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Central Bank redefines circular   2010-09-28 - Viet Nam News

Banks will be allowed to lend up to 25 per cent of their non-term deposits.

They will also be allowed to count their deposits at the State Treasury and loans on a three-month or longer term basis with other credit institutions as part of their reserves for lending. These regulations are congruent with Circular No19/2010/TT-NHNN issued by the State Bank of Viet Nam last night to supplement Circular No 13.

The original circular would have restricted banks from issuing loans from non-term deposits lodged by the State, State entities, the social insurance fund or commercial credit organisations.

Banks now will also be allowed to lend funds raised from bonds and deposits certificates. These moves are expected to free up the inter-bank market and provide more capital to banks.

These regulations will come into effect on October 1.

Other regulations in the Circular No13 are kept unchanged as it continues to prohibit banks from lending more than 80 per cent of their deposits. It also sets a 250-per-cent risk coefficient for all loans secured against securities or real estate.

The capital adequacy ratio, CAR, for Viet Nam’s banks is lifted to 9 per cent – from 8 per cent.

The central bank reported last Friday that 10 of 12 banks in Ha Noi have already raised their CAR to 9 per cent. The other two would try to meet the requirement before Friday.

National Financial Supervisory Council deputy chairman Le Xuan Nghia said in an economic seminar last week that: "It’s appropriate that the regulations in the circular are close to the Basel 3 standards but it is unnecessary for them to be stricter than Basel 3."

Basel 3 sets CAR at 8 per cent and risk coefficient for all loans secured against securities or real estate at 150 per cent.

Deputy chairman Nghia worried that implementation of Circular No 13 would have a detrimental effect on the capital, securities and property markets.

The Government said the purpose of Circular 13 was to ensure financial market stability and well-managed capital circulation in the latter part of this year and early next year.

Some banks pledged at a meeting of the Viet Nam Banks Association in HCM City last week to simultaneously cut deposit interest rates 0.4 percentage points to 11 per cent as soon as next Friday and no later than October 15 if the amended circular came into effect.

Circular 13 is intended to address shortcomings in various risk-management provisions.

The Fullbright Economics Teaching Programme’s Professor Huynh The Du argues the changes proposed in the circular are necessary to Viet Nam’s financial system.

The 9 per cent CAR and a 250 per cent risk coefficient would improve financial stability and prevent banks from entering too deeply into risky lending, he said.

But Nghia said that the solutions to the pivotal problems of Viet Nam’s financial market were not confined to a higher CAR but accurate accounting, financial statements and the valuation of assets.

The Prime Minister first ordered the central bank to review the Circular 13 which is intended to govern bank reserves about six weeks ago.

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