Vietnam: What is the interest rate on overnight loans in the interbank electronic payment from April 3, 2023?
What is the interest rate on overnight loans in the interbank electronic payment in Vietnam from April 3, 2023?
On March 15, 2023, the State Bank issued Decision 313/QD-NHNN 2023 on reducing the interest rate on overnight loans in interbank electronic payment and loans for making up fund deficits in clearing payment given by the State Bank of Vietnam to Credit Institutions and foreign bank branches from 7,0%/year to 6%/year.
At the same time, on March 31, 2023, the State Bank of Vietnam issued Decision 574/QD-NHNN in 2023 on the interest rate on overnight loans in interbank electronic payment and loans for making up fund deficits in clearing payment given by the State Bank of Vietnam to Credit Institutions and foreign bank branches. Accordingly, in Clause 3, Article 1 of Decision 574/QD-NHNN in 2023, the specific interest rate is:
The following interest rates are adopted by the State Bank of Vietnam, including:
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3. Interest rate on overnight loans in interbank electronic payment and loans for making up fund deficits in clearing payment given by the State Bank of Vietnam to credit institutions and foreign bank branches: 6,0%/year.
Thus, the interest rate on overnight loans in interbank electronic payment and loans for making up fund deficits in clearing payment given by the State Bank of Vietnam to Credit Institutions and foreign bank branches shall remain at 6%/year.
In addition, according to the provisions of Clause 2, Article 7 of Circular 29/2016/TT-NHNN, there are the following provisions:
- The interest rate applied to the overdue principal balance shall be equal to 150% of the overnight rate stated on the date on which a loan comes into existence;
- The interest rate applied to the deferred interest on an overnight loan shall be 10 %/year.
In what case will the interest rate on overnight loans be applied to credit institutions in Vietnam?
First of all, in Clause 2, Article 3 of Circular 29/2016/TT-NHNN, overnight lending in the interbank electronic payment refers to an arrangement in which the State Bank of Vietnam offers a credit institution a loan secured by financial instruments pledged as collateral within a specified time period starting at the end of the previous day and ending on the consecutive working day.
At the same time, according to the principles specified in Article 4 of Circular 29/2016/TT-NHNN as follows:
- Credit institutions shall have access to the State Bank of Vietnam's overnight loans used for paying off overdrafts at the end of the workday.
In addition, in Clause 2, Article 9 of Circular 29/2016/TT-NHNN on the implementation of overnight lending operations as follows:
- By the end of a working day, if a credit institution has an outstanding overdrawn amount, the State Bank of Vietnam (Transaction center) shall automatically transfer such amount to an overnight lending account, and notify that credit institution of its outstanding overnight balance. The credit institution shall be liable for overnight loan interest as defined in Clause 1 Article 7 hereof;
- The working day immediately subsequent to the date on which the amount of interest on the overnight loan arises, the credit institution shall pay the outstanding overnight principal balance and interest to the State Bank of Vietnam. The credit institution shall not be entitled to use overdraft as payment for the outstanding overnight principal balance.
By the end of the working day immediately subsequent to the date on which an overnight loan arises, unless the credit institution pays off the outstanding overnight principal, the State Bank of Vietnam (Transaction center) shall carry forward that outstanding overnight principal to the overdue overnight principal balance and impose the interest rate on it in accordance with Clause 2 Article 7 hereof, and finally send a notification of that overdue overnight principal to the credit institution.
How will credit institutions in Vietnam handle overdue principal balances?
Pursuant to Clause 1, Article 10 of Circular 29/2016/TT-NHNN on handling of overdue principal balance as follows:
On the working day immediately subsequent to the date on which an overnight loan arises, the State Bank of Vietnam (Transaction center) shall take action to recover the overdue overnight balance (collecting principal first and interest later) and notify such action to the credit institution. Such action is provided for as follows:
- Withdrawing funds from the VND checking account of the credit institution opened at the State Bank of Vietnam to recover overdue overnight balance;
- After such withdrawal, if the overdue overnight principal balance is not fully recovered, the State Bank of Vietnam (Transaction center) shall be entitled to request the depository of financial instruments to transfer the right to own these financial instruments from the credit institution in order to sell those which are unmatured, or contact issuers of these financial instruments to receive payments due on these financial instruments till full recovery of such balance. Priority order of financial instruments for the transfer of ownership right to the State Bank of Vietnam shall be based on the following criteria:
+ Those with a shorter term to maturity left shall be given higher priority than the others;
+ Those whose price at which they are pledged as collateral is higher shall be given higher priority than the others;
If, after the State Bank of Vietnam has sold unmatured financial instruments or has received payments from issuers of matured financial instruments, proceeds therefrom are greater than overdue overnight balances, the difference between such proceeds and overdue overnight balances shall be refunded to the credit institution;
- In case, after actions referred to in Point a, b of this Clause have been taken, overdue overnight balances have not been fully recovered yet, the State Bank of Vietnam (Transaction center) shall recover these balances by collecting other funds (if any) from the credit institution.
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