Special loan with 0% interest rate: No worries about abuse when transferring power from Prime Minister to State Bank

Governor of the State Bank of Vietnam Nguyen Thi Hong

Discussing the Law on Credit Institutions (amended) this morning, delegate Nguyen Huu Thong ( Binh Thuan ) said that transferring the right to provide special loans with 0% interest rate from the Prime Minister to the State Bank of Vietnam will clearly demonstrate the role of the State Bank in supporting credit institutions (CIs) in a particularly difficult situation, in order to maintain the safety of the financial and banking system.

However, delegates are concerned that special loans with 0% interest rates without specific application conditions could lead to policy abuse, create risks, distort the competitive environment among credit institutions and increase pressure on the national budget.

Therefore, delegates suggested that it is necessary to specify in the direction: "The 0% interest rate only applies to credit institutions under special control, mandatory restructuring or having a systemic impact on national financial stability". At the same time, it is necessary to supplement the mechanism for monitoring, publicizing and evaluating the effectiveness of the use of this special loan source.

Delegate Nguyen Thi Suu ( Hue City) also proposed that it is necessary to clearly define the subjects and conditions to avoid abuse, and credit institutions prolonging the restructuring process to get 0% interest loans, causing disadvantages to the budget.

Similarly, delegate Nguyen Hai Nam (Hue) agreed with the decentralization and delegation of authority for special loans with 0% interest rate, transferring the decision-making authority from the Prime Minister to the State Bank. However, the delegate said that it is necessary to specify the conditions, mechanisms, processes, procedures, loan limits, responsibilities for loan management, etc.

“According to my projection, the demand for special loans is not small and lending is always risky. Large loans will affect the room for monetary policy management and capital for the economy. Therefore, should we also regulate the responsibilities of individuals and organizations when making special loans?”, delegate Nam asked.

Not worried about abuse and arbitrariness, delegate Nguyen Quang Huan (Binh Duong) said that, in fact, after the Law on Credit Institutions 2024 was promulgated, the State Bank issued Circular 37/2024/TT-NHNN with very detailed regulations on principles, subjects, conditions, procedures, etc. The delegate also agreed to give strong authority to the State Bank to meet practical requirements. However, the delegate said that it should be regulated in the direction that the State Bank has the right to decide on special loans with 0% interest rate but must report to the Government at the nearest meeting.

Responding to the delegates' comments, SBV Governor Nguyen Thi Hong said that the 2017 Law on Credit Institutions stipulates that the SBV has the authority to decide on special loans. However, the 2024 Law on Credit Institutions transfers the authority to the Prime Minister.

Based on the constantly changing reality of domestic and international credit institutions, along with the continuous development of technology, mass cash withdrawal incidents can occur at any time, requiring quick handling. Therefore, in the draft Law on Credit Institutions (amended), the Government proposed transferring authority to the State Bank for quick and timely handling, meeting practical needs.

Responding to the concerns of the delegates, the Governor affirmed that special loans with 0% interest rates are not continuous but only occur in very special cases.

The Law on Credit Institutions 2024 has added many regulations for early detection, early intervention, and remote intervention with credit institutions. Accordingly, “problematic” credit institutions will be put into early intervention status, requiring shareholders to comply with a series of requirements of the management agency. If falling into early intervention status, in case of lack of liquidity, these credit institutions can still get special loans from the State Bank but must pay interest (not 0% interest loans).

“The special loan with 0% interest rate only applies to cases where credit institutions are subject to mass withdrawals, because once a mass withdrawal occurs, it can spread throughout the system,” said the Governor.

According to the Governor, it is very difficult to specify specific conditions for special loans with 0% interest rate because in reality, each credit institution falls into a different situation in the market. In the US, there are banks that have been profitable for 2 consecutive years but mass withdrawal incidents still occur. Mass withdrawal incidents are often not due to weak credit institutions but sometimes due to rumors, technological problems, etc. When this incident occurs, it requires very quick handling.

Regarding special loans without collateral, according to the Governor, this case only occurs when the credit institution is really in difficulty and has run out of collateral. When granting special loans, the State Bank always requires collateral first, prioritizing highly liquid assets (mortgage contracts securing loans from credit institutions, government bonds held by that credit institution, etc.).

Source: https://baodautu.vn/cho-vay-dac-biet-lai-suat-0-khong-lo-lam-dung-khi-chuyen-quyen-tu-thu-tuong-sang-ngan-hang-nha-nuoc-d292635.html