Interbank interest rate negotiation prohibited on abnormal fluctuations

The State Bank of Vietnam (SBV)’s Circular 21on lending, borrowing and trading valuable papers among credit institutions and foreign banks’ branches was released on 18 June in replacement for the obsolete guidelines attached with Decision 1310 that was put in circulation 11 years ago.

Accordingly, participants’ technical infrastructure, skilled staff and risk management must be available. Also, it is vital that restriction and suspension on such activities have yet been applied by the central bank. Importantly, loans overdue by 10 days and above since trading time must be absent from interbank trading.

Transactions must be conducted via the headquarters of credit institutions and foreign banks’ branches in order to compensate temporary shortage of compulsory reserves and bolster short-term debt repayment capacity.

Interest rates for lending, borrowing and trading valuable papers will be subject to the common consent among participants except in the event of abnormal market movements, in which circumstances the rates will be fixed by the central bank.

Also, credit institutions and foreign banks’ branches are required to make risk provisioning for such businesses.

The adjustment is expected to boost up interbank transactions as well as guarantee transparency, operational efficiency and safety.

 

Category: Finance