Key amendments to Circular 39/2016 of the State Bank of Vietnam on lending activities in Vietnam
On June 28, 2023, the State Bank of Vietnam (SBV) issued Circular 6 (TT6/2023) amending Circular 39/2016 on lending activities of credit institutions (CIs) and foreign bank branches (CIs). Circular 6/2023 will take effect on September 1, 2023. Circular 6/2023 introduces stricter controls on the lending activities of CIs and foreign bank branches. In this post, we will summarize some key points of Circular 6/2023.
Addition of Prohibited Lending Purposes
Circular 6 specifies new situations in which FIs and foreign banks are prohibited from granting loans. These cases include:
New prohibited loan purposes
Notes
1.1. To deposit savings
1.2. To pay capital contributions or transfer capital in limited liability companies and partnerships.
Similar restrictions are stipulated in Circular 22/2019 on safety ratios (Circular 22/2019).
1.3. Capital contributions and the purchase of shares in unlisted joint-stock companies or joint-stock companies not registered for trading on Upcom.
According to Circular 22/2019, borrowers are permitted to take out short-term loans to purchase shares of both listed and unlisted companies;
1.4. Contribute capital pursuant to a capital contribution agreement, an investment cooperation contract, or a BCC contract to implement an investment project that does not yet meet commercial operation conditions at the time the loan decision is made.
1.5. Financial reimbursement (financial compensation) shall be provided, except in cases where the customer meets the following conditions:
1.5.1. The customer has used their own funds to pay for project implementation costs incurred within the past 12 months; and
1.5.2. The paid expenses are costs incurred from using borrowed funds from a credit institution (TCTD) in accordance with the capital utilization plan submitted to the TCTD for consideration of medium- and long-term loans to implement the aforementioned project.
Circular 6/2023 defines “financial compensation loans” as loans provided by credit institutions to customers to compensate for expenses already incurred or to reimburse such expenses using the customer’s own capital or loans from individuals or organizations (excluding credit institutions) for the purpose of implementing business projects or plans, or projects or plans serving daily living needs.
Currently, Circular 39/2016 does not explicitly stipulate whether financial institutions (TCTDs) or financial business entities (FBBs) are permitted to provide loans to reimburse previously paid expenses. However, according to Circular 21/2017 on loan disbursement, the reimbursement of equity capital is recognized as one of the methods for loan disbursement. Therefore, in practice, TCTDs/FBBs still provide loans for this purpose, and the evaluation process depends on the discretion of each TCTD or FBB. However, with the issuance of Circular 06/2023, stricter conditions have been established, and TCTDs/FBBs must ensure that loans intended for repayment meet the aforementioned conditions.
Fewer restrictions on loans to repay existing loans
Circular 39/2016 prohibits financial institutions and commercial banks from granting loans to refinance existing loans, including both foreign and domestic loans, except in cases where the existing loan meets the following conditions:
a) The existing loan is used for business purposes;
b) The term of the new loan does not exceed the remaining term of the existing loan; and
c) The existing loan has not been restructured.
Circular 6/2023 has removed foreign loans with deferred payments from the list of prohibited refinancing loans. Additionally, the condition stated in (a) has been repealed. This implies that credit institutions/FBBs are now permitted to extend loans if the existing loans are used for any lawful purpose, such as living expenses.
Currency for Loan Repayment
Unlike Circular 39/2016, which stipulated that the currency for loan repayment must be the same as the loan currency, Circular 6/2023 allows the borrower to repay the loan in a different currency, subject to an agreement between the borrower and the lender and the applicable law.
Debt Collection Procedures
Circular 6/2023 clearly stipulates the debt collection procedure in cases where a loan is overdue for repayment one or more times. In such situations, the Credit Institution/Financial Business Entity (TCTD/FBB) will prioritize the recovery of outstanding debt in the following order: overdue principal, accrued interest on the overdue principal, due principal, and accrued interest on the unpaid due principal.
Obligations of credit institutions/financial institutions regarding the monitoring and supervision of customers’ use of loan funds
To align with the provisions of the 2010 Law on Credit Institutions, Circular 06/2023 clearly stipulates that credit institutions/commercial banks have the right and obligation to monitor and supervise the use of loan funds as well as customers’ debt repayment. Conversely, under Circular 39/2016, this responsibility was considered solely a right of credit institutions/FBBs.
Loans for payment purposes to ensure fulfillment of obligations
Circular 6/2023 adds cases of loans for payment purposes to ensure
