Central bank takes tougher stance on loan rollover violations hinh anh 1The State Bank of Vietnam has reminded foreign credit institutions and bank branches of its rollover loan requirements (Photo: vneconomy.vn)

Hanoi (VNA) - The State Bank of Vietnam (SBV) has reminded foreign credit institutions and bank branches of its rollover loan requirements.

Under newly-issued document No 6960/NHNN-TTGSNH, the central bank once again reiterated that credit organisations and foreign bank branches must recover a loan’s entire principal and interest at the end of the lending period, as agreed in the credit contract with customers. They must not renew all or part of the original loan before the due date.

The requirement was first stated in a document issued two years ago.

This time, however, the SBV’s governor is taking a tougher approach in the inspection, examination, and litigation of cases violating regulations. The governor is instructing the State Bank branches in provinces and cities, and the agencies of banking supervision and inspection in Hanoi and HCM City, to take a stricter approach.

Two years ago, the decision was not welcomed by bankers.

Some argued that the central bank should not prevent rollever lending, calling it an international practice, widely recognised in the world. They said the lending form benefits enterprises by providing enough flexible capital to serve production and help reduce borrowing costs.

A representative of a bank told the Thoi bao Kinh te Vietnam (Vietnam Economic Times) that loan rollover isn’t caused by a customer’s incapacity to pay but rather from the fluctuating day-to-day requirements of business activities.

This type of lending is unlikely to increase credit risks, as it only applies to customers with good credit history and is based on their repayment capacity at each period of time.

However, a banking expert who requested anonymity said that there must be a reason for the central bank to remind the credit institutions and branches after two years.

Loan rollovers can make it hard to recognise bad debts and clarify assets. Therefore, banks sometimes end up provisioning their funds improperly and do so in a manner that is not in line with the new regulations recently issued by the SBV.

As a consequence, credit quality and loan performance might not be assessed correctly.

Though the decision, to some extent, might adversely affect banks and businesses’ operations, it is expected to improve transparency and create a foundation to assess credit quality more precisely.-VNA