VietNamNet Bridge – How much do private, foreign-invested, and state-owned businesses and credit institutions owe to foreign lenders?

Don’t ask the government: No state management agency can give an exact answer to that question.

The majority of offshore loans are short term (less than one year), and valued at between several hundred thousand and several millions of dollars. The loans are provided under credit contractors or sometimes without credit contracts.

Thoi bao Kinh te Saigon, which conducted a survey on the capital sources for Vietnamese borrowers, has found that borrowing money from overseas has become more popular over the last two years, as the dong’s value stabilized against the greenback.

Under current law, businesses don’t have to report short-term loans to the State Bank, and they can extend the loans (albeit for less than one additional year) under different arrangements, with no need to sign loan contracts. As a consequence, the watchdog agency cannot reckon how much the country’s foreign debt amounts to.

Offshore loans can be undertaken in different forms. These include businesses lending to their partners; businesses borrowing money under the mode of deferred payment through letters of credit (L/C); foreign partners paying in advance for the goods they buy from their Vietnamese partners; foreign and Vietnamese partners agreeing on deferred payment plans for goods for 3-9 months; and businesses receiving commercial loans directly from foreign banks.

Import & export companies, both foreign and domestic, borrow money from each other under different arrangements. But, in the most general sense, the loans can be classified as either “cleanline” or “tradeline”.

Cleanline occurs when businesses lend money and do not care about what purposes the borrowers will put it to. By contrast, tradeline relates only to loans that support payments in import & export.

According to the State Bank, many businesses lend in goods, or even in kieu hoi (overseas remittance). Overseas remittance is understood as the money in foreign currencies sent by overseas Vietnamese to their relatives in Vietnam to help them out in various ways.

The central bank, in an effort to tighten control over offshore loans, has released Circular No. 12, stipulating the conditions under which businesses may borrow money from foreign sources without the government’s guarantee .

The circular requests borrowers make adequate and detailed reports about foreign loans, the changes with the loans and the debt payment. The State Bank reserves the right to revoke licenses for borrowing that have already been granted.

Observers note that Vietnamese businesses now tend to be attracted to offshore loans because the loans are offered at interest rates lower than those in Vietnam.

Typically, businesses now have to pay 4-7 percent per annum for dollar loans in Vietnam, while being charged only 2.5 percent per annum if borrowing from foreign sources.

Moreover, in order to borrow in dollars domestically, businesses must follow very complicated procedures as required by law to prove that they can earn foreign currencies to pay off the debts. By contrast, they are not required to do so when borrowing from overseas.

TBKTSG