Under Circular No 11/2009/TT-NHNN published yesterday on the central bank's website, banks may use commercial papers as collateral to borrow money from the State Bank in foreign currencies, not just in Viet Nam dong as before.

The instruments must be negotiable and have a remaining term at least equal to the loan term.

The State Bank stated that the new regulation was designed to make negotiable instruments more flexible and effective as a refinancing tool, especially during the ongoing global financial turmoil.

Guaranteed loans

Another new State Bank regulation governs loans guaranteed by the Viet Nam Development Bank (VDB). Circular No 12/ 2009/TT-NHNN applies to all State-owned banks, commercial banks, joint-venture banks, wholly-owned foreign banks and bank branches in Viet Nam which make VDB-guaranteed loans to enterprises.

To be eligible for a VDB-guaranteed loan, the circular provides, enterprise and co-operatives must have a charter capital of no more than VND20 billion (US$1.12 million) and employ no more than 1,000 workers. They must not run business in consulting, securities or real estate development (excluding construction of low-income housing or housing for students or workers, or construction of cemeteries).

Banks will make loans based on the central bank's latest interest rate structure, their own financial capacity, prevailing market interest rates, and the goal of helping enterprises reduce manufacturing costs and promote business.

Within seven days of a bank receiving an application from an enterprise that meets all lending requirements, and accompanied by documents from the VDB guaranteeing the loan, the bank will make the loan.

Under the regulation, banks are responsible for supervising the use of the loan proceeds to ensure they are used honorably, effectively and securely. If an enterprise defaults on a loan, the bank can send a document to VDB within one day asking the VDB to reimburse under its guarantee. If the VDB refuses to do so, the bank is entitled to all assets of the enterprise held by VDB as collateral.

Source: Vietnam News