State Bank of Viet Nam governor Nguyen Van Giau yesterday denied the rumour, noting that borrowing to refinance earlier loans was banned under Circular No 2/2009/TT-NHNN, regulating the subsidized loan programme.

"But paying off loans early or taking out a new loan after paying off one that has matured is common," Giau said.

"Borrowers have to follow regulations of the central bank. If they intend to refinance an existing loan but do not have a feasible business project or meet credit requirements, banks cannot approve credit for them."

Giau said that the State Bank had teams of inspectors but preferred letting commercial banks implement the circular by themselves to commencing investigations. "Investigating too hastily could simply make banks afraid to lend [under the programme]," Giau said.

Giau said he had checked subsidized loans in over 11 provinces and found no violations.

"The first type of loan swap, under which borrowers pay back an old loan to get a new one at lower interest costs, should not be a cause for concern because it doesn't change the nature of the underlying debt," Asia Commercial Bank General Director Ly Xuan Hai told Viet Nam News.

"But if a bank intend to help enterprises swap loans in order to veil the bank's own bad debt portfolio, the central bank should worry about this, as the loan swap indicates a bank in an unhealthy financial situation."

If the bad debt ratio of a commercial bank gets too high, another banker in Ha Noi explained, the central bank has to investigate, which is something no bank wants.

"These banks and their borrowers might somehow collude to refinance these underperforming loans, making it a win-win relationship," said the assistant to a major Ha Noi bank's general director, on condition of anonymity.

To help enterprises

Enterprises have also sought subsidized interest loans to improve technology, but Giau said, "The first priority of the subsidized loan programme is to help enterprises stay in production, retain jobs and reduce prices.

"New investment or new job creation is another story, "he said. In addition to receiving a Government subsidy, enterprises needed to think about plans to reduce input costs and improve competitiveness.

"No policy can subsidize enterprises forever," Giau said.

Slate-owned banks and central credit unions have loaned VND115.7 trillion ($6.6 billion) since the loans at a Government-subsidized 4-percent interest rate were launched last month.

Private commercials banks have lent VND31.7 trillion ($1.8 billion), and foreign-invested banks and joint ventures the remaining VND4.5 trillion ($257.9 million).

Source: Vietnam News