Tightening of foreign loans invested in securities and real estate in Vietnam

As part of strict management of foreign loans, the State Bank of Vietnam wants to limit short-term corporate borrowing in a bid to risk economic bubbles.

The State Bank is seeking comments on a draft circular to replace circular 12 with stricter foreign lending conditions to guarantee the limit of self-borrowing and self-payment of foreign debt of enterprises, thus guaranteeing only safe consumption of the national debt.

Restrict foreign lending to Vietnamese securities and real estate

One of the new contents is the regulation allowing companies to take out short-term foreign loans to pay debts incurred within 12 months, but not to borrow to exchange securities to be exchanged, buy capital contributions or shares. other units, purchase investment real estate, and receive project transfers.

The State Bank explained that the massive growth of the stock market and real estate poses great risks because it can create a situation of virtual capital and be the seed of macro-financial instability.

Amid short-term foreign loan flows need to be managed more tightly to limit reversal risk, State Bank of Vietnam sees need to prevent companies from borrowing overseas in the short term for purposes involving a potential risk of economic crisis. bubbles such as securities and real estate.

The operator also proposes not to allow companies to use short-term foreign loans to receive investment projects and purchase of shares, purchase of capital contribution due to the realization of a project or business acquisition, merger-acquisition are long-term activities.

If companies borrow short-term foreign capital to pay debts for the purpose of using medium- and long-term capital, it will create liquidity risks, going against the nature of short-term capital flows. only to deal with cash shortages. temporary.

If companies borrow short-term foreign capital to pay their debts for the purpose of utilizing medium- and long-term capital, this will create liquidity risks that run counter to the nature of short-term capital flows. term only to deal with temporary cash shortages.

In the event that the borrower receives a project transfer or purchases shares or purchases capital contributions from another company, but not for the purpose of project development or business management, but continues to transfer the project or selling shares to a third party, such buying and selling may also create price bubbles, does not create real value for the economy and should be limited.

Thus, the two cases of project transfer and purchase of shares and purchase of capital contribution have high risks, so according to the State Bank, the use of short-term foreign loans should not be allowed.

In addition to stricter management of foreign corporate loans, in the draft, the State Bank also sets a number of other regulations on the ceilings on foreign borrowing costs and the conditions for borrowing abroad. abroad in the short and medium term for the banks.

The revised draft circular was issued by the State Bank against the backdrop that many banks and companies have tended in recent years to increase foreign lending to take advantage of low interest rates in the international market. The fact that some companies are increasing the loans of parent companies and member companies affects the total target for net capital withdrawal limit in the medium and long term and the increase in the balance of short-term loans approved each year by the Prime Minister .

Therefore, in order to control and maintain safe debt thresholds approved by the National Assembly, the Prime Minister instructed the State Bank to more closely regulate private sector external borrowing (non-state guaranteed) .

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