Circular 18/2021/TT-NHNN on re-discount of negotiable instruments of credit institutions, foreign bank branches

CIRCULAR

Prescribing the rediscount of negotiable instruments among credit institutions and foreign bank branches^[1]

Pursuant to the June 16, 2010 Law on the State Bank of Vietnam;

Pursuant to the June 16, 2010 Law on Credit Institutions and the November 20, 2017 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

Pursuant to the November 29, 2005 Law on Negotiable Instruments;

Pursuant to the Government’s Decree No. 16/2017/ND-CP of February 17, 2017, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of the Monetary Policy Department;

The Governor of the State Bank of Vietnam promulgates the Circular prescribing the rediscount of negotiable instruments among credit institutions and foreign bank branches.

Article 1. Scope of regulation

This Circular prescribes the rediscount of negotiable instruments among credit institutions and foreign bank branches

Article 2. Subjects of application

This Circular applies to credit institutions and foreign bank branches being the party carrying out the rediscount of negotiable instruments (below referred to as the rediscounting party) and the party having its negotiable instruments rediscounted (below referred to as the rediscounted party), including commercial banks, cooperative banks, foreign bank branches, and finance companies.

Article 3. Principles of rediscount of negotiable instruments

1. Credit institutions and foreign bank branches may carry out the rediscount of negotiable instruments if the operation of rediscount of negotiable instruments is stated in their licenses granted by the State Bank of Vietnam (below referred to as the State Bank).

2. Credit institutions and foreign bank branches shall carry out the rediscount of negotiable instruments in accordance with this Circular, the Law on Credit Institutions, the Law on Negotiable Instruments, and relevant laws. In case of rediscount of negotiable instruments involving foreign elements, the parties shall comply with this Circular, the Law on Credit Institutions, the Law on Negotiable Instruments’ provisions on application of treaties and international commercial practices concerning negotiable instruments involving foreign elements, and regulations on civil relations involving foreign elements.

3. Each credit institution and foreign bank branch shall carry out the rediscount of negotiable instruments in foreign currencies in conformity with the scope of its licensed foreign exchange operations.

Article 4. Negotiable instruments eligible for rediscount

1. A negotiable instrument is eligible for rediscount if:

a/ It has been discounted by the rediscounted party to its client in accordance with the State Bank’s regulation on discount of negotiable instruments of credit institutions and foreign bank branches to clients;

b/ It is legally owned by the rediscounted party, permitted for transaction in accordance with law and neither involved in any disputes nor being used to secure other obligations;

c/ It remains immature;

d/ It is kept intact and neither erased nor modified.

2. The rediscounting party has the right to request the rediscounted party to provide information and documents to prove that the negotiable instrument is eligible for rediscount under Clause 1 of this Article. The rediscounted party shall provide information and documents about the negotiable instrument at the request of the rediscounting party and be held responsible for the accuracy and completeness of such information and documents.

Article 5. Methods of rediscount

Credit institutions and foreign bank branches may agree and choose one of the following methods of rediscount:

1. Forward purchase, which means that the rediscounting party acquires immature negotiable instruments from the rediscounted party and, at the same time, the rediscounted party commits to redeeming such negotiable instruments after a period of time as specified in the rediscount agreement.

2. Purchase with recourse, which means that the rediscounting party acquires immature negotiable instruments from the rediscounted party; the rediscounted party shall pay to the rediscounting party the remaining amount as agreed upon in case the latter does not receive full payment from the person responsible for paying for such negotiable instruments.

Article 6. Currency used in rediscount

1. For negotiable instruments to be paid in Vietnam dong, credit institutions and foreign bank branches shall rediscount such negotiable instruments in Vietnam dong.

2. For negotiable instruments to be paid in foreign currencies:

a/ Credit institutions and foreign bank branches shall rediscount negotiable instruments in the foreign currencies written on such negotiable instruments or in Vietnam dong as agreed upon. In case of rediscount in Vietnam dong, the parties shall reach agreement on the applicable exchange rates in conformity with the State Bank’s regulation on exchange rates;

b/ In case of rediscount of negotiable instruments by the method of forward purchase, credit institutions and foreign bank branches shall redeem such negotiable instruments by the currencies used to sell them.

Article 7. Period of rediscount

1. The period of rediscount of a negotiable instrument is the time period from the date on which the rediscounting party accepts to rediscount the negotiable instrument to the date on which the rediscounted party must fulfill the committed obligation to redeem the negotiable instrument or to the due date for payment of the whole amount written on the negotiable instrument, including weekends and holidays.

2. The period of rediscount shall be agreed upon by the rediscounting party and the rediscounted party which, however, must be shorter than 12 months and not pass the date on which the rediscounted party is obliged to resell the negotiable instrument to its clients (in case the rediscounted party discounts the negotiable instrument from its clients by  the method of forward purchase) or the due date for payment of the whole amount written on such negotiable instrument (in case the rediscounted party discounts the negotiable instrument from its clients by the method of purchase with recourse).

Article 8. Rediscount prices, redemption prices, and rediscount interest rates of negotiable instruments

1. Rediscount price of a negotiable instrument is the amount to be paid by the rediscounting party to the rediscounted party when rediscounting the negotiable instrument.

2. Redemption price of a negotiable instrument is the amount to be paid by the rediscounted party to the rediscounting party when redeeming the negotiable instrument in case of rediscount of the negotiable instrument by the method of forward purchase.

3. Credit institutions and foreign bank branches shall reach agreement on rediscount prices, redemption prices, and rediscount interest rates of negotiable instruments, interest rates applicable to overdue rediscount amounts, and other lawful expenses related to rediscount of negotiable instruments in accordance with law.

Article 9. Rediscount agreements

1. Rediscount agreements of negotiable instruments among credit institutions and foreign bank branches must be expressed in the forms conformable with law, and include at least the following contents:

a/ Information on the rediscounting party and the rediscounted party;

b/ Information on the negotiable instrument to be rediscounted;

c/ Method of rediscount;

d/ Currency used in rediscount;

dd/ Rediscount price of the negotiable instrument, payment date, payment method;

e/ Rediscount period;

g/ Rediscount interest rate;

h/ Rights and obligation of related parties;

i/ Handling of violations.

2. In case of rediscount of negotiable instruments by the method of forward purchase, apart from the contents specified in Clause 1 of this Article, agreements on rediscount of negotiable instruments must have contents on negotiable instrument redemption commitment and redemption prices.

3. In case of rediscount of negotiable instruments by the method of purchase with recourse, apart from the contents specified in Clause 1 of this Article, agreements on rediscount of negotiable instruments must have contents on the rediscounted party’s responsibility to pay to the rediscounting party the remaining amount as agreed upon in case the rediscounting party does not receive full payment from the person responsible to make payment for the negotiable instrument.

4. Apart from the contents specified in Clauses 1, 2 and 3 of this Article, credit institutions and foreign bank branches may reach agreement on other contents in conformity with this Circular and relevant regulations.

Article 10. Negotiation of negotiable instruments

1. When the rediscounting party accepts to rediscount negotiable instruments, the rediscounted party shall carry out procedures for negotiation of negotiable instruments to the rediscounting party in accordance with law.

2. In case of rediscount by the method of forward purchase, when the rediscounted party fulfills its obligation to commit to redeem negotiable instruments, the rediscounting party shall carry out procedures for negotiation of negotiable instruments to the rediscounted party in accordance with law.

Article 11. Internal regulations of rediscount of negotiable instruments

1. Credit institutions and foreign bank branches shall base themselves on this Circular, the Law on Credit Institutions, the Law on Negotiable Instruments, and relevant laws to issue their internal regulations regarding rediscount of negotiable instruments in conformity with their management model and business characteristics and conditions, thus ensuring their operational safety.

2. Internal regulations must clarify responsibilities of each division and individual involved in rediscount of negotiable instruments.

3. Internal regulations must have at least contents on professional process for rediscount of negotiable instruments, risk management for rediscount of negotiable instruments, and appraisal of rediscounted parties and to-be-rediscounted negotiable instruments.

Article 12. Accounting and statistical reporting

Credit institutions and foreign bank branches shall account, and make statistical reports on rediscount of negotiable instruments according to the State Bank’s current regulations on accounting and statistical reporting regimes.

Article 13. Responsibilities of units

1. The Monetary Policy Department

To act as a focal point for coordinating with units in handling of arising problems related to this Circular.

2. The Finance and Accounting Department

To act as a focal point for coordinating with units in handling of arising problems related to accounting when implementing this Circular.

3. The Operations Center

To monitor and summarize information on rediscount of negotiable instruments among credit institutions and foreign bank branches according to the State Bank’s regulations on statistical reporting regimes.

4. The Banking Supervision Agency and provincial-level branches of the State Bank

To inspect and supervise the implementation of this Circular and handle violations according to their competence.

Article 14. Organization of implementation

This Circular takes effect on January 7, 2022.

2. The Chief of the Office, Director of the Monetary Policy Department, and heads of units under the State Bank; credit institutions and foreign bank branches shall implement this Circular.-

For the Governor of the State Bank of Vietnam
Deputy Governor
PHAM THANH HA