Socialist Republic of Vietnam

STATE BANK OF VIETNAM

No. 284-2000-QD-NHNN1 Hanoi, 25 August 2000


DECISION ISSUING REGULATIONS ON LENDING BY CREDIT INSTITUTIONS TO CLIENTS


The Governor of the State Bank of Vietnam

Pursuant to the Law on State Bank of Vietnam and the Law on Credit Institutions dated 12 December 1997;

Pursuant to Decree 15-CP of the Government dated 2 March 1993 on duties, powers and responsibilities for State administration of ministries and ministerial equivalent bodies;

On the proposal of the Director of the Department for Monetary Policy;

Decides:


Article 1

To hereby issue with this Decision the Regulations on Lending by Credit Institutions to Clients.

Article 2

This Decision shall be of full force and effect as of 15 September 2000 and shall replace Decision 324-1998-QD-NHNN1 of the Governor of the State Bank dated 30 September 1998 promulgating Regulations on Lending by Credit Institutions to Clients.

Article 3

In the case of credit contracts which were entered into prior to the date of effectiveness of this Decision but the loans have not been disbursed or not fully disbursed, and in the case of credit contracts with outstanding loans as at the end of 14 September 2000, credit institutions and clients shall continue to implement them in accordance with the clauses in the signed contracts until the loans are fully recovered, or they may agree to amend and add to the credit contracts in order to make them consistent with the Regulations on Lending by Credit Institutions to Clients issued with this Decision.

Article 4

Heads of units under the State Bank, directors of State Bank branches in cities and provinces under central authority, chairmen of boards of management and general directors (directors) of credit institutions, and clients borrowing from credit institutions shall be responsible for implementation of this Decision.


The Governor of the State Bank


LE DUC THUY

STATE BANK SOCIALIST REPUBLIC OF VIETNAM
OF VIETNAM Independence - Freedom - Happiness


REGULATIONS
ON
LENDING BY CREDIT INSTITUTIONS
TO CLIENTS

(Issued with Decision 284-2000-QD-NHNN1 of the Governor
of the State Bank dated 25 August 2000)


CHAPTER I

General Provisions

Article 1 Governing scope

These Regulations provide for lending in Vietnamese dong and foreign currency by credit institutions to clients in order to satisfy capital requirements for production, business, services, investment and development and living conditions.

Article 2 Applicable subjects

1. Credit institutions established and conducting lending in accordance with the Law on Credit Institutions.

2. Clients borrowing loans from credit institutions, comprising:

(a) Legal entities being State owned enterprises, co-operatives, limited liability companies, joint stock companies, foreign invested enterprises and other organizations satisfying all of the conditions stipulated in article 94 of the Civil Code;

(b) Individuals;

(c) Households;

(d) Co-operative groups;

(dd) Private enterprises;

(e) Partnerships.
Article 3 Interpretation of terms

In these Regulations, the following terms shall have the meanings ascribed to them hereunder:

1. Lending means a form of extension of credit whereby a credit institution provides a client with an amount of money to be used for a certain purpose within a fixed period of time as agreed on the basis of the principle of repayment of both principal and interest.

2. Loan term means the period of time calculated from the date on which the client commences to receive the loan funds to the date on which principal and interest have been repaid in full as agreed in the credit contract between the credit institution and the client.

3. Repayment periods means the periods of time within the term of a loan which are agreed between the credit institution and the client whereby at the end of each period the client must repay part or the whole of the loan to the credit institution.

4. Adjustment of repayment periods means the agreement between the credit institution and the client to change the repayment periods previously agreed in the credit contract.

5. Extension of the loan term means the approval of a credit institution to extend the loan term agreed in the credit contract for another period.

6. Investment project or plan for production, business and services, or investment project or plan to service living conditions means a group of proposals on capital requirements, means of utilizing capital and its appropriate results regarding specific operations for production, business, services, investment and development, or servicing living conditions for a fixed period of time.

7. Credit limit means the maximum amount of a loan which is maintained within a fixed period as agreed in the credit contract between a credit institution and the client.

Article 4 Compliance with foreign exchange control regulations

When lending in foreign currency, a credit institution and the client must strictly comply with the regulations of the Government and the guidelines of the State Bank of Vietnam on foreign exchange control.


CHAPTER II

Specific Provisions

Article 5 Right of credit institutions to autonomy in lending

Credit institutions shall be responsible for their own decisions on lending. No organization or individual may illegally interfere in the autonomy in lending of credit institutions.

Article 6 Principles of borrowing

A client borrowing from a credit institution must ensure compliance with the following principles:

1. It must utilize the loan capital for the correct purpose agreed in the credit contract;

2. It must repay on time the loan principal and interest as agreed in the credit contract;

3. It must provide security for the loan in accordance with the regulations of the Government and the guidelines of the Governor of the State Bank of Vietnam.

Article 7 Conditions for borrowing

A credit institution shall consider and decide on lending when a client satisfies all of the following conditions:

1. The client has civil legal capacity and capacity for civil acts and bears civil responsibility as stipulated by law, in particular:

(a) A legal entity must have civil legal capacity;

(b) An individual or an owner of a private enterprise must have civil legal capacity and capacity for civil acts;

(c) A representative of a household must have civil legal capacity and capacity for civil acts;

(d) A representative of a co-operative must have civil legal capacity and capacity for civil acts;

(dd) A partner of a partnership must have civil legal capacity and capacity for civil acts;

2. The client must have the financial ability to ensure repayment of the loan within the time-limit undertaken;

3. It must have a lawful purpose for utilizing the loan capital;

4. It must have an investment project or plan for production, business and services which is feasible and effective, or it must have an investment project or a feasible plan to service living conditions, attached to a feasible plan for repayment of the loan debt;

5. It must comply with the regulations of the Government and the guidelines of the Governor of the State Bank of Vietnam on security for loans.

Article 8 Types of loans

1. Short term loans: A credit institution may provide short term loans to clients to meet capital requirements for production, business, services and living conditions.

2. Medium and long term loans: A credit institution may provide medium and long term loans to clients to implement investment projects for the development of production, business, services and living conditions.

Article 9 Objects of borrowing

1. A credit institution may provide loans for the following objects:

(a) Value of materials, goods, machinery and equipment, including value added tax which is part of the total value of a consignment of good, and costs for implementation of investment projects or plans for production, business and services, or investment projects or plans for servicing living conditions;

(b) Financial requirements of a client:

- Amount of import or export duties that a client must pay in order to carry out import-export procedures, where a credit institution participates in lending the value of the consignment of goods;

- In respect of medium and long term loans for the purpose of investment in fixed assets where interest payments are included in the value of the fixed assets, the amount of the loan interest payable to the lending credit institution during construction and prior to hand-over and commissioning of fixed assets;

- Amount of money that a client borrows in order to pay financial loans (in cash) to foreign parties which have been guaranteed by a domestic credit institution, if the following conditions are satisfied: the investment project or plan for production, business and services, or the investment project or plan for servicing living conditions utilizing the above loan is being implemented and is effective; the loan is within the repayment period; the client offers more acceptable loan conditions or a reduction in expenses compared to the foreign loan and has the ability to repay the loan;

- Other financial requirements for servicing the process of production, business and services and for servicing living conditions as provided by the State Bank of Vietnam.

2. A credit institution may not provide loans for the following objects:

(a) Amount of taxes directly payable to the State Budget, except for amounts of import and export duties stipulated in the first paragraph of clause 1(b) of this article;

(b) Amount of money in order to repay loan principal and interest to another credit institution;

(c) Amount of loan interest payable to the credit institution, except for the lending of interest monies stipulated in the second paragraph of clause 1(b) of this article.

Article 10 Loan term

A credit institution and its client shall agree on one of two types of loan term:

1. Short term loan: The maximum term shall be twelve (12) months, determined in accordance with the cycle of production or business and the repayment ability of the client.

2. Medium and long term loans: The loan term shall be determined in accordance with the period for recovery of the investment project capital, the repayment ability of the client, and the source of funding of the loan by the credit institution:

(a) Loan term for medium term loans: From over twelve (12) months up to sixty (60) months;

(b) Loan term for long term loans: From over sixty (60) months, but not in excess of the remaining duration of operation pursuant to the decision on establishment or licence for establishment of the legal entity, and not in excess of fifteen (15) years in the case of lending to investment projects for servicing living conditions.

Article 11 Loan interest rates

1. The loan interest rate shall be agreed by the credit institution and its client in accordance with the regulations on loan interest rates of the State Bank at the time of entering into the credit contract. Credit institutions shall be responsible for publicly announcing loan interest rates for the information of clients.

2. Preferential loan interest rates shall be applied to clients which are entitled to preferential treatment with respect to interest rates pursuant to the regulations of the Government and the guidelines of the State Bank.

3. In the case where a loan is reclassified as an overdue debt, the interest rate for overdue debts must be applied at the rate stipulated by the Governor of the State Bank at the time of entering into the credit contract.

Article 12 Lending limits

1. A credit institution shall base its decision on its lending limits on the borrowing requirements of clients, on the regulations of the Government in Decision 178-1999-ND-CP with respect to comparison of lending limits with the value of property securing the loan, on the ability of the client to repay, and on the capital sources which it has available.

2. The total outstanding loans to a single client may not exceed fifteen (15) per cent of the equity of the credit institution, except in cases of loans funded by capital sources entrusted by the Government, by organizations or by individuals or except in cases where the borrower is a credit institution.

3. The total outstanding loans to the subjects stipulated in article 21 of these Regulations may not exceed five (5) per cent of the equity of the credit institution.

Article 13 Repayment of principal and interest

1. Based on the characteristics of production, business, services, financial ability, income and repayment sources of clients, a credit institution and a client shall agree on the following with respect to repayment of principal and interest:

(a) Principal repayment periods;

(b) Interest payment periods, which may coincide with principal repayment periods or which may be separate;

(c) Currency of repayment and security for the whole value of the principal in appropriate forms, in accordance with the provisions of the law.

2. When repayment falls due or upon expiry of the loan term, if the client is unable to repay on time and if the repayment period is not adjusted or extended, any unpaid but due amount shall be reclassified as an overdue debt and the client shall be subject to payment of interest on the amount of the late payment at the rate for overdue debts.

3. In the case where a client makes early repayment of a debt, the credit institution and the client shall agree on the amount of loan interest to be paid which shall not exceed the interest rate agreed in the credit contract.

Article 14 Loan files

1. A client wishing to borrow a loan shall submit to the credit institution the following documents:

- Loan proposal which must have the following main contents: name and address of borrower; amount proposed to be borrowed; purpose of loan; undertakings on use of loan, repayment of principal and interest, and other undertakings;

- Documents necessary to prove that all conditions for borrowing stipulated in article 7 of these Regulations have been satisfied;

- Clients shall be responsible before the law for the accuracy and lawfulness of documents that they submit to credit institutions.

2. Credit institutions shall specify the documents that they require from clients, in accordance with the characteristics of each type of client and loan as stipulated in clause 1 of this article.

Article 15 Evaluation and decision on lending

1. Credit institutions shall establish a process of consideration and approval of lending on the basis of the principles of ensuring independence and making a clear distinction between personal responsibility and joint responsibility between the stages of evaluation and decision on lending.

2. Credit institutions shall examine the documents received from clients and evaluate the feasibility and effectiveness of the investment project or plan for production, business and services or the investment project or plan for servicing living conditions and the ability of the client to repay the loan.

Where it is deemed necessary or stipulated by law, a credit institution shall establish a credit council or engage the services of a relevant consultancy body to evaluate the investment project or plan for production, business and services or the investment project or plan for servicing living conditions of the client.

3. Within a period of ten (10) working days for short term loans, and forty five (45) working days for medium and long term loans, from the date when the credit institution receives a complete and proper loan file and the other necessary information it requires the client to provide, the credit institution must decide whether or not to provide a loan and inform the client. In the case of a decision to refuse to lend, the credit institution must notify the client in writing of the reasons for the refusal.

Article 16 Method of lending

On the basis of the requirements of each particular client for utilizing loan capital and the ability of the credit institution to inspect and supervise the utilization by the client of the loan capital, the credit institution and the borrowing client shall agree on the choice of one of the following methods of lending:

1. Individual lending: On each occasion that a loan is provided, the client and the credit institution shall carry out the necessary procedures and enter into a credit contract.

2. Lending pursuant to a credit facility: The credit institution and the client shall determine and agree on a credit facility to be maintained for a fixed period or for a production or business cycle.

3. Lending pursuant to an investment project: The credit institution shall provide a loan for a client to implement an investment project for development of production, business and services or an investment project for servicing living conditions.

4. Syndicated lending: A group of credit institutions together provides a loan for the loan project or loan plan of a client, whereby one credit institution acts as the focal institution for making arrangements and co-ordinating with the other credit institutions. Syndicated lending shall be carried out in accordance with these Regulations and with the regulations on co-financing by credit institutions issued by the Governor of the State Bank of Vietnam.

5. Lending on instalment repayment: When providing the loan, the credit institution and the client shall determine and agree on the amount of loan interest that must be paid in addition to the amount of principal which shall be divided into repayment periods during the loan term.

6. Lending pursuant to a reserve credit facility: The credit institution shall undertake to make loans available to a client within the limit of a fixed credit facility. The credit institution and the client shall agree on the period of validity of the reserve credit facility and the fees payable for the reserve credit facility.

7. Lending by way of issuance and use of credit cards: The credit institution shall approve the use by a client of a loan amount within the limit of a credit facility to pay for purchasing goods and services or to withdraw cash at automatic telling machines or at the cash advance agencies of the credit institution. For lending by way of issuance and use of credit cards, credit institutions and clients must comply with the regulations of the Government and of the State Bank on issuance and use of credit cards.

8. Other methods of lending shall be consistent with these Regulations and with other regulations of the State Bank.

Article 17 Lending in foreign currency

1. Credit institutions which are permitted to conduct foreign exchange activities may provide loans in foreign currency to clients being residents in accordance with the regulations of the Government and the guidelines of the State Bank on foreign exchange control.

The concept of a resident shall be defined pursuant to article 4 of Decree 63-1998-ND-CP of the Government dated 17 August 1998 on foreign exchange control.

2. Loan files: In addition to the documents stipulated in article 14 of these Regulations, a client must submit to the credit institution the import licence or any import quota, the contract for import or for authorization of import, and other documents relating to loan utilization.

3. Repayment of principal and interest: Repayment shall be made in the same currency as that of the loan. Repayment in another currency or in Vietnamese dong shall be implemented in accordance with the agreement between the credit institution and the client, and conversion shall be at the exchange rate agreed in the credit contract or on the basis of the principles for determining the exchange rate agreed in the credit contract. Foreign invested enterprises which are responsible for balancing their own foreign currency requirements shall not be permitted to repay foreign currency loans in Vietnamese dong.

Article 18 Credit contracts

After a decision on lending is made, a credit institution and its client shall enter into a credit contract. The credit contract must stipulate the loan conditions, the purpose of loan utilization, the method of disbursement and the method of loan utilization, the loan amount, the interest rate, the loan term, the method and periods of repayment, the form of loan security, the value of the security assets and the methods for dealing with them, the assignability or non-assignability of the credit contract, and the other undertakings agreed by the parties.

Article 19 Lending limits

1. The total outstanding loans to a single client may not exceed fifteen (15) per cent of the equity of the credit institution, except in cases of loans funded by capital sources entrusted by the Government, by organizations or by individuals. If the capital requirements of a client exceed fifteen (15) per cent of the equity of the credit institution or if a client wishes to raise capital from a number of sources, credit institutions may enter into a syndicated loan in accordance with regulations of the Governor of the State Bank.

2. In special circumstances, credit institutions may provide loans in excess of the lending limits stipulated in clause 1 of this article, but only upon approval by the Prime Minister of the Government on a case-by-case basis.

3. The equity of credit institutions on the basis of which the lending limits stipulated in clauses 1 and 2 of this article are calculated shall be determined in accordance with regulations of the State Bank.

Article 20 Circumstances in which lending is not permitted

1. A credit institution may not provide loans to the following clients:

(a) Members of the board of management or inspection committee, the general director (director) or deputy general director (deputy director) of the credit institution;

(b) Persons carrying out loan evaluation and approval;

(c) Parents, spouses or children of the members of the board of management or inspection committee, of the general director (director) or deputy general director (deputy director).

2. The provisions of clause 1 of this article shall not apply to co-operative credit institutions.

Article 21 Loan restrictions

A credit institution may not provide loans without security, or loans with preferential conditions on interest rates and lending limits, to the following subjects:

1. Auditing organizations or auditors currently carrying out audits of the credit institution; the chief accountant or inspectors;

2. Major shareholders of the credit institution;

3. Enterprises in which more than ten (10) per cent of the charter capital is owned by one of the subjects specified in article 77.1 of the Law on Credit Institutions.

Article 22 Inspection and supervision of loans

1. Credit institutions shall be responsible to inspect and supervise the processes of lending and of loan utilization and repayment by the client.

2. Credit institutions shall carry out inspection and supervision prior to, during and after lending, in accordance with the operational characteristics of the credit institution and the business characteristics and loan utilization of the client.

Article 23 Debt term extension and adjustment of repayment periods

1. If, when repayment falls due, the client is unable to repay in full as a result of objective factors and if a written request is made to extend the debt term, the credit institution may consider a debt extension in accordance with the following provisions:

(a) For short term loans, the maximum period of debt term extension shall be equal to one cycle of production or business, but shall not exceed twelve (12) months, except in special cases which the Governor of the State Bank permits or assigns to credit institutions to consider and decide;

(b) For medium and long term loans, the maximum period of debt term extension shall be equal to one half () of the loan term agreed in the credit contract, except in special cases which the Governor of the State Bank permits or assigns to credit institutions to consider and decide;

(c) Debts due and payable which have not been paid and not extended shall be reclassified as overdue debts and the overdue interest rate shall apply.

2. If for objective reasons the client fails to repay on the due repayment date as agreed in the credit contract and if a written request is made, the credit institution shall consider adjustment of the repayment period. If an adjustment is not granted, the credit institution shall reclassify the amount of debt due and payable for that period as an overdue debt.

3. The request for a debt term extension, the adjustment of the repayment period of a client, and the resolution by a credit institution on a debt term extension or adjustment of a repayment period must be carried out prior to the repayment date and the parties may agree to supplement the credit contract with the new repayment periods.

4. Where a debt term is extended or a repayment period adjusted, the interest rate agreed in the credit contract shall continue to apply throughout the period up until the end of the extended or adjusted period.

Article 24 Exemption from and reduction of loan interest

Credit institutions may decide on exemption from and reduction of loan interest payable by a client on the basis of the following principles:

1. Where a client suffers losses in respect of the assets relating to the loan due to objective reasons, resulting in financial difficulties;

2. The rate of exemption from or reduction of loan interest must be consistent with the financial capacity of the credit institution;

3. Credit institutions may not exempt or reduce loan interest for clients being subjects stipulated in article 78.1 of the Law on Credit Institutions;

4. Credit institutions must issue regulations on exemption from and reduction of loan interest for clients, which have been approved by the board of management. A credit institution may only exempt or reduce loan interest for clients pursuant to such regulations.

Article 25 Rights and obligations of clients

1. A borrower shall have the following rights:

(a) To refuse to satisfy any requirement of a credit institution which is inconsistent with the terms agreed in the credit contract;

(b) To lodge complaints or to institute legal proceedings in accordance with law for any breach of the credit contract.

2. A borrower shall have the following obligations:

(a) To provide full information and documents relating to the loan and to be responsible for the accuracy of such information and documents;

(b) To utilize the loan monies for the correct purpose and to perform properly other matters agreed in the credit contract;

(c) To repay the loan principal and interest in accordance with the terms agreed in the credit contract;

(d) To be responsible before the law for failure to perform properly the terms for repayment agreed in the credit contract and the terms relating to obligations for loan security undertaken in the credit contract.

Article 26 Rights and obligations of credit institutions

1. A credit institution shall have the following rights:

(a) To require the client to provide documents proving the feasibility of the investment project or plan for production, business and services or investment project or plan for servicing living conditions, and proving the financial ability of the client and of the guarantor, prior to making a decision on lending;

(b) To refuse the loan application of a client if it considers lending conditions have not been satisfied or the lending project or plan is not effective or is inconsistent with the law, or if the credit institution has insufficient capital sources to provide the loan;

(c) To inspect and supervise the processes of lending and of loan utilization and repayment by the client;

(d) To cease lending and to recover early the debt upon discovery that the client has provided false information or has breached the credit contract;

(dd) To institute legal proceedings in accordance with law against a client for breach of the credit contract or against a guarantor;

(e) If the client fails to repay the debt on the due date for repayment and if the parties have not otherwise agreed, the credit institution shall have the right to deal with the assets securing the loan monies pursuant to the agreements in the credit contract in order to recover the debt in accordance with the provisions of the law, or to require the guarantor to fulfil the obligations in the guarantee where the client has provided a guarantee for the loan;

(g) To implement exemptions from or reductions of loan interest, debt term extensions, and adjustments of repayment periods in accordance with these Regulations; to trade in debts in accordance with regulations of the State Bank and to carry out debt re-financing, debt blockade or debt write-off in accordance with regulations of the Government.

2. A credit institution shall have the following obligations:

(a) To comply strictly with the agreements in the credit contract;

(b) To maintain credit files in accordance with the provisions of the law.

Article 27 Preferential lending and lending for investment in capital construction in accordance with State plans

1. Credit institutions may provide loans to clients entitled to the preferential credit policy in accordance with the regulations of the Government and the guidelines of the State Bank from time to time.

2. State owned credit institutions which provide loans for investment in construction in accordance with State plans shall comply with the provisions of the laws on investment and construction and with the regulations of the Government on credit for investment in construction in accordance with annual State plans.

3. If State owned credit institutions which are designated by the Government to provide loans to clients entitled to preferences or to provide loans for investment in construction in accordance with State plans discover any interest difference or loan losses arising for objective reasons, then they shall deal with them in accordance with the regulations of the Government and the guidelines of the State Bank and of related ministries and branches.

4. Prior to providing loans to clients entitled to preferences or providing loans for investment in construction in accordance with State plans, credit institutions shall appraise the effectiveness of the loan project or plan and shall report to the authorized State body any cases considered ineffective or unable to repay loan principal and interest, and if deemed necessary they should report to the Prime Minister of the Government for his consideration and decision.

Article 28 Trust lending

1. Credit institutions may provide trust loans as authorized by the Government and by domestic or foreign organizations and individuals in accordance with trust lending contracts entered into with a representative body of the Government or with domestic or foreign organizations and individuals. Trust lending must be in accordance with current provisions of the law on banking credit and trust contracts.

2. Credit institutions providing trust loans shall be entitled to trust fees and other benefits as agreed in the trust lending contracts in accordance with the provisions of the law and international practice in order to ensure off-set of all costs and risks and profitability.


CHAPTER III

Implementing Provisions

Article 29

Credit institutions and borrowers shall be responsible for implementation of these Regulations. Based on these Regulations and the provisions of relevant legal instruments, credit institutions shall issue specific guidelines for loan business in accordance with their own conditions, characteristics and charter.

Article 30

Any organization or individual breaching the provisions of these Regulations shall, depending on the nature and seriousness of the breach, be disciplined, be subject to an administrative penalty, or be investigated for breach of the criminal law in accordance with the provisions of the law.

Article 31

The Governor of the State Bank shall make decisions on amendments of and additions to these Regulations.


The Governor of the State Bank


LE DUY THUY