FX fears give firms a wobble

December 28, 2012 | 10:09
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Import-export firms are anxious about key foreign currencies’ lending restrictions to bite from 2013.

Under State Bank of Vietnam (SBV) Circular 03/2012/TT-NHNN dated March 3, 2012, from January 2013 commercial banks can only lend in foreign currencies to businesses showing proof they have income-raising sources in foreign currencies sufficient for loan repayments. Otherwise, firms need to acquire SBV relevant lending papers.

This means several dozen thousand firms resorting to short-term dollar lending from banks to feed their business would be in a fix.

“Lending rates in the home currency in Vietnam remain high compared to regional countries.

Thereby, firms usually want to source loans in foreign currencies with more affordable costs.

Abruptly abolishing this lower-cost capital channel would put firms in the woods,” said the deputy general director of a commercial joint stock bank, adding that the SBV should consider postponing foreign currencies’ lending restrictions until dong-denominated lending rates fall below 10 per cent, per year.

The Vietnam Association of Seafood Exporters and Producers (VASEP) said each seafood exporter would incur VND20-50 billion ($950,000-$2.3 million) more in borrowing costs each year once the SBV’s lending restrictions came into force.

Apart from VASEP, diverse business associations covering food, textile-garment, rubber, leather and footwear, pepper and cashews reportedly voiced their proposal to source SBV approval to delay the application of lending restrictions to the end of 2013.

Tien Giang Food Company general director Le Thanh Khiem said food businesses often took loans in home currency at 12-15 per cent per year interest rates, two to three-fold more than dollar lending.

“In response to firms’ proposals the Ministry of Industry and Trade (MoIT) has asked the SBV to delay enforcement of Circular 03 to the end of 2012, but has yet to get any feedback,” according to a MoIT source.

In fact, this is not the first time firms expressed concerns over Circular 03 regulations. In the bank-business dialogue meeting in late July 2012, SBV chief Nguyen Van Binh said Circular 03 would come into force as proposed if the economy showed brighter signs at ending of 2012. Otherwise, enforcement will be held some time later.

Industry experts, however, assumed delaying enforcement of Circular 03 was just a stopgap solution. In the long-term, firms needed to become well prepared when the SBV tightens lending requirements.

vir.com.vn

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