This mechanism and policy would take effect from January 18, 2020.
The State Bank of Vietnam (SBV) had just issued Circular No. 24/2019/TT-NHNN on refinancing in the form of on-lending under credit documents for credit institutions.
With this Circular, credit institutions had one more favourable channel, with clear conditions and mechanisms, agreeable terms and bases for capital regeneration.
Historically, credit institutions often accessed the capital of SBV through the refinancing channel based on valuable papers or through special bonds of Vietnam Asset Management Company (VAMC) or exceptional cases under a project programme designated by the government.
However, in reality, not all credit institutions had a large number of valuable papers to have access to refinancing from SBV, as well as through open market operation (OMO) favourably.
Accordingly, Circular 24 had just issued regulations on re-lending according to credit documents, which were the basis and foundation that were always available in credit institutions.
Specifically, Circular 24 detailed many points of conditions, levels, limits, interest rates, processes on this refinancing lending mechanism, which focused on some key points.
Lending in this refinancing channel was intended to support the liquidity of credit institutions, to support the source of loan to encourage the development, with a term of fewer than 12 months, at the refinancing interest rate that SBV prescribed in periods.
Notably, refinancing loans, the extension of refinancing loans in the form of re-lending according to credit documents prescribed in this Circular applied to loans denominated in dong, secured by assets following the law for all loan value and classified into group one of the credit institution.
In other words, when certain credit institutions had limited valuable papers to borrow to refinance capital from SBV, they could then use their current loans belonged to the group one (other than overdue debt), which had collaterals provided that such mortgages were not in the sectors or domains required by the government or SBV to restrict or control in each period to register for refinancing loans.
The limit for refinancing in this form was considerable, up to 60 percent of the total balance principal of the loans in the list of credit records for refinancing and extending refinancing.
The regulations were those, the foundation for creating conditions was actually existing and large-scale sources of loans of credit institutions, but SBV would consider depending on the time and case. The credit institutions must ensure the operational safety regulations, not subject to exclusive control.
Thus, with the above circular, SBV had facilitated the opening of granaries, supporting the source of the system, with more favourable conditions. The value of refinancing rate reductions in July 2017 and September 2019 would continue to expand.
Regarding the recent system of implementing new policies, the payment source of the State Treasury must be transferred to SBV, instead of being backlog in the system that directly regulated liquidity. This granary was quite large, which was reflected in the big four group financial statements in the reporting periods.
Accordingly, when transferred, SBV would promote its role in regulating system liquidity, especially in source supporting channels.
Usually, SBV supported the source through mortgage lending in the OMO, either through refinancing with strict conditions on assets or through the supply creation phase when buying net foreign currencies. The case of lowering the compulsory reserve almost had not been opened for many years.
At present, the refinancing channel in the form of re-lending according to credit records was a remarkable channel when overcoming the limitation of valuable paper assets at credit institutions that needed to regenerate sources.
