Foreign loans attractive with low guarantee fees from Government

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Foreign loans attractive with low guarantee fees from Government

According to Thoi bao Kinh te Vietnam newspaper, 90 percent of loans guaranteed by the Government are those of state-owned enterprises, while the other 10 percent belong to joint-stock companies and others.

At a recent workshop on public debt held by the National Assembly’s Finance and Budget Committee, financial experts explained that, after the problems of the giant group Vietnam Shipbuilding Industry Group (Vinashin) were discovered, it is necessary to reconsider guarantees on commercial loans.

Director of the Monetary Policy Department under the State Bank of Vietnam (SBV), Nguyen Ngoc Bao, stated at the workshop that the total loans guaranteed by the Government now account for seven percent of GDP, including five percent of domestic debts and two percent of foreign debts.

Bao noted that foreign debts tend to rise, while domestic debts tend to drop, which, according to him, needs analysis, especially in terms of whether or not the current situation comes in line with Vietnam’s policy on borrowing money.

SBV statistics show that, in 2005-2009, the volume of foreign loans guaranteed by the Government increased year after year. In 2005, the debt volume was $0.9 billion, while the figure rose by four-fold in 2009, reaching $3.986 billion. Meanwhile, the ratio of foreign debt on total Government’s debt rose to 14.27 percent in 2009, double the 6.4 percent level in 2005.

The foreign loans guaranteed by the Government has also tended to increase, from 6.4 percent in 2005 to 13.3 percent in 2008 and then 14.27 percent in 2009.

Bao suggested it would be good if the debts can be well-managed. However, if they cannot, the burden on public debt and on Vietnam’s international payment balance will become heavier.

Recent analyses released by government agencies show that foreign loans guaranteed by the Government mostly go to key fields of the national economy, such as oil and gas, electricity, cement and infrastructure. Most loans have been paid on schedule, with no difficulties in debt repayment.

However, the SBV representative noted that now a growing tendency is to borrow foreign loans with guarantees from the Government. This is blamed on the low Government guarantee fees that are much less than commercial banks’.

Currently, the Government’s guarantee fees applied to projects considered as having high payment capability are between 0.25 percent and 0.7 percent. Meanwhile, commercial banks’ fee levels are now at 0.6-0.75 percent per annum, if borrowers have mortgaged assets, and 1.3-1.5 percent per annum, if borrowers do not.

“This is clearly one of the reasons why demand for Government guarantees has escalated, Bao asserted. “In order to improve the situation, the guarantee fees set by the Government needs to approach market levels.”