How is the refinancing interest rate for commercial banks adjusted? For what purposes does the State Bank of Vietnam refinance commercial banks?
What is the refinancing interest rate?
According to the provisions of Clause 1, Article 11 of the 2010 Law on State Bank of Vietnam, refinancing means a form of extending credits by the State Bank of Vietnam, aiming to provide short-term capital and payment instruments for credit institutions.
The State Bank of Vietnam shall provide for and effect the re-financing to credit institutions in the following forms:
+ Granting loans secured by the pledge of valuable papers;
+ Discounting valuable papers;
+ Other forms.
Refinancing interest rate is the interest rate the State Bank of Vietnam applies to refinancing operations for commercial banks. At the same time, the interest rate on the overdue refinanced principal is 150% of the applicable interest rate on the refinance.
The State Bank of Vietnam shall announce the refinancing interest rate, basic interest rate and other interest rates to administer monetary policy and combat usury.
In case of abnormal developments in the money market, the State Bank of Vietnam shall prescribe the interest rate management mechanism applicable in the relationship between credit institutions with each other and with customers, and other credit relationships.
How is the refinancing interest rate for commercial banks adjusted?
According to Decision No. 1809/QD-NHNN in 2022, the State Bank of Vietnam stipulates the refinancing interest rate for commercial banks with adjustment compared to Decision No. 1606/QD-NHNN dated September 22, 2022.
According to that, Decision No. 1809/QD-NHNN in 2022 on the refinancing rate, rediscount rate, overnight rate for inter-bank electronic payment, and interest rate for loans for covering the capital shortfall regarding clearing of the state bank of vietnam for credit institutions.
Thus, increasing the refinancing interest rate from 5.0%/year to 6.0%/year; discount rate from 3.5%/year to 4.5%/year; the interest rate for overnight lending in interbank electronic payment and lending to cover capital shortfall in clearing payment of the State Bank for credit institutions from 6.0%/year to 7.0%/year.
This interest rate applies from October 25, 2022.
How is the refinancing interest rate for commercial banks adjusted? For what purposes does the State Bank of Vietnam refinance commercial banks?
For what purposes does the State Bank of Vietnam refinance commercial banks?
According to Article 4 of Circular No. 24/2019/TT-NHNN, the State Bank of Vietnam (SBV) refinances loans in the form of on-lending on credit institution’s credit-related documents to meet the following purposes:
- Supporting credit institutions in paying deposits to personal and corporate customers (including other credit institutions, foreign bank branches), repaying borrowed funds to other credit institutions or foreign bank branches (hereinafter referred to as liquidity support).
- Providing financial support for loans granted to industries or sectors that Government’s Decrees prescribe that SBV provides with support policies through monetary policy tools (hereinafter referred to as loan support for promoted sectors or industries).
What conditions must commercial banks meet to be refinanced by the State Bank of Vietnam?
Refinancing for liquidity support purposes:
According to Article 12 of Circular No. 24/2019/TT-NHNN on conditions for refinancing for liquidity support purposes:
SBV shall consider issuing its decision on refinancing and extension of refinancing in the form of on-lending on credit-related documents to credit institutions fully meeting the following conditions:
- They are facing solvency difficulty and are not going into special administration.
- They have undertaken that they do not have or have already used up valuable papers mentioned in the list of valuable papers accepted for use in SBV's transactions as of the date of submission of their application forms for refinancing or refinancing extension, and that loans mentioned in checklists of credit-related documents (i.e. checklists of loans referred to in Appendix No.03 hereto) for refinancing or refinancing extension purposes meet standards stipulated in Article 13 of Circular No. 24/2019/TT-NHNN in full.
Refinancing for the purpose of loan support for promoted sectors or industries:
According to the provisions of Article 16 of Circular 24/2029/TT-NHNN on conditions for refinancing for the purpose of loan support for promoted sectors or industries as follows:
SBV shall consider issuing its decision on refinancing in the form of on-lending on credit-related documents to credit institutions fully meeting the following conditions:
- They are not going into special administration or subject to early intervention regimes or measures against violations as prescribed in Article 11 of Circular No. 24/2019/TT-NHNN.
- They comply with prudential ratios prescribed in clause 1 of Article 130 in the 2010 Law on Credit Institutions (amended and supplemented by Clause 23 Article 1 of the 2017 Law on Amendments to the Law on Credit Institutions), and follow SBV’s instructions, within 12 consecutive months before the date of submission of their Applications for refinanced loans.
- They have undertaken that they do not have or have already used up valuable papers mentioned in the list of valuable papers accepted for use in SBV's transactions as of the date of submission of their application forms for refinancing, and that loans mentioned in checklists of credit-related documents required for refinancing meet standards stipulated in Article 18 of Circular No. 24/2019/TT-NHNN in full.
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