Circular No. 20/2017/TT-NHNN dated December 29, 2017 of the State Bank of Vietnam on sale of receivables from financial leasing contracts

THE STATE BANK OF VIETNAM

Circular No. 20/2017/TT-NHNN datedDecember 29, 2017 of the State Bank of Vietnam on sale of receivables from financial leasing contracts

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

Pursuant to the Law on Credit Institutions dated June 16, 2010;

Pursuant to the Law on supplementing and amending a number of articles of the Law on Credit Institutions dated November 20, 2017;

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

Pursuant to the Government’s Decree No. 39/2014/ND-CP dated May 07, 2014 on operation of financial company and financial leasing company; 

At the request of the Chief Inspector of Banks;

The Governor of the State bank of Vietnam promulgates the Circular on sale of receivables from financial leasing contracts.

Article 1. Scopeof adjustment

This Circular provides for sale of receivables from financial leasing contracts of financial companies and financial leasing companies. 

Article 2.Subject of application

1. Financial companies which may perform financial leasing under establishment and operation licenses issued by the State Bank.

2. Financial leasing companies.

3. Organizations and individuals related to the sale of receivables from financial leasing contracts of financial companies and financial leasing companies. 

Article 3. Definitions

In this Circular, these terms are construed as follows:

1.“Receivables”means the amount payable by the financial lessee to the financial lessor under the financial leasing contract.

2.“Sale of receivables”refers to a written agreement that the seller of the receivables transfers the right to reclaim the receivables to the buyer and receive payment from the buyer.

3.“Seller”refers to financial companies and financial leasing companies which may perform financial leasing. 

4.“Buyer" refers to residents and non-residents in accordance with the law on foreign exchange, including:

a) Residents that are:

(i) Commercial banks, financial companies and financial leasing companies (hereinafter referred to as “credit institution”) which may perform debt purchase under establishment and operation licenses issued by the State Bank;

(ii) Branches of foreign banks which may perform debt purchase under establishment and operation licenses issued by the State Bank;

(iii) Legal entities other than banks, non-bank credit institutions, microfinance institutions, people’s credit funds and branches of foreign banks;

(iv) Individuals;

b) Non-residents that are organizations and individuals.

5.“Selling price of the receivables” means the amount payable by the buyer to the seller under the receivables sale contract.

6.“Book value of the receivables” means the amount payable by the financial lessee to the financial lessor under the financial leasing contract which has been recorded on the balance sheet or off the balance sheet of the financial lessor.

7.“Receivables sale contract” refers to a written agreement signed between the buyer and the seller on establishment, change or termination of rights and obligations of parties in sale of receivables.

8.“Rights of recourse” refers to the buyer’s right to enforce the sellerto fulfill its payment obligation to the buyer in case the financial lessee did not complete his/her lease payment under the financial leasing contract.

Article 4. Sale methods of receivables

The seller may select methods of sale of receivables such as agreement through direct negotiation between the seller and the buyer, through a broker or by auction of assets in accordance with the law on asset auction.

Article 5. Receivables sale council

Financial companies and financial leasing companies shall establish receivables sale councils in accordance with their charters and internal regulations on sale of receivables. The composition, tasks and powers of such councils shall be stipulated by financial companies and financial leasing companies.

Article 6. Selling price of the receivables

1.The determination of selling price of the receivables must ensure transparency and compliance with law provisions; the selling price must be in accordance with the market principles.

2.The selling price of receivables under agreement, reserve price in case of asset auction shall be determined based on the book value of the receivables, identification of the lessee’s solvency, the value of the leased asset, classification of debts from financial leasing and other market factors.

3.The determination of selling price of receivables under agreement, reserve price in case of asset auction shall be determined by the receivables sale council in accordance with law provisions.

Article 7. Sale principles of receivables

1.In a transaction of selling receivables, the seller may only transfer the right to reclaim the debt in a financial leasing contract to the buyer, unless otherwise stated in Clause 2 this Article.

2.In case the buyer is a financial company or financial leasing company which may perform financial leasing under establishment and operation licenses issued by the State Bank, the seller may transfer his/her leased asset ownership right, right to reclaim the debt and other rights and obligations in the financial leasing contract to the buyer.

3.In case the financial leasing contract has an agreement on security interests, the transfer of right to reclaim the debt shall include such security interests.

4. The seller may not buy back the receivables they have sold.

5.The seller may not sell the receivables in the following cases:

a) The buyer is the seller’s subsidiary;

b) The seller and the lessee sign an agreement that the receivables must not be sold;

c) The receivables are used as a security for the performance of a civil obligation at the time of sale of receivables, unless the lessee agrees in writing on the sale of receivables

6.In case of selling a part of receivables or selling a receivable to more than one buyer, the seller and buyers shall agree on proportion, methods, rights and obligations of each party and other specific contents of the receivables sale contract in accordance with law provisions.

7.A buyer who is a credit institution or foreign bank branch shall meet the following requirements:

a) Have obtained permission to perform debt purchase under the establishment and operation license of the credit institution or establishment license of the foreign bank branch;

b) Have a non-performing loan ratio of below 3% continuously throughout the preceding year and current year before purchasing the receivables, except cases in which receivables are purchased under an approved restructuring plan;

c) Comply with regulations of the State bank of Vietnam on prudential ratios and limits for operations of credit institutions and branches of foreign banks throughout the preceding year and current year before purchasing the receivables;

d)Promulgate internal regulations on receivables purchase (clearly state the decentralized competence based on the principle of division of responsibilities for appraisal of and decision on purchase of receivables; methods of receivables purchase; process of receivables purchase; receivables assessment process and risk management of receivables purchase transactions);

dd) Recognize receivables purchased at their real purchase price separately, ensure separation of purchased receivables from debts arising from the credit extensions of such credit institution or foreign bank branch.

8.In case the receivables sale includes rights of recourse, the seller shall account outstanding loans resulting from financial leases into total outstanding loans to the lessee. In case the receivables sale does not include rights of recourse, the buyer who is credit institution or foreign bank branch shall account the amount paid to purchase the receivables into total outstanding loans to the lessee.

9.Commercial companies and financial leasing companies shall promulgate internal regulations on receivables sale (clearly state the decentralized competence based on the principle of division of responsibilities for appraisal of and decision on sale of receivables; methods of receivables sale; process of receivables sale; receivables assessment process and receivables auction process for receivables auctioned by commercial companies or financial leasing companies themselves) before conducting the sale of receivables.

Article 8. Currency used in sale of receivables

1.The currency used in sale of receivables is Vietnam dong. Foreign currencies may only be used in receivables sale transactions when commercial companies and financial leasing companies sell receivables in foreign currencies to buyers being non-residents.

2.The currency used in lease recovery is the currency of the financial leases or other currencies agreed upon by the buyer and the lessee in accordance with law provisions on restriction on foreign currencies in Vietnam.

3.Buyers, sellers, lessees and other related party shall comply with regulations on restriction on foreign currencies in Vietnam when selling receivables and recovering leases.

Article 9. Sale of receivables from syndicated financial lease

1.If a member participating in syndicated financial lease sells part or the whole of his/her receivables, members being the seller and buyer shall agree on the sale of receivables and ensure compliance with this Circular and relevant law provisions; at the same time, the seller shall notify in writing the sale of receivables to other members.

In case of selling receivables from a syndicated financial leasing contract which is paid by a focal member, such focal member shall continue to collect leasing fees from the lessee and use the amount collected to pay the buyer (unless otherwise agreed).

2.In case of selling the whole receivable, members participating in syndicated financial lease shall agree on the sale of receivables and ensure compliance with this Circular and relevant law provisions.

Article 10. Informationprovisions

1.The seller shall select the receivable from financial leasing contracts for offering and provide sufficient information on the receivables offered to the buyer, including:

a) List of the receivables: Name and address of lessees; leased assets and their actual conditions; location of the leased assets; leased amount and remaining amount payable by the lessee in accordance with the financial leasing contract; offering price of the receivables; other information upon the request of the buyer;

b) A copy of the financial leasing contract, insurance policy (if any);

c) A copy of the registration certificate of financial leasing contract;

d) Other documents agreed upon by the seller and the lessee and in accordance with the financial leasing contract.

2.The buyer shall bear responsibilities for the accuracy and completeness of the dossier, vouchers and documents related to the receivables provided to the buyer.

3.The seller shall notify in writing the sale of receivables to the lessee and the guarantor (if any) in accordance with the financial leasing contract, unless otherwise agreed. If the seller fails to notify the sale of receivables thereby the lessee incurs expense, the seller must pay for those expenses.

Article 11. Receivables sale contract

1.A receivables sale contract must have the following principal contents:

a) Name, address and business identification number of the seller; name, address, ID number, citizen number, or passport that remains valid or business identification number of the buyer;

b) Amount of receivables, remaining term of the financial leasing contract, leased assets related to the sold receivables, name and address of the lessee;

c) Selling price of the receivables;

d) Costs related to the sale of receivables;

dd) Currency used in sales of receivables; methods of payment, time limit of payment;

e) Type of security for fulfillment of obligation in accordance with the receivables sale contract (if any);

g) Regulations on transfer of debt claim right, ownership right of leased assets and other rights and obligations as specified in Clause 1, 2 Article 7 hereof;

h) Regulations on direct collection of leasing fees by the buyer, or the seller collects leasing fees to pay the buyer or the focal member pay the leasing fees to pay back to the buyer (in case of selling receivables from a syndicated financial leasing contract which is paid by a focal member);

i) Regulations on recourse of receivables (if any);

k) Penalties and compensation for damage;

l) Responsibilities for notifying in writing to the lessee (if any);

m) Rights and obligations of the seller and the buyer;

n) Regulations on handling of financial leasing contract terminated ahead of schedule;

o) Settlement of disputes arising during the implementation of the receivables sale contract;

p) Effective term of the receivables sale contract.

2.In addition to the contents specified in Clause 1 of this Article, the parties may reach other agreements that are conformable with this Circular and relevant law provisions.

Article 12. Financial settlement, accounting and statistical report

1.Commercial companies and financial leasing companies shall carry out accounting and statistical report on sale of receivables transactions in accordance with applicable law on accounting and statistical report applied to credit institutions and branches of foreign banks.

2.When selling receivables without recourse right, the seller shall settle the difference between the selling price and the book value of the receivables as follows:

a) If the selling price is higher than the book value recognized in the balance sheet, the positive difference shall be recognized to the income of the seller in the fiscal year;

b) If the selling price is lower than the book value recognized in the balance sheet, the negative difference shall be offset with the compensation paid by an individual or a collective (in case such individual or collective is identified to have caused the damage and must pay compensation under regulations), the insurance payout by the insurer or the risk provision already set aside from expenses of such receivables; the deficit shall be recognized to operation cost of the seller in the period.

3.When selling receivables with recourse right, the seller shall settle the difference between the selling price and the book value of the receivables as follows:

a) If the selling price is higher than the book value recognized in the balance sheet, the positive difference shall be recognized to the income of the seller after the end of recourse period under the receivables sale contract;

b) If the selling price is lower than the book value recognized in the balance sheet, the negative difference shall be offset with the compensation paid by an individual or a collective (in case such individual or collective is identified to have caused the damage and must pay compensation under regulations), the insurance payout by the insurer or the risk provision already set aside from expenses of such receivables; the deficit shall be recognized to operation cost of the seller in the period.

Article 13.Transitional provisions

Receivables sale contracts signed before the effective date of this Circular may continue to be performed under agreements therein. The modification and supplementation of receivables sale contracts must comply with this Circular.

Article 14. Implementationprovisions

1.This Circular takes effect on February 12, 2018 and replaces the Governor of the State bank of Vietnam’s Circular No. 09/2006/TT-NHNN dated October 23, 2006 providing guidance to the sale of receivables from a financial leasing contract in accordance with provisions of the Decree No. 65/2005/ND-CP dated May 19, 2005 of the Government on the amendment and supplement of several articles of the Decree No. 16/2001/ND-CP dated May 02, 2001 of the Government on organization and operation of financial leasing companies.

2.The Chief officers, the Chief of banking Inspection and supervision, Heads of affiliates of the State bank of Vietnam, the Director of branches of the State Bank of provinces and central-affiliated cities, the President of the Board of Directors, the President of the Board of Members and the General Director (or Director) of credit institutions and branches of foreign banks shall implement this Circular./.

For the Governor

The Deputy Governor

Nguyen Dong Tien