Tightening foreign loans flowing into securities and real estate in Vietnam

In the context of strict management of foreign loans, the State Bank of Vietnam wants to limit businesses’ short-term borrowing for the purpose of risking economic bubbles.

The State Bank is collecting comments on a draft circular to replace Circular 12 with stricter foreign loan conditions in order to ensure the limit of enterprises’ self-borrowing and self-pay foreign debt, thereby ensuring only safe consumption of national debt.

Restricting foreign loans to Vietnam’s securities and real estate

One of the new contents is the regulation for enterprises to take short-term foreign loans to pay debts arising in 12 months, but not to borrow for trading securities for trading, buying capital contributions, or shares of other units, buying investment real estate, and receiving project transfers.

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

In the context that short-term foreign loan flows need to be managed more closely to limit the risk of reversal, the State Bank of Vietnam believes that it is necessary to restrict enterprises from short-term foreign loans for purposes with the potential risk of economic. bubbles such as securities and real estate.

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

If enterprises borrow short-term foreign capital to pay for debts with 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 support liquidity shortages. temporary.

If enterprises borrow short-term foreign capital to pay for debts with the purpose of using medium and long-term capital, it will create liquidity risks that go against the nature of short-term capital flows only to support temporary liquidity shortfalls.

In case the borrower receives a project transfer or buys shares or buys capital contributions from another enterprise, but not for the purpose of project development or enterprise management, but continues to transfer the project or sell shares to the third party, this buying and selling can also create price bubbles, does not create real value for the economy and should be restricted.

Thus, both the cases of project transfer and share purchase and capital contribution purchase 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 loans of enterprises, in the draft, the State Bank also sets a number of other regulations on foreign borrowing cost ceilings, and short-term and medium-long-term foreign borrowing conditions for banks.

The draft revised Circular was issued by the State Bank in the context that many banks and businesses in recent years have tended to increase foreign loans to take advantage of low-interest rates in the international market. The fact that some businesses increase loans from parent companies and member companies affects the total target of medium and long-term net capital withdrawal limit and the increase in short-term loan balance approved by the Prime Minister every year.

Therefore, in order to control and maintain safe debt thresholds approved by the National Assembly, the Prime Minister assigned the State Bank to more closely regulate foreign borrowing by the private sector (not guaranteed by the Government).