Circular No. 04/2012/TT-NHNN dated March 08, 2012 of the State Bank of Vietnam providing for the entrustment taking and entrustment operations of credit institutions, foreign bank's branches

CIRCULAR

PROVIDING FOR THE ENTRUSTMENT TAKING AND ENTRUSTMENT OPERATIONS OF CREDIT INSTITUTIONS, FOREIGN BANK S BRANCHES

---------------------

- Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated 16 June 2010;

- Pursuant to the Law on Credit Institutions No. 47/2010/QH12 dated 16 June 2010;

- Pursuant to the Decree No. 96/2008/ND-CP dated 26 August 2008 of the Government providing for the functions, duties, authorities and organizational structure of State Bank of Vietnam;

- In consideration of the proposal of the Director of Monetary Policy Department;

The Governor of the State Bank of Vietnam hereby promulgates the Circular on the entrustment taking and entrustment operations of credit institutions, foreign bank s branches in the banking-related field in accordance with the regulations of the Law on Credit Institution.

Section 1

GENERAL PROVISIONS

Article 1. Governing scope

This Circular provides in details for the entrustment taking and entrustment operation of the credit institutions, foreign bank s branches in the fields related to banking activities in accordance with provisions of the Law on Credit Institutions, including: Credit institutions, foreign bank s branches that receive trust from other credit institutions, foreign bank s branches and from organizations other than credit institutions, foreign bank s branches; credit institutions, foreign bank s branches that entrusts other credit institutions, foreign bank s branches.

Article 2. Subjects of application

1. The entrusted party shall be credit institutions, foreign bank s branches which are established and operate in accordance with provisions of the Law on Credit Institutions, including: Commercial banks, finance companies, finance leasing companies, cooperative banks, people’s credit funds, micro-financial institutions and foreign bank s branches.

2. The entrusting party shall include:

a) The credit institutions, foreign bank s branches which are established and operated under regulation of Law on Credit Institution: The commercial banks, finance companies, cooperative banks, micro-financial institutions and foreign bank s branches.

b) Local institutions other than credit institutions, foreign bank s branches (hereinafter referred to as other institutions), which are legal entities with civil legal capacity in accordance with regulations of applicable laws.

c) Overseas institutions, which are legal entities established and operating under laws of foreign countries where that institutions were established, with civil legal capacity in accordance with the Civil Code on civil capacity of foreign legal entity.

Article 3.Interpretation

In this Circular, following terms shall be construed as follows:

1. Entrustment in the banking-related fields shall mean the case where the entrusting party assigns the entrusted party to perform banking-related operations in accordance with provisions of the Law on Credit Institutions and of applicable laws; the entrusting party shall be obliged to pay an entrustment fee to the entrusted party.

2. Entrustment taking in the banking-related fields shall mean the case where the entrusted party performs the banking-related operations in accordance with provisions of the Law on Credit Institutions and of applicable laws; the entrusted party shall be entitled to an entrustment fee paid by the entrusting party.

3. Entrustment for lending shall mean the case where the entrusting party assigns a fund to the entrusted party for lending to the customer in accordance with provisions of the Law on Credit Institutions and of applicable laws; the entrusting party shall be obliged to pay an entrustment fee to the credit institution, foreign bank s branch that takes entrustment for lending.

4. Entrustment taking for lending shall mean the case where the entrusted party takes a fund from the entrusting party for providing loan to the customer in accordance with provisions of the Law on Credit Institutions and of applicable laws; the entrusted party for lending shall be entitled to an entrustment fee for lending paid by the entrusting party.

5. Entrustment contract in the banking-related fields shall mean an agreement signed by and between the entrusting party and the entrusted party to establish, change, terminate rights and obligations of the parties as to the entrustment and entrustment taking.

6. Contract of lending entrustment shall be a written agreement signed by and between the entrusted party for lending and the entrusting party to establish, change, terminate rights and obligations of the parties on lending entrustment (herein after called the lending entrustment contract).

7. Entrustment period shall mean the period from the time when the entrusted party starts to undertake to perform the banking-related operation until the time of finishing the works under the contract of lending entrustment.

8. Lending entrustment period shall mean the period from the time when the entrusted party starts to take the entrusted capital until the time of returning all the entrusted capital and loan interest to the entrusting party in accordance with the lending entrustment contract.

9. Entrustment fee shall mean the amount of money which the entrusting party is obliged to pay to the entrusted party to perform the works in accordance with the entrustment contract.

10. The customers involving in the entrustment taking and entrustment of the credit institutions, foreign bank s branches shall be other institutions and individuals.

Section 2

PROVISIONS ON ENTRUSTMENT TAKING AND ENTRUSTMENT OPERATIONS IN BANKING-RELATED FIELDS OF CREDIT INSTITUTIONS, FOREIGN BANK S BRANCHES

Article 4.Scope of operation

1. The credit institutions, foreign bank s branches shall be authorized to take entrustment/or to entrust one or several operations in banking-related fields in accordance with the Law on Credit Institutions and contents stated in the License granted by the State Bank to the credit institutions, foreign bank s branches.

2. The credit institutions, foreign bank s branches shall not be permitted to take entrustment from individuals.

Article 5.Regime of application

1. The entrustment taking and entrustment for lending of credit institutions, foreign bank s branches for the customers shall be performed in line with regulations in Section 3 of this Circular.

2. The entrustment taking and entrustment of finance leasing companies for finance leasing shall be performed under regulations of the State Bank of Vietnam on finance leasing operation of finance leasing companies.

3. For the entrustment taking and entrustment of the credit institutions, foreign bank s branches to perform operations not mentioned in paragraph 1, 2 of this Article, which are deemed to be efficient to business operation of credit institutions, foreign bank s branches and conformable to regulations of laws, then the credit institutions, foreign bank s branches shall draw up a procedure for performance and send an application to the State Bank of Vietnam for consideration and approval. The credit institutions, foreign bank s branches shall be permitted to perform only when obtaining a written approval of the State Bank of Vietnam.

Article 6.Debt classification, provision making and risk settlement

1. The entrusting party shall be responsible for settlement of risks in performing the entrustment operation in the banking-related fields.

2. The entrusting party that is a credit institution, foreign bank s branch shall classify debt, make provision and deal with risks in performance of entrustment operation in banking-relating fields in line with provisions of applicable laws and guidance of the State Bank of Vietnam.

Article 7.Accounting, statistics and reporting of entrustment taking and entrustment operations of credit institutions, foreign bank s branches

1. The credit institutions, foreign bank s branches shall make accounting of their entrustment taking and entrustment operations in accordance with provisions of the State Bank of Vietnam on accounting and statistic regime applicable to credit institutions, foreign bank s branches.

2. On a monthly basis, credit institutions, foreign bank s branches shall list and send report on the performance of entrustment taking and entrustment operation to the State Bank of Vietnam in accordance with the Appendix attached to this Circular and regulations of applicable laws.

Section 3

PROVISIONS ON LENDING ENTRUSTMENT TAKING AND ENTRUSTMENT OPERATIONS OF CREDIT INSTITUTIONS, FOREIGN BANK S BRANCHES

Article 8. Entrusted party and entrusting party for lending

1. The entrusted party for lending shall be credit institutions, foreign bank s branches which are established and operate under the Law on Credit Institutions, including: The commercial banks, finance companies, micro-financial institutions and foreign bank s branches.

2. Entrusting party for lending shall include:

a) Credit institutions, foreign bank s branches that are established and operate in accordance with regulations of the Law on Credit Institutions: The commercial banks, finance companies, cooperative banks, micro-financial institutions and foreign bank s branches.

b) Other institutions that are domestic legal entities.

c) Overseas institutions.

Article 9.Principle of entrustment taking and entrustment for lending

1. The credit institutions, foreign bank s branches shall be authorized to perform the entrustment taking and/or entrustment for lending in accordance with the Law on Credit Institutions and content stated in the License granted by the State Bank of Vietnam to credit institutions, foreign bank s branches.

2. The entrustment taking and entrustment for lending shall be performed through the lending entrustment contract, in conformity with provisions of this Circular and other provisions of applicable laws.

3. Credit institutions, foreign bank s branches taking entrustment from other institutions for lending shall account their outstanding loans from the source of entrusted capital to the total outstanding credits.

4. The entrusted credit institutions, foreign bank s branches shall not be authorized to re-entrust to a third party for lending.

5. The entrusted credit institutions, foreign bank s branches for lending shall provide loan to customers in accordance with provisions of the State Bank of Vietnam on lending by credit institutions, foreign bank s branches to customer and other provisions of applicable laws.

In case where the credit institutions, foreign bank s branches take entrustment in foreign currency, they shall be responsible for performance in accordance with provisions of the State Bank of Vietnam on lending in foreign currency by credit institutions, foreign bank s branches to resident customers, provisions of laws on foreign exchange control and regulations of applicable laws.

In case where the credit institutions, foreign bank s branches take entrustment for lending to non-resident customers, they shall be responsible for performance in accordance with provisions of the State Bank of Vietnam on foreign loan and debt collection by credit institutions, foreign bank s branches, provisions of laws on foreign exchange control and other regulations of applicable laws.

In case where the credit institutions, foreign bank s branches take entrustment for lending from overseas institutions (including the case where a foreign bank s branch takes entrustment from its parent bank), they shall be responsible for performance in accordance with regulations on foreign borrowing and debt repayment, on foreign exchange control and other provisions of applicable laws.

In case where the credit institutions, foreign bank s branches take entrustment for lending to customers for overseas direct investment, they shall be required to comply with provisions of the State Bank of Vietnam on lending by credit institutions, foreign bank s branches to customers for overseas direct investment.

6. The lending entrusting party shall be liable for paying the entrustment fee to the credit institutions, foreign bank s branches that take entrustment for lending. The entrustment fee shall be agreed upon by the two parties and stated in the lending entrustment contract.

Article 10.Conditions for credit institutions, foreign bank s branches to take entrustment for lending

Credit institutions, foreign bank s branches shall be authorized to take entrustment for lending upon fully satisfying the following conditions:

1. The contents on entrust receipt operation are provided for in the Establishment and Operation License which is granted by the State Bank.

2. To issue a procedure on entrustment taking in accordance with regulations of this Circular, laws on lending activity and other applicable laws.

3. To ensure the prudential ratios in activities of credit institutions, foreign bank s branches as stipulated by the State Bank of Vietnam.

4. To have premise, system and staff in place for performing the lending activity under the lending entrustment contract, ensuring the lending activity to be secure and efficient.

Article 11.Conditions for the lending entrusting party

The entrusting party shall be permitted to entrust the credit institutions, foreign bank s branches for lending upon fully satisfying the following conditions:

1. For a credit institution, foreign bank s branch:

a) The contents on entrustment taking operation are provided for in the Establishment and Operation License that is granted by the State Bank.

b) To issue a procedure on entrustment taking in accordance with regulations of this Circular, laws on lending activity and other applicable laws.

c) To ensure the prudential ratios in activities of credit institutions, foreign bank s branches as stipulated by the State Bank of Vietnam.

2. For other domestic institutions:

a) To be a legal entity that has civil legal capacity in accordance with provisions of laws on civil;

b) To be authorized to entrust credit institutions, foreign bank s branches for lending in accordance with provisions of applicable laws;

c) To have no outstanding credit at credit institutions, foreign bank s branches at time of entrustment for lending.

3. For overseas institutions:

a) To be a legal entity that has civil legal capacity in accordance with regulations of the Civil Code on civil capacity of foreign legal entity.

b) To observe provisions of Vietnam laws on foreign exchange control and provisions of applicable laws.

Article 12.Currency of entrustment taking and entrustment for lending

Currency of entrustment taking and entrustment for lending shall be Vietnamese Dong, foreign currency.

Article 13.Lending entrustment contract

The lending entrustment contract shall consist of the agreements between the entrusting party and the credit institutions that takes entrustment: Name, address of the entrusting party, entrusted party for lending; entrusted amount for lending; the borrower; demands for loan funds; currency of the loan; period of the lending entrustment; period of loan to the borrower; lending interest rate; restructuring of the term for debt repayment; method of security for loan; entrustment fee; the party responsible for loan appraisement and supervision over the use of the loan fund; responsibility of the parties in dealing with risks; rights and obligations of the parties; the exemption, reduction of loan interest; cases of termination of the lending entrustment contract before expiry; settlement of contract breach; other contents as agreed by the parties in accordance with regulations of applicable laws.

Article 14.Rights and obligations of the entrusted party for lending

1. The entrusted party for lending shall be entitled:

a) To refuse requests of the entrusting party, which are contrary to the agreements and commitments stated in the lending entrustment contract.

b) To ask the entrusting party to supply necessary information, documents and facilities to proceed with lending in accordance with the lending entrustment contract.

c) To enjoy the entrustment fee for lending.

d) To handle within the scope of authority or to take legal action against the entrusting party for its breach of the lending entrustment contract.

dd) Rights of a lender to its borrower in line with provisions of laws on lending activity.

2. The entrusted party shall be obliged:

a) To proceed with lending to the borrower in accordance with regulations of laws on lending by credit institutions, foreign bank s branches to borrowers, the lending entrustment contract and regulations of applicable laws.

b) To inform the entrusting party of the loan provided under the lending entrustment contract, to supply information and documents on the financial capacity, customer, disbursement situation, recoverability of debt, debt classification and information, other necessary documents relating to the loan under the lending entrustment contract; to be responsible for the accuracy of the information and documents supplied to the entrusting party.

c) To return the entrusted capital and interest received from the loan to the borrower to the entrusting party in accordance with the lending entrustment contract.

d) To classify debt for the outstanding loan under the lending entrustment contract in order to properly assess the financial condition, debt payment ability of the customer for the purpose of credit risk management.

dd) To inspect and monitor the process of capital borrowing, use of loan fund and debt repayment of the customer as per agreements with the entrusting party in the lending entrustment contract.

e) To archive the documents of entrusted loans in accordance with provisions of laws on the archive of credit documents.

3. To fulfill other rights and obligations as per contents of the lending entrustment contract in conformity with provisions of applicable laws or upon request by the competent state agency.

Article 15.Rights and obligations of the entrusting for lending

1. The entrusting party shall be entitled:

a) To decide the selection of the entrusting party to ensure the use of the entrusted capital to be safe and efficient and conformable to regulations of applicable laws.

b) To ask the credit institution, foreign bank s branch that takes entrustment to inform the provision of loan in accordance with the lending entrustment contract; to supply documentations for the financial capacity of the customer, the disbursement situation, debt recoverability and other necessary information and documents relating to the borrowers and the loan provision, debt collection under the entrustment.

c) To refuse the requests of credit institution, foreign bank s branch that takes entrustment that are contrary to the agreements in the lending entrustment contract.

d) To take back the entrusted capital and loan interest from the credit institution, foreign bank s branch that takes entrustment in accordance with the lending entrustment contract.

dd) To handle within the scope of authority or to take legal action against the credit institution, foreign bank s branch for breach of the lending entrustment contract.

2. The entrusting party shall be obliged:

a) To proceed with transfer of the entrusted capital, payment of entrustment fee to the entrusting party and agreements in the lending entrustment contract.

b) To be responsible for the legality of the entrusted capital source

c) To classify debt, make provisions and dealing with risks for the outstanding loan in line with provisions of applicable laws.

d) To archive the documents of loan entrustment in accordance with provisions of applicable laws.

3. To fulfill other rights and obligations as per contents of the lending entrustment contract in conformity with provisions of applicable laws or upon request by the competent state agency.

Section 4

IMPLEMENTATION ORGANIZATION

Article 16.Implementation organization

1. This Circular shall come into effect from 02 May 2012 and replace the Decision No. 742/2002/QD-NHNN dated 17 July 2002 of the Governor of the State Bank on the issuance of the Regulation on lending entrustment and lending entrustment taking of credit institutions, foreign bank s branches.

2. For the lending entrustment contracts of credit institutions, foreign bank s branches that are signed before the effective date of this Circular, the entrusting party and credit institutions, foreign bank s branches that take entrustment shall continue to implement contents in the signed lending entrustment contract in accordance with regulations of applicable laws at time where those contracts are signed or may agree to amend, supplement the lending entrustment contract in accordance with provisions in this Circular.

3. Director of the Administrative Department, Director of the Monetary Policy Department and Head of units of the State Bank of Vietnam, General Manager of State Bank s branches in provinces, cities under the central Government’s management, Chairman of the Board of Directors, Chairman of Board of Members and General Director (Director) of credit institutions, foreign bank s branches, other related institutions and individuals shall be responsible for the implementation of this Circular.