Central bank unhappy with loan package for transport infrastructure

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Central bank unhappy with loan package for transport infrastructure

Báo Thanh niên - 7/29/2015 1:51:03 PM

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The government's plan for banks to earmark a sum of money to lend for transport infrastructure works has raised concern at the State Bank of Vietnam, which warns this could affect its monetary policies, news website VnExpress reported Monday.

In a letter to the government, the central bank was quoted as saying that the package's effects are likely be "huge" considering that transport works often cost a lot of money and time.

It means that the package's value would possibly exceed the VND30-trillion (US$1.35 billion) property package, it said.

Instead of a banking loan package, the government should raise funds by issuing bonds and from official development assistance and tax revenues, it said.

The SBV's response comes several months after the government ordered it to collaborate with the Ministries of Finance and Planning and Investment to draft a plan for the loan package.

It said borrowers’ poor financial capacity is the main concern for banks when considering loans for transport projects.

Many projects are suspended or delayed because developers are unable to keep funding them, and as a result their costs increase and they have difficulty mobilizing more funds and repaying debts, it said.

It quoted banks as saying they prefer to lend to transport projects like they do for other projects instead of through a package. It means they will assess a project and the developer’s financial capacity to make a lending decision.

Two weeks ago central bank governor Nguyen Van Binh ordered related agencies to tighten control over lending to risky sectors, including transport projects that were getting increased credit from banks, VnExpress reported.

Transport projects undertaken in build-operate-transfer and build-transfer modes and requiring huge investments and a long time to break even are considered "especially risky".

Last year banks approved loans totaling nearly VND115 trillion ($5.2 billion) for the transport sector, the news website said quoting SBV figures.

In a proposal to the government in early July the Ministry of Transport estimated that transport infrastructure needs around VND288 trillion ($13.03 billion) over the next five years.

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