Outbound capital flows need to be managed strictly and cautiously to ensure they are consistent with the conditions of the Vietnamese economy. —VNA/VNS Photo

HÀ NỘI — The State Bank of Vietnam (SBV) has proposed a framework of strict conditions and appraisal procedures for overseas lending to strengthen oversight of capital outflows by economic organisations.

The proposal is part of a draft decision regulating the conditions, procedures and processes for reviewing and approving applications for overseas lending and guarantees by economic organisations.

According to the SBV, outbound capital flows need to be managed carefully to ensure they are consistent with the conditions of the Vietnamese economy, given the continued high demand for capital for investment and development of domestic production and business activities.

The decision is also necessary to create a clear legal basis for economic organisations that seek to lend abroad or provide guarantees for non-residents.

Under the draft decision, the Prime Minister will consider granting approval for overseas lending worth VNĐ1.6 trillion (US$60.8 million) or more.

For loans or guarantees associated with overseas investment projects, the loan amount or guarantee obligation must be within the lending and guarantee limit, and consistent with the investment capital scale recorded in the registration certificate of overseas investment or the project information declared in accordance with regulations.

As for lending activities not associated with overseas investment projects, the maximum loan amount is set at $200 million per year or the equivalent value in other foreign currencies.

Economic organisations may be considered for loans or guarantees to non-residents when they meet all the conditions related to the borrower, the financial capacity of the lender and the terms of the loan or guarantee.

Regarding eligible borrowers or guarantees, economic organisations may only conduct transactions with parent companies or subsidiaries abroad that share the same parent company as the lender or guarantor.

Eligible borrowers or guarantees may also include foreign governments or foreign organisations guaranteed by foreign governments under agreements between the Vietnamese Government and the governments of other countries.

For economic organisations providing loans or guarantees, the draft decision sets out several conditions regarding operating time and financial situation. 

The enterprise must be legally established under Vietnamese law and have been operating for a minimum of two years in the case of loans or guarantees related to overseas investment projects. For loans and guarantees not related to overseas investment projects, the minimum operating period is five years.

In the two consecutive years preceding the application for approval, the firm must have reported profitable operating results according to consolidated financial statements audited by an independent audit firms licensed to operate in Việt Nam.

When the loan or guarantee plan is prepared, the economic organisation must not have bad debts with the banking system and must have no outstanding tax debts to the State budget.

As for financial indicators, the draft decision requires enterprises to maintain a debt-to-equity ratio in accordance with current regulations. For non-State-owned enterprises, the maximum debt-to-equity ratio cannot exceed three times the equity recorded in the most recent quarterly or annual consolidated financial statement.

The draft decision also stipulates that economic organisations are prohibited from using foreign loans to lend abroad or provide guarantees to non-residents. If using loans from credit institutions or branches of foreign banks in Việt Nam, they must comply with current regulations on credit institutions' lending activities.

For loans or guarantees not related to overseas investment projects, the funding must be from self-generated foreign currency that comes from production and business activities permitted to earn foreign currency, according to regulations. 

Enterprises are not allowed to use foreign currency purchased with Vietnamese đồng from credit institutions or branches of foreign banks for overseas lending or guarantees. — BIZHUB/VNS