Circular No. 06/2023/TT-NHNN: A “strong remedy” for credit.

08:22, 12/09/2023

On June 28, the State Bank of Vietnam (SBV) issued Circular No. 06/2023/TT-NHNN amending and supplementing a number of articles of Circular No. 39/2016/TT-NHNN dated December 30, 2016 of the SBV Governor regulating lending activities of credit institutions and branches of foreign banks to customers (Circular No. 06).

With its groundbreaking new regulations, this circular is seen as a powerful boost to credit operations.

One of the most notable points in Circular No. 06 is the ability for customers to borrow from one bank to repay another. Specifically, according to Circular 39, borrowing to repay loans at other credit institutions was not permitted, except for early repayment of loans for business operations, with a loan term shorter than the remaining term of the old loan and without restructuring. However, in Circular 06, the limitation "for business operations" is no longer mentioned. The other two conditions regarding the term and without restructuring remain unchanged. Banks can now lend to customers to repay loans at other banks for purposes other than business operations, such as loans for purchasing houses or cars.

Officials from the Agricultural and Rural Development Bank, Lak District Branch, inspect the effectiveness of loan disbursements by customers in Lien Son town.

This is a very "lenient" regulation, bringing both immediate and long-term benefits. First of all, Circular 06 will certainly create a wave of interest rate reductions for loans by banks. And in fact, immediately after this circular came into effect, a series of banks implemented interest rate reductions. This will significantly contribute to unblocking the flow of money and boosting credit growth, which is currently very low. In the long term, it will create a fair and equitable competitive environment among credit institutions, which will benefit not only customers but also the economy as a whole. Because in the context of fierce competition and deep international integration as it is today, if banks do not want to lose customers, they must "reinvent" themselves. Banks will have to try to retain good customers and attract new customers using interest rates and service quality. To have those tools, banks must do everything possible to reduce input capital costs; Implement significant reforms to improve the quality of its services.

Besides the benefits mentioned above, Circular 06 also poses significant challenges for both banks and customers. The wave of customers transferring their debts from high-interest rate banks to lower-interest rate banks, if not handled carefully, could easily lead to banks engaging in the buying and selling of each other's bad debts. If the customer's debt is overdue and classified as bad debt, the bad debt may be erased after the loan is repaid, but the nature of the debt may not necessarily change. Meanwhile, for borrowers, Circular 06 will create opportunities to access lower-interest loans at other banks more easily. However, borrowers should carefully consider the future floating rate margin before deciding to transfer their loan to another bank.

It can be said that Circular 06 will create a vibrant "race" among banks to attract customers with increasingly lower and more substantial interest rates. This will contribute to boosting credit growth and capital for the economy. The remaining issue is how to "utilize" it to achieve the most tangible and sustainable results, a matter for each bank and borrower.

Jiangnan

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