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Central bank limits foreign loans for trading stock, real estate

By Quynh Trang   May 19, 2022 | 03:45 am PT
Central bank limits foreign loans for trading stock, real estate
An employee counts money at a bank in Hanoi. Photo by VnExpres/Anh Tu
The State Bank of Vietnam wants to limit short-term foreign loans for trading stock and real estate as it seeks to prevent speculative bubbles in the market.

The bank is collecting feedback on its draft circular to replace the current version with stricter conditions for receiving short-term foreign loans to ensure a national debt limit.

The draft will allow Vietnamese businesses to access short-term foreign loans for paying debt, but not for potentially risky purposes like trading stock and real estate.

This is because once the stock and real estate market grows way above its intrinsic value, there would be a high chance of creating an asset bubble, causing economic instability.

The central bank plans to ban the use of short-term foreign loans to buy projects or stakes in them, since mergers and acquisitions involve long-term investment and commitment.

It also plans to ban companies using short-term foreign loans to acquire projects or stakes in projects, as mergers and acquisitions are long-term activities.

Short-term loans could result in liquidity risks if used for medium- and long-term purposes, it explained.

Companies may borrow from foreign sources to buy stakes from project investors with the aim of reselling them for profit. This can further inflate the price bubble while delivering no real value to the economy.

The central bank also mulls regulations on foreign lending costs and short- and medium-term foreign lending conditions for banks.

The proposal came amid many businesses taking out foreign loans to capitalize on lower international interests, affecting the withdrawal limit and raising short-term debt.

To ensure the national debt limit approved by the National Assembly, the government has tasked the central bank with tightening regulations on foreign loans for private enterprises.

 
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