The draft's provision about retail credit financing caused many to infer that total outstanding loans for individual borrowers would be capped at VND6 billion (US$275,230). — Photo bizlive

HA NOI (Biz Hub) — A representative of the State Bank of Viet Nam has confirmed that individuals can borrow money from banks without any limit if they fulfil the banks' requirements.

The representative said this to resolve the misunderstanding caused by a draft circular on the capital adequacy ratio of credit institutions which was recently released by the central bank to elicit public comments.

The draft's provision about retail credit financing caused many to infer that total outstanding loans for individual borrowers would be capped at VND6 billion (US$275,230).

After the draft was made public, this provision triggered fears that if put into force, it would hamper credit growth and economic growth.

Nguyen Huu Nghia, Chief Inspector at the central bank, was quoted by the Government's e-newspaper as saying that individuals could borrow hundreds of billion dong if they were eligible.

Nghia said the draft regulation on the outstanding loan limit of VND6 billion would be applied to microfinance clients such as low-income individuals and households or micro-enterprises. Microfinance institutions provide financial services, mostly loans, to the poor.

Other financial institutions were not mentioned in the list of entities the circular would regulate, which included only commercial State banks, commercial joint stock banks, venture banks, foreign-invested banks and the branches of foreign banks.

This implies that the draft needs careful revision.

Nguyen Van Thuan, dean of the Finance Faculty of the HCM City Open University, told Nguoi Lao Dong (Labourer) newspaper that even if the VND6 billion outstanding loan limit was applied only to microfinance clients, the regulation would still be unrealistic as microfinance clients were poor and their loans often totalled a few dozen million dong.

Thuan said there should be no cap on outstanding loans for individuals; instead, the central bank could consider providing individuals loans equivalent to 50 per cent or 70 per cent of the value of mortgage assets.

Lawyer Truong Thanh Duc, chair of the legal club of the Viet Nam Banking Association, was quoted by the newspaper as saying that there were already regulations in place which put limits on loans to members of boards of directors, management boards and large stakeholders in firms.

As for other borrowers, the central bank should not place a limit on outstanding loans and should let them have loans based on their solvency and mortgages, Duc said.

The draft includes other changes, including the lowering of the capital adequacy ratio from the current level of 9 per cent to 8 per cent.

The draft circular is expected to improve the operational safety standard of commercial banks in Viet Nam as per the road map of implementation of the Basel 2 standards.

The new regulations are set to be applied from February 1, 2016, in 10 commercial banks which are preparing to pilot the Basel 2 standards. — VNS