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Banking & Finance

Small business affected by new lending circular

Released at: 16:00, 04/03/2017

Small business affected by new lending circular

Photo: vi.wikipedia.org

Lending rates from credit institutions to be fully floated except in five special fields, under new circular.

by Nguyen Quoc

A circular issued by the State Bank of Vietnam (SBV), which comes into effect on March 15, may affect small-sized enterprises as they will have to borrow from credit institutions at higher interest rates.

According to the circular, lending rates applied by credit institutions will be fully floated, except in five special fields: agriculture and rural development, high-tech industry, exports, small- and medium-sized enterprises, and support industries. In other words, lending interest rates on bank loans will be based on agreement between credit institutions and customers.

Accordingly, the SBV will remove the available lending rate cap stipulated under the Civil Code of 2015, which set a maximum lending rate of 20 per cent “unless otherwise specified by other relevant laws.”

The new circular, which replaces a 2001 decision, is expected to develop the country’s lending activities in accordance with international practices and also improve their transparency.

Mr. Nguyen Bang Tam, Chairman of the Enterprises Group in Ho Chi Minh City’s Binh Thanh district, was quoted by the “Dien dan doanh nghiep” (Enterprise Forum) newspaper as saying that the removal of the lending cap was in accordance with the market mechanism but may create difficulties for small-sized firms in accessing bank loans, as they have to compete with large firms.  

Deputy Chairman of the Vietnam Pepper Association, Mr. Phan Minh Thong, was quoted by the Vietnam News Agency as saying that a solution was to focus on building the financial reports of firms, which should be audited by prestigious organizations so they are able to obtain bank loans at reasonable rates.

Credit institutions often give high grades and credit worthiness to firms with financial reports audited by prestigious organizations, Mr. Thong said, adding that firms would also likely get their loans at good interest rates.

Representatives from the Small- and Medium-sized Enterprises Association said that, with this regulation, firms should consider mobilizing capital from the securities market if interest rates are too high.

Financial expert Nguyen Tri Hieu said that Vietnam needs to further develop its bond market to help firms mobilize medium- and long-term capital sources, instead of focusing only on bank loans.

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