Propose that a customer cannot borrow more than 10% of the bank's equity
In Section 1 and Section 2, Article 136 of the Draft Law on Credit Institutions (CIs) amended on Credit Limits stipulates: “1. The total outstanding credit balance for a customer must not exceed 10% of the commercial bank's equity capital...; the total outstanding credit balance for a customer and related persons must not exceed 15% of the commercial bank's equity capital...”.
According to the explanation of the State Bank of Vietnam (SBV), the regulation on credit limit for one customer, one customer and related person at credit institutions is inherited from the provisions of the Law on Credit Institutions 2010. This aims to reduce the risk of credit concentration at credit institutions and at the same time ensure that credit capital is allocated to many customers, including small customers, increase access to credit for businesses and customers, and limit the concentration of credit capital for only large customers and customer groups.
The State Bank of Vietnam said: Current credit limits are being built on the basis of calculating the equity capital of credit institutions since 2010. Since 2010, the equity capital of credit institutions has increased significantly (state-owned credit institutions increased from 6 to 10 times, joint stock commercial banks increased from 3 to 10 times, foreign credit institutions/foreign bank branches increased from 2 to 8 times).
Lawyer Truong Thanh Duc, ANVI Law Firm LLC said: “In the past, the scale of banks was small, if the credit balance limit for a customer was 10%, it was too low, too little. Now that the scale of the bank's equity has increased dozens of times, this 10% level is reasonable to ensure the safety of the system, avoiding risks when focusing on lending to one customer,” Mr. Duc analyzed.
Discussing the draft Law on Credit Institutions at the meeting hall on the afternoon of November 23, 2023, delegate Nguyen Thi Viet Nga, National Assembly Delegation of Hai Duong province, also raised the issue of amending regulations on credit limits, reducing the maximum credit balance for a customer and related persons to limit the concentration of credit capital for a large customer or group of customers. However, the regulation to immediately reduce the credit limit to 10% and 15% compared to the current limit of 15% and 20% will also have a sudden impact on the operations of credit institutions, causing difficulties for credit institutions.
Many measures to limit risks for banks
In June, when examining this content, the National Assembly's Economic Committee proposed considering amending credit limits.
Because according to the Economic Committee, reducing the total outstanding credit balance will immediately affect the capital supply for the economy, especially in the context that the stock market and corporate bond market are not really stable capital mobilization channels for the economy and still have many risks.
The agency is also concerned that expanding the definition of related persons while simultaneously narrowing the total credit limit granted to a customer and related persons will have a double negative impact on both customers and banks. In addition, cases of syndicated loans or reporting to the Prime Minister will take more time and procedures because the credit limit is narrower than under current law.
"International practice stipulates a higher rate (about 25%) than that stipulated in the draft law," the Economic Committee stated.
"In the past, projects were small in scale so they did not need to borrow much from banks. Now, all projects cost tens of thousands or hundreds of thousands of billions. Reducing the outstanding credit balance will make projects starve for capital," a business representative worried.
Economist Dinh Tuan Minh, Research Director of the Center for Market Solutions for Socio-Economic Issues, is concerned: This is an issue that will greatly affect the production and business of enterprises. It is unclear whether the State Bank has reported on the impact of this proposal, and has grasped the overall data of the subjects affected by this new regulation. For enterprises that have borrowed beyond the limit, can they arrange their finances to comply with this new regulation without affecting their business operations? Can they find other credit channels to compensate for the reduction in capital?
Sharing with PV.VietNamNet, Master Tran Minh Phap, Passio Lawyers LLC, said: When studying the explanatory documents attached to the draft, he understood that the purpose of adjusting this ratio is to limit the concentration of credit capital for one or a single group of customers, thereby dispersing risks.
However, according to him, limiting the credit ratio for one customer will reduce the ability to access capital for projects with large capital needs. Enterprises will not be able to carry out large projects, key projects in the recovery and development phase of the economy. At that time, the "path" of providing syndicated credit is the perfect choice.
However, meeting the conditions for a syndicated loan is not easy at all because credit policies and risk appetites vary between credit institutions and to be granted credit, customers must certainly go through many procedures and meet many extremely difficult conditions.
For example, one bank agrees to provide capital because it assesses the project as good and low-risk, but another bank says no because their risk appetite is different. Customers who need large amounts of capital will then be stuck.
Reducing the credit limit ratio will also lead to a reduction in the amount of capital in the market, in the context that businesses that are already facing difficulties due to the impact of the Covid-19 pandemic and the global economic recession will now face even more difficulties because they do not have enough capital to maintain business operations.
To disperse and limit risks for banks, Mr. Phap stated his opinion: Instead of reducing the credit granting rate, consider the direction of stricter regulations on credit granting conditions compared to the present. When a good project meets the prescribed conditions, it will be provided with appropriate capital.
And when focusing capital on a good project, it will be more secure than spreading capital to many projects with high risks, this ensures the original purpose that the management agency is aiming for - Master Tran Minh Phap commented.
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