Vietnam collects data for offshore lending regulation

The State Bank of Vietnam (SBV) is collecting opinions from organizations and individuals on the Prime Minister’s draft decision on offshore loans and guarantees for non-residents of economic organizations.

According to SBV, recently in Vietnam, economic organizations needed to lend abroad or learn related regulations. However, there are still no specific regulations and guidelines, and they must consult directly with the Prime Minister.

This is why the formulation and publication of the above decision is necessary. It would also create conditions for economic organizations wishing to lend abroad, ensuring that residents understand the criteria and procedures for applying for the Prime Minister’s approval.

In addition, it would help coordinate agencies to assess the content of related functions and tasks, as a basis for the Prime Minister to review and decide whether to approve or deny overseas loan applications.

This provision of the Ordinance on Foreign Exchange clearly shows the policy of strict and prudent management of foreign loans and guarantees for non-residents of economic organizations, in accordance with the economy of the country which still has many difficulties and limitations in terms of investment capital. The country concentrates capital for the development of national enterprises, thus guaranteeing growth objectives.

In addition, this policy is also in line with the prudent roadmap of liberalizing capital flows, following the guidance of the government as well as the recommendations of the International Monetary Fund (IMF) to avoid the risks that may arise.

Therefore, an important objective in crafting this decision was to establish a careful and rigorous review process for applications for offshore loans and guarantees for non-residents. It would conduct an in-depth review of the related areas of state management and the principles of prudent management mentioned above.

The draft decision sets out a number of basic principles for the implementation by economic organizations of foreign loans and guarantees for non-residents. Wherein, the foreign lending activities of economic organizations to support production and business as well as foreign investment activities do not affect macro security or socio-political security. It is not contrary to defence, foreign policy and the orientations of macroeconomic stability of each period.

Economic organizations granting offshore loans must comply with the provisions of the Decision, the law on currency, exchange, investment, taxation and other relevant laws. They must also comply with the laws of the country and territory of the borrower, the guarantor and relevant international treaties. They are solely responsible for the effectiveness and risks associated with offshore loans and guarantees for non-residents.

The organization must have operated for at least five years with profitable business operations with no bad debts and no outstanding foreign debts. They have no tax debt to the state budget for two consecutive years before the time of filing the application for loan or guarantee approval.

They must have an offshore loan and guarantee plan for non-residents approved by the competent authority in accordance with the law on the management and use of public capital to invest in production and business (in case the economic organization is a public enterprise).

This regulation aims to require economic organizations to prove their economic potential to grant loans or guarantees and not affect budget revenues, demonstrating self-responsibility in the decision and implementation of transactions for this service.

Regarding the criteria of the borrower, the surety belongs to one of the following groups: the parent company or member companies of the same system in the foreign countries of the lender; foreign government or a foreign organization guaranteed by a foreign government.

Foreign currency for offshore lending should be sourced from production and commercial activities, not by using foreign currency purchased from credit institutions or borrowed domestically and abroad.

VIET NAM NEWS/ASIA NEWS NETWORK

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