The draft Law on Credit Institutions (amended) is proposing to reduce the total outstanding credit balance for a customer and related persons.
Accordingly, compared to the current law, the draft law has adjusted the total outstanding credit balance for a customer and the total outstanding credit balance for a customer and related persons from not exceeding 15% and 25% to 10% and 15% of the equity capital of commercial banks, cooperative banks, foreign bank branches, people's credit funds, and microfinance institutions, respectively; similarly, it has been reduced from 25% and 50% to 15% and 25% for non-bank credit institutions.
Commenting on this regulation, Dr. Le Dang Doanh, former Director of the Central Institute for Economic Management, said that credit limits should be based on specific research for each enterprise and each bank. “Each enterprise operates in very different conditions, for example, a karaoke entertainment enterprise will be different from an information technology enterprise, an agricultural enterprise will be different from a taxi transport enterprise. Therefore, a figure of 10 or 15% should not be applied to all enterprises,” he said.
According to Mr. Doanh, in the context of the COVID-19 epidemic not being over for long, the aftereffects and consequences are still great, businesses are still facing many difficulties, especially difficulties in capital, so applying additional credit restriction regulations will be "more harmful than beneficial".
Reducing credit limits will put both customers and banks at a disadvantage. (Illustration: CafeF)
Also discussing this issue, Associate Professor Dr. Dinh Trong Thinh did not deny the positive side of reducing credit limits as this will ensure the safety of bank capital and minimize risks by focusing on a number of large customers.
However, according to Mr. Thinh, the credit limit proposed in the Draft Law on Credit Institutions (amended) may be disadvantageous to both banks and businesses.
At that time, banks can only provide credit to customers up to a low maximum level. Capital disbursement in the market will decrease. Banks will also have more work to do when they want to disburse capital to other partners, and must appraise collateral assets and documents related to new loans.
As for customers (or businesses), in the context of the COVID-19 pandemic still causing many difficulties, capital mobilization channels such as securities and bonds have not yet played their role in capital mobilization, so bank capital is extremely important. While current lending conditions at banks are very difficult, the new regulations will make businesses borrow less capital, leading to capital shortages, affecting production and business activities.
An analyst: Adjusting towards reducing the maximum customer loan ratio will force businesses to approach many banks at the same time to ensure enough financial resources to implement the project. Financial costs will also be much higher, especially reducing the competitiveness of banks.
Even at present, the maximum limit regulation has caused difficulties for economic organizations. Many enterprises or large projects, due to insufficient credit capital, have to mobilize capital from many other sources. In addition, enterprises having to borrow from many banks, having to meet many different conditions of credit institutions, while not having a main source of funding, can also lead to many risks, when business operations are not favorable or disputes arise.
Large enterprises operating under the holding model, parent-subsidiary companies often have many projects being implemented at the same time, each project has a need to borrow capital. If member companies borrow from the same bank, the amount of capital borrowed will be very small, forcing them to divide the need to borrow or arrange for co-financing from many banks for a project to have enough capital to meet the need. This causes many difficulties and obstacles for business operations.
Previously, at the 5th session of the 15th National Assembly, the National Assembly's Economic Committee also proposed carefully considering amending these limits.
Because reducing the total outstanding credit balance will immediately affect the capital supply to the economy, greatly affecting businesses' access to capital, and increasing capital costs.
In addition, the Economic Committee believes that reducing the total outstanding credit balance may have a negative impact on Vietnam's FDI attraction. According to foreign business associations in Vietnam, if this regulation is applied, FDI enterprises that are borrowing in Vietnam at levels close to the maximum limits of 15% and 25% under the current Law will have to seek new sources of capital.
In fact, FDI enterprises will receive credit, first of all from banks with global relationships in Vietnam. Reducing the domestic borrowing capacity of FDI enterprises for these banks will cost more and make capital flow likely to be mobilized from abroad, thus making it less attractive to attract FDI.
Cong Hieu
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