disburse their foreign funds as planned.

The government has suggested revising the planning for foreign funds, by cutting out VND5.85 trillion ($257.2 million) that has not been disbursed and allocating VND14.2 trillion ($625.5 million) to other activities.

As part of the suggestion, the charter capital of the Vietnam Bank for Social Policies and the Vietnam Development Bank (VDB) may increase by VND2.7 trillion ($118.6 million) and VND1.78 trillion ($78.3 million), respectively.

Many within the Budget and Finance Committee have agreed, saying the proposal to increase the charter capital at the two banks has been made many times but not yet done. The financial boost, therefore, is believed to be necessary, allowing the two banks to fulfill their missions.

In contrast, the use of foreign funds at two State banks, if it happens, may be in conflict with the agreement governing the funding made by the Vietnamese Government as well as the funding principles in the Law of State Budget, according to Mr. Nguyen Duc Hai, Chairman of the Budget and Finance Committee.

He added that the granting of charter capital to the two banks, if approved, must be included in the government’s mid-term public investment scheme to 2020.

All foreign funding, including Official Development Assistance (ODA) or loans from international credit institutions, is committed to certain programs and activities. “With VND44 trillion ($1.93 billion) being set aside to fund specific programs, the disbursement of foreign funds cannot be allocated to the two policy banks,” Deputy Minister of Finance Tran Xuan Ha said.

Moreover, the second source of foreign funds, worth over VND5 trillion ($219.7 million), is meant to be for climate change projects and university education development programs.

After disbursement, only VND1.3 trillion ($57.1 million) from this source remains and can actually be allocated. However, when the climate change program kicks in, Deputy Minister Hai believes the government will have to allocate alternative funds.

“The Ministry of Planning and Investment also suggests using World Bank (WB) funds to enhance competitiveness via the building of the economy’s infrastructure, but the source has already been allocated into the State budget in 2017,” Deputy Minister Hai went on. “It is therefore very difficult to take out the funds for banks in 2016.”

Though understanding the need to increase the charter capital at the two banks, Deputy Minister Hai said the use of the State budget would be appropriate in 2016. “In 2017 it can work, but adjustments will have to be made,” he said.

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