Paving the way for excess loans

>> SBV’s credit growth target faces challenges

If firms wish to get excess loans from commercial banks in the future, they must now be prepared to satisfy the requirements stated above.

Door is open

The loan ceiling has been tightened by the Credit Institutions Law, which goes into effect on July 1, 2024. As a result, beginning January 1, 2029, the total outstanding loans to a customer and its associates will be reduced from 15% and 25% of credit institutions' equity, respectively, to 10% and 15%.

It should be mentioned that as soon as the draft Law on Credit Institutions was published, many organizations and individuals expressed concern that a reduction in the credit limit  would result in a decrease in customer numbers. It will make it difficult for them to get bank loans, so limit ing the growth of credit.

However, according to the State Bank of Vietnam (SBV), reducing credit limit s for a single customer and its stakeholders is intended to reduce the risk of credit concentration at credit institutions while ensuring that bank loans are allocated to multiple customers, including small ones, rather than concentrating loans for large ones or groups of customers, reducing risks to customer ethics as well as NPLs of institutions...

The SBV further stated that this does not limit  clients' access to credit because the scope of the Vietnam banking system has risen significantly, resulting in 10-15% of bank equity being relatively large. If a client's or their associates' capital demands exceed the credit limit , financial institutions may provide syndicated loans. In extraordinary circumstances, the Prime Minister will set the maximum credit limit .

As a result, on July 1, 2024, the Prime Minister published Decision No. 09/2024/QD-TTg outlining the terms and procedures for firms to get excess loans from banks.

>> Banks with the problem of promoting credit growth

Many conditions need to be met

Many experts in finance believe that both clients and credit institutions must fulfill a number of requirements for excess loans.

Customers must be eligible for bank loans as required by law, have no bad debt at credit institutions in the three consecutive years before the request for extra loans, and have a debt-to-equity ratio of no more than three times.

Furthermore, customers need loans to implement projects, business production strategies that are of important economic and social significance, fulfilling the task of socio-economic development, serving the essential needs of people's lives...; to carry out programs, projects as per investment policy decided by the National Assembly or the Prime Minister; to invest in priority areas in accordance with the Resolution of the National Assembly, Government on social and economic.

Not yet; credit institutions must assess the feasibility of the projects suggested for extra loans, as well as the customer's ability to repay the debt... "Businesses must have an effective business plan, a feasible project, a demonstrated cash flow to repay their debts, and notably transparent financial management... before they are assessed and approved by credit institutions to get excess loans," highlighted Assoc. Prof. Dr. Dinh Trong Thinh, a financial expert.

Meanwhile, credit institutions must follow the legal procedures for granting syndicated loans for projects proposed for excess loans, in which the syndicated capacity of credit institutions has not met the capital requirement of a client; or they must issue an invitation letter to at least five other credit institutions within at least 45 days, but no other credit institutions want to participate in syndicated loans.

Furthermore, credit institutions must fulfill the credit limit  and loan-to-security ratio requirements outlined in the regulations when proposing to award excess loans.

According to Assoc. Prof. Dr. Dinh Trong Thinh, not every firm is eligible for excess loans from banks and must fulfill all of the severe requirements outlined in Prime Minister's Decision 09/2024/QD-TTg.