From October 17, 2022, how will the foreign exchange rate band be adjusted by the State Bank?
What is a non-bank credit institution?
According to Clause 4, Article 4 of the Law on Credit Institutions 2010, a non-bank credit institution is defined as a type of credit institution that conducts one or several banking operations under the Law on Credit Institutions, except for activities of accepting deposits from individuals and providing payment services via customers' accounts. Non-bank credit institutions include finance companies, financial leasing companies, and other non-bank credit institutions.
A credit institution is defined as an enterprise that conducts one, several, or all banking activities. Credit institutions include banks, non-bank credit institutions, microfinance institutions, and people's credit funds.
Non-bank credit institutions operate within the legal framework specified for credit institutions as outlined in Article 90 of the Law on Credit Institutions 2010:
Permitted Scope of Activities of Credit Institutions
1. The State Bank shall specify the scope, type, and content of banking operations and other business activities of credit institutions in the license granted to each credit institution.
2. Credit institutions are not allowed to engage in any business activities other than the banking operations and other business activities stated in the license granted by the State Bank to the credit institution.
3. Banking operations and other business activities of credit institutions specified in this Law shall be implemented under the guidance of the State Bank.
From October 17, 2022, how will the State Bank adjust the foreign exchange rate margin?
How is the spot foreign exchange rate margin of the Vietnamese Dong adjusted?
Based on Article 1 of Decision 1747/QD-NHNN regarding the adjustment of the spot buying and selling foreign exchange rate margin of the Vietnamese Dong against foreign currencies as follows:
Banks, non-bank credit institutions, and foreign bank branches engaged in foreign exchange trading and service provision (hereinafter referred to as permitted credit institutions) shall determine the spot buying and selling exchange rates of the Vietnamese Dong against foreign currencies based on the following principles:
- For the U.S. Dollar (USD): The exchange rate must not exceed a margin of ±5% (five percent) compared to the central exchange rate announced by the State Bank of Vietnam applicable on the trading day.- For other foreign currencies: As determined by the permitted credit institution.- The difference between the buying and selling exchange rates is determined by the permitted credit institution.
Why did the State Bank decide to adjust the foreign exchange rate margin?
Recently, the State Bank explained its decision to adjust the spot USD/VND exchange rate margin from ±3% to ±5% as follows:
The State Bank highlighted that from the beginning of 2022, the U.S. Federal Reserve (Fed) and many major central banks (NHTW) have accelerated the tightening of monetary policies, rapidly increasing policy rates. Additionally, the Russia-Ukraine conflict has further disrupted global supply chains, leading to significant increases in fuel and commodity prices, while inflation in many economies has exceeded controllable levels, causing substantial volatility in both international and domestic markets.
In response to these conditions, the State Bank has proactively and flexibly implemented synchronized tools and measures to maintain the stable and smooth functioning of the monetary and foreign exchange markets, thereby contributing to macroeconomic stability, controlling inflation, and supporting the goals outlined in the socio-economic recovery and development program under Resolution 43/2022/QH15 and Resolution 11/NQ-CP 2022.
To proactively adapt to the unpredictable movements of the international market and align with the tightening monetary policies and interest rate hikes by the Fed and other central banks globally, on October 17, 2022, the State Bank issued Decision No. 1747/QD-NHNN 2022 on the spot exchange rates between the Vietnamese Dong and foreign currencies for permitted credit institutions.
The spot exchange rate margin between the Vietnamese Dong and the U.S. Dollar (USD) has been adjusted from ±3% to ±5%. The State Bank will continue to closely monitor market developments, coordinate monetary policy tools synchronously, and be ready to sell foreign currency to stabilize the market.
When does the decision to adjust the USD/VND exchange rate margin take effect?
According to Article 2 of Decision 1747/QD-NHNN 2022 regarding its effective date:
This Decision takes effect from October 17, 2022, and supersedes Decision No. 1636/QD-NHNN 2015 on the spot exchange rates between the Vietnamese Dong and foreign currencies for permitted credit institutions.
Thus, the new exchange rate margin increased by ±2% is applicable from October 17, 2022.
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