Vietnam’s State Bank Loans Made To Non-Banking Credit Institutions
Non-banking credit institutions (“NBCIs”) are able to pledge their valuable papers to obtain loans secured by the State Bank of Vietnam (“SBVN Secured Loans”) without the Prime Minister’s approval. This change took place in October 2011 and the arrangement has remained more or less unchanged since then. It will be useful to review this simple but very important framework.
NBCIs operate under the Law on Credit Institutions. They perform several banking activities (receive deposits and extend credit). But they may not receive deposits from individuals, nor may they provide payment services through customers accounts. NBCIs include financial companies, finance leasing companies and other NBCIs. They may operate as either a joint stock company or a limited liability company.
Conditions to receive an SBVN secured loan
Generally, an NBCI may obtain an SBVN Secured Loan if it:
- is an eligible borrower and is not under special control of the SBVN;
- owns valuable papers which it will use to meet the standards described in section “Qualifications and valuable papers” below;
- has a borrowing purpose in line with the objectives of SBVN’s monetary policy;
- does not have overdue debt; and
- commits to use the SBVN Secured Loan only for those purposes described in its loan application and to repay the loan on time.
Qualifications and valuable papers
In order to be pledged to the SBVN, valuable papers must:
- be legally negotiable;
- be in the legal title of the borrower;
- have a remaining life at least equal to the term of the SBVN Secured Loan; and
- not have been issued by the borrower.
The pledged papers can be denominated in Vietnamese dong or in any other currency. The face value of the valuable papers is their proper value. From time to time, the SBVN can and does prescribe the priority ranking of valuable papers as collateral. The exchange rate of the face value of valuable papers is as currently stipulated.
Interest rate of SBVN secured loans
Interest on SBVN Secured Loans is equal to the refinancing interest rate applied by the SBVN at the time the loan is drawn down. The current refinancing rate is 4%. If the borrower fails to repay on time, the loan is subject to an overdue interest rate of 150 per cent of the agreed rate.
Period of loan
An SBVN Secured Loan term is less than 12 months and cannot exceed the remaining term of the pledged valuable papers. The SBVN may extend the SBVN Secured Loan if requested and depending on the purpose. SBVN’s overall monetary policy management at the time will also be a factor.
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