Foreign bankers issue blunt warning to Vietnam
HANOI - Foreign bankers in Vietnam bluntly warned Hanoi on Tuesday that planned draconian lending rules could lead to pullouts and job losses.
Major state-owned corporations and foreign-invested firms would also feel the pinch as the flow of credit dried up, they added.
``There would be a major impact in the effectiveness of a number of companies in their access to working and/or project capital in Vietnam,'' said a senior foreign banker who wanted to be unidentified.
``It's a potential enormous bombshell to so many people. It's a potential disaster,'' he said, adding that foreign banks would be forced to re-evaluate operations in Vietnam.
The central State Bank of Vietnam is drafting rules that from October 1 will limit banks -- foreign and domestic -- to maximum loans to single customers equivalent to 15 percent of their registered capital.
Existing rules include a cap of 10 percent, but foreign banks can obtain an exemption if their head office agrees to support all loans that exceed the limit.
The central bank's chief inspector has written to foreign banks with branches in Vietnam demanding information by May 31 on what measures will be taken to reduce lending exposure and cut credit that exceeds the new limits, foreign bankers said.
A senior State Bank official, who declined to be identified, said the law would have to be followed.
``We cannot say anything about (the law's impact)... When the government issues the decree to guide the law's implementation, everything will be clear,'' he said, without elaborating.
Foreign bank branches in Vietnam have registered capital of between $15 and 20 million, and future lending would be limited to a maximum of $2.25-3.0 million per customer.
``The possible consequences are that all banks will reassess their strategy for being in Vietnam and it could lead to massive downsizing in foreign banks and job losses,'' one foreign bank manager said.
The senior banker said loans worth under $2 million were not cost effective.
He said his bank would have to withdraw support from major state firms and Vietnamese banks, and shift the focus to large volume, low value facilities in direct competition with local banks.
``The alternative to escalating competition at the low level would be to withdraw from the corporate lending business, including trade services, payments and treasury,'' he said.
David Manson, chief executive for Standard Chartered Bank in Vietnam, said under the new rules his bank would have to scale down its credit exposure.
``We take the issue seriously and have written to the State Bank identifying our concerns over the general impact to the economy and the general provision of credit into the market,'' he told Reuters.
Another foreign bank manager said the new rules would have a damaging impact on trade, with companies unable to obtain letters of credit that exceeded their bank's 15 percent limit.
He said Petrolimex, a major state importer of refined oil products, takes out letters of credit worth around $50 million each month, with each LC worth $5-7 million -- an amount that would in future need a syndicate of two or three banks.
Allan Marlin, general manager for ANZ Bank in Vietnam, said he had also written to the central bank to outline the likely consequences of the new rules.
``This really is an extremely serious turn of events. We consider the matter so important that we have written to the State Bank to explain our concerns... Not only on how it effects foreign banks but also customers that deal with us,'' he said.
A Western lawyer said the legislation would raise legal questions on existing loan contracts, but most seriously could be interpreted as ``creeping expropriate of business'' that would be at odds with international treaties signed by Vietnam.
``(Creeping expropriation) could come from regulations which step by step make it impossible to conduct business or at least let business have the chance of being profitable,'' he said.
By Andy Soloman - REUTERS, May 26, 1998.
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