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Tight Offshore Loans Lead to High Cost

Putriyana by Putriyana
3 years ago
in Asia News
Vietnam Offshore Loan

Vietnam Offshore Loan

The Central Bank of Vietnam sets to give more red tape for its governing offshore loans. This actually could lead to higher costs in the country. As a result, it may dampen the foreign currency deals. So far, the State Bank of Vietnam has launched a draft proposing the new conditions for offshore loans. This includes the mandatory introduction to foreign exchange rate hedging. Plus it also contains a debt-to-equity ratio, narrow proceeds and borrowing amounts caps.

The published circular attempts to restrict borrowings parallel to the government’s annual debt limit. This allows enterprises and credit institutions to borrow more than $7.2bn in 2022 through offshore loans. The maturities, based on the circular, would be no longer than a year. A director at Fitch, Willie Tanoto argues that the measures in the draft regulation are quite reasonable. He adds that when the USD rate goes high, SBV takes pre-emptive measures to stabilise foreign currency. This is to prevent any currency mismatches and pressure from building up the balance payments.

However, these new rules would not affect the offshore borrowing that carries government guarantees. Companies with sufficient income in foreign currency for repayment and credit institutions could provide foreign exchange services. They are not in the mandatory hedging requirement. The required hedging loans are more than $500.000. This is actually to cover at least 30% of the drawdown amount especially for short term loans. Repayment instalment greater than $500.000 is also the minimum of 30%.

The hedging requirement would come into practice once it enters the law. Hai Nguyen from YKVN argues that he expects the condition to remain unchanged. This is because SBV ensures enough liquidity to repay in foreign policy.

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Tags: high costLoanoffshore loanthe central bank of vietnam
Putriyana

Putriyana

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