Sunday, 13/10/2024
   

Credit limit for large customers to be gradually reduced over next five years

Banks will have to gradually reduce the credit limit for large customers over the next five years to meet regulations under the new Law on Credit Institutions.
A bank teller counts money at a transaction office in Hà Nội. The credit limit for a customer will be reduced from 15 per cent to 10 per cent in 2029 and for a customer and his/her related parties from 25 per cent to 15 per cent. — Photo cafef.vn
A bank teller counts money at a transaction office in Hà Nội. The credit limit for a customer will be reduced from 15 per cent to 10 per cent in 2029 and for a customer and his/her related parties from 25 per cent to 15 per cent. — Photo cafef.vn

Under the Law on Credit Institutions, which took effect last month, over the next five years, a customer's credit limit will decrease by 1 per cent every year and 2 per cent for a customer and his/her related parties.

Specifically, over its first year of implementation, the credit limit for a customer will fall from the current 15 per cent to 14 per cent of equity and for a customer and his/her related parties from the current 25 per cent to 23 per cent of equity.

The credit limit will then be gradually reduced until 2029, when it will be 10 per cent for a customer and 15 per cent for a customer and his/her related parties.

According to the State Bank of Vietnam (SBV), the credit limit regulation for customers and their related parties have been clearly defined according to the roadmap, in order to control risks and maintain financial stability in the banking system.

In addition, the new policy will also promote the accumulation of equity capital, contributing to the sustainability and development of the banking industry.

According to experts, banks which have the credit limit to customers exceeding the allowed ratio under the new regulation will face pressure to restructure loans for this customer group.

The banks’ outstanding loans may also decrease because this customer group must find other capital sources to pay off existing loans to meet the ratio under the new regulations.

According to Dr. Nguyễn Hữu Huân, a lecturer at HCM City University of Economics, banks with high outstanding loans for large customers will have to reduce these loans and find other customers to compensate.

Meanwhile, large corporations must accept a reduction in outstanding loans. It means they will have to shrink business activities, or seek additional capital from other banks, Huân said.

Despite the impacts of the policy, Nguyễn Quốc Hùng, general secretary of the Vietnam Banks Association, believes the five-year roadmap from 2024 to 2029 for banks to reduce credit limits is appropriate.

He expected that banks would unite to deploy lending so that all people and enterprises could have access to bank loans and there would be no fear of lack of capital for large projects.

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