Circular No. 30/2014/TT-NHNN dated November 06, 2014 of the State Bank of Vietnam providing for the entrustment operations and entrustment taking of credit institutions, foreign bank's branches

CIRCULAR

On entrustment and entrustment taking by credit institutions and foreign bank branches[1]

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

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to the Government’s Decree No. 156/2013/ND-CP of November 11, 2013, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam (below referred to as the State Bank);

At the proposal of the Chief Inspector of the Banking Supervisory Agency;

The State Bank Governor promulgates the Circular stipulating the entrustment and entrustment taking by credit institutions and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

1. Credit institutions and foreign bank branches may entrust or take entrustment under this Circular for the following activities:

a/ Lending;

b/ Financial leasing;

c/ Capital contribution and share purchase;

d/ Investment in production or business projects;

dd/ Purchase of corporate bonds.

2. The taking of the Government’s entrustment by credit institutions and foreign bank branches must comply with the Government’s regulations.

Article 2. Subjects of application

1. Credit institutions, including:

a/ Commercial banks;

b/ Policy banks;

c/ Cooperative banks;

d/ Finance companies;

dd/ Financial leasing companies;

e/ Micro-finance institutions;

g/ People’s credit funds.

2. Foreign bank branches.

3. Institutions that are not credit institutions or foreign bank branches based in Vietnam (below referred to as institutions), resident and non-resident individuals involved in entrustment or entrustment taking stipulated in this Circular.

Article 3. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Entrustment means that a party (the entrusting party) transfers a monetary capital amount to another party (entrusted party) to conduct one of the activities specified in Clause 1, Article 1 of this Circular for an entrustment beneficiary. The entrusting party shall bear all risks and the entrusted party enjoy an entrustment charge.

2. Entrustment beneficiaries are those benefiting from entrusted capital amounts, including:

a/ Individuals and institutions, including also credit institutions and foreign bank branches that are capital borrowers or financial leasing clients;

b/ Enterprises and credit institutions that receive capital contributions or issue bonds or stocks;

c/ Production or business projects.

3. Lending entrustment means that a party entrusts another party to provide a loan to a borrower.

4. Financial leasing entrustment means that a party entrusts another party to provide a financial lease to a financial leasing client.

5. Capital contribution or share purchase entrustment means that a party entrusts another party to contribute capital to or purchase shares from an enterprise or a credit institution.

6. Corporate bond purchase entrustment means that a party entrusts another party to purchase corporate bonds, including also convertible bonds.

7. Entrustment taking for investment in a production or business project means that a finance company takes entrustment of a project investor to invest entrusted capital in a production or business project on the basis of a business cooperation contract.

8. Entrustment period means a period counted from the time the entrusted party starts to perform entrusted jobs to the time entrusted jobs are completed as stated in the entrustment contract.

9. Entrusted capital means a monetary amount transferred by the entrusting party to the entrusted party to perform entrusted jobs.

10. Entrustment charge means a monetary amount paid by the entrusting party to the entrusted party to perform entrusted jobs as stated in the entrustment contract and in accordance with law.

Article 4. Entrustment principles  

1. Entrustment shall be established in written contracts made in compliance with this Circular and relevant regulations.

2. The entrusting party may only entrust the entrusted party to perform jobs which the former is allowed to perform and entrust in accordance with law; the entrusted party may only take entrustment for jobs which it is allowed to perform and take entrustment.

3. The entrusted party may not sub-entrust a third party.

4. The transfer of entrusted capital must suit the progress of performance of entrusted jobs.

5. The entrusted party may not use entrusted capital for purposes and jobs not stated in the entrustment contract.

6. Credit institutions and foreign bank branches that entrust other credit institutions, foreign bank branches and other institutions shall account the balance of entrusted amounts within the limits and prudential ratios in operations of credit institutions and foreign bank branches as prescribed by the State Bank.

7. Foreign bank branches that are entrusted by their parent banks or overseas parent bank branches to provide loans or purchase stocks shall comply with this Circular and regulations on borrowing and repayment of foreign loans, management of foreign exchange and other relevant regulations.

8. Foreign-currency entrustments must comply with the law on foreign exchange management and relevant regulations.

9. Entrusting parties being credit institutions and foreign bank branches shall classify debts, set aside and use provisions to offset risks under the State Bank’s regulations for the entrusting balance.

Entrusted parties being credit institutions and foreign bank branches are not required to classify debts, set aside and use provisions to offset risks under the State Bank’s regulations for the entrusted balance.

10. For offshore entrustment, credit institutions and foreign bank branches may only entrust overseas banks and fund management companies to perform activities specified in Clause 1, Article 1 of this Circular within the scope of foreign exchange activities on the global market of such credit institutions and foreign bank branches.

Article 5. Entrustment contracts  

1. An entrustment contract must have at least the following contents:

a/ Names and addresses of the entrusting party and entrusted party;

b/ Entrustment beneficiary: The name of the entrustment beneficiary shall be clearly indicated or sufficient specific information for identifying the entrustment beneficiary shall be provided.

In case of entrustment for bond purchase, in addition to the name of or information to identify the issuer, the type and term of bonds shall be specified;

c/ Entrustment purpose;

d/ Entrustment scope and contents;

dd/ Entrustment period;

e/ Entrustment charge;

g/ Entrusted capital; time of transfer of entrusted capital;

h/ Currency in which the entrustment is made (if any);

i/ Rights and obligations of the entrusting party and entrusted party, clearly stating that the entrusting party shall bear all risks and enjoy all benefits from the entrustment and the entrusted party enjoys the entrustment charge;

k/ Ahead-of-schedule termination of the contract;

l/ Dispute settlement.

2. In addition to the contents specified in Clause 1 of this Article, an entrustment contract may have other contents agreed upon by the parties in accordance with this Circular and relevant regulations.

Article 6. Rights and obligations of the entrusting party

1. The entrusting party has the following rights:

a/ To request the entrusted party to provide documents to prove that the latter is allowed to perform entrusted jobs and take entrustment in accordance with law;

b/ To request the entrusted party to report and provide documents and information on the performance of the entrustment contract and results thereof;

c/ To supervise and inspect the performance by the entrusted party of entrusted jobs within the scope of entrustment stated in the entrustment contract;

d/ Other rights provided in the entrustment contract in accordance with law.

2. The entrusting party has the following obligations:

a/ To examine and assess functions, scope of operation, governance and administration capacity, personnel, professional skills, technology and infrastructure of the entrusted party in order to ensure that the entrusted party is able to perform entrusted jobs and take entrustment;

b/ To transfer entrusted capital to the entrusted party according to the progress of performance of entrusted jobs as stated in the entrustment contract;

c/ To provide the entrusted party with information and documents relevant to the entrustment as required by the entrustment contract;

d/ To pay the entrustment charge to the entrusted party under the entrustment contract;

dd/ Other obligations prescribed in the entrustment contract in accordance with law.

Article 7. Rights and obligations of the entrusted party

1. The entrusted party has the following rights:

a/ To reject the entrusting party’s requests relating to the scope of entrustment, jobs and beneficiaries neither stated in the entrustment contract nor compliant with law;

b/ To receive the entrustment charge as stated in the entrustment contract;

c/ To request the entrusting party to provide information and documents relevant to the entrustment as required by the entrustment contract;

d/ Other rights provided in the entrustment contract in accordance with law.

2. The entrusted party has the following obligations:

a/ To examine and assess functions and scope of operation of the entrusting party to ensure that the entrusting party is allowed to give or take entrustment in accordance with law;

b/ To perform entrusted jobs within the scope of entrustment stated in the entrustment contract;

c/ To inspect and supervise the use of the entrusted capital by the entrustment beneficiary under the entrustment contract;

d/ To promptly and fully notify the entrusting party of the performance of entrusted jobs under the entrustment contract;

dd/ To return to the entrusting party all lawful benefits and relevant documents under the entrustment contract.

In case of ahead-of-schedule termination of the entrustment contract, the entrusted party shall return to the entrusting party the undisbursed entrusted monetary amount, all lawful benefits and related documents by the date of ahead-of-schedule termination of the entrustment contract as stated in the entrustment contract;

e/ Other obligations prescribed in the entrustment contract.

Article 8. Conditions for credit institutions and foreign bank branches to give or take entrustment

A credit institution or foreign bank branch may conduct entrustment and entrustment taking activities when fully meeting the following conditions are fully met:

1. Entrustment or entrustment taking is specified in its establishment and operation license.

2. It has internal regulations on management of entrustment and entrustment taking, including those on identification, measurement and management of risks of entrustment and entrustment taking suitable to its operation characteristics and scale.

3. Risks of entrustment or entrustment taking are managed by a risk management section.

4. The entrusted party has physical foundations, network and professionally qualified and skilled employees to perform entrusted jobs.

5. In case it receives entrusted capital from an institution or individual for investment in a production or business project, provision of a financial lease or loan, in addition to the conditions prescribed in Clauses 1 thru 4 of this Article, it shall ensure that at the time of entrustment, the entrusting party has no outstanding balance of its loans.

Chapter II

ENTRUSTMENT AND ENTRUSTMENT TAKING BY CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Article 9. Cases in which entrustment or entrustment taking is not allowed                 

1. Credit institutions and foreign bank branches may neither entrust, nor take entrustment for, the provision of loans to entrustment beneficiaries specified as entities ineligible for credit extension in Article 126 or 127 of the Law on Credit Institutions and the State Bank’s regulations on limits and prudential ratios in operations of credit institutions and foreign bank branches.

2. Commercial banks, foreign bank branches, cooperative banks, people’s credit funds and micro-finance institutions may neither entrust, nor take entrustment for, the provision of financial leases.

3. Credit institutions (except commercial banks) and foreign bank branches may neither entrust, nor take entrustment for, capital contribution or share purchase.

Commercial banks may neither entrust, nor take entrustment for, the contribution of capital to or purchase of shares from entities specified as those ineligible for capital contribution or share purchase in Clause 5, Article 129 of the Law on Credit Institutions and the State Bank’s regulations on limits and prudential ratios in operations of credit institutions and foreign bank branches.

4. Credit institutions (except finance companies) and foreign bank branches may neither entrust, nor take entrustment for, investment in production or business projects.

5. Finance companies, financial leasing companies, cooperative banks, people’s credit funds and micro-finance institutions may neither entrust, nor take entrustment for, purchase of corporate bonds.

6. Credit institutions and foreign bank branches may neither entrust, nor take entrustment for, purchase of bonds of other credit institutions and foreign bank branches.

Article 10. Entrustment and entrustment taking by commercial banks

1. Commercial banks may entrust:

a/ Other commercial banks, foreign bank branches and finance companies to provide loans to clients;

b/ Cooperative banks to provide loans to clients that are not members of these banks;

c/ People’s credit funds to provide loans to clients that are not members of these funds;

d/ Micro-finance companies to provide loans to low-income individuals and households and micro-enterprises;

dd/ Other commercial banks and institutions licensed to trade in securities in accordance with law to contribute capital to or purchase shares of enterprises and other credit institutions;

e/ Other commercial banks, foreign bank branches and institutions licensed to trade in securities in accordance with law to purchase corporate bonds.

2. Commercial banks may be entrusted by:

a/ Other commercial banks, policy banks, foreign bank branches, finance companies, cooperative banks and institutions to provide loans to clients;

b/ Other commercial banks and institutions licensed to trade in securities in accordance with law to contribute capital to or purchase shares of enterprises and other credit institutions;

c/ Other commercial banks, foreign bank branches and institutions licensed to trade in securities in accordance with law to purchase corporate bonds.

Article 11. Entrustment and entrustment taking by foreign bank branches

1. Foreign bank branches may entrust:

a/ Commercial banks, other foreign bank branches and finance companies to provide loans to clients;

b/ Cooperative banks to provide loans to clients that are not members of these banks;

c/ People’s credit funds to provide loans to clients that are not members of these funds;

d/ Micro-finance companies to provide loans to low-income individuals and households and micro-enterprises;

dd/ Commercial banks, other foreign bank branches and institutions licensed to trade in securities in accordance with law to purchase corporate bonds.

2. Foreign bank branches may be entrusted by:

a/ Parent banks, other branches of parent banks, commercial banks, policy banks, other foreign bank branches, cooperative banks and institutions to provide loans to clients;

b/ Parent banks, other branches of parent banks, commercial banks, other foreign bank branches and institutions licensed to trade in securities in accordance with law to purchase corporate bonds.

Article 12. Entrustment and entrustment taking by finance companies

1. Foreign bank branches may entrust:

a/ Commercial banks and other finance companies to provide loans to clients;

b/ Cooperative banks to provide loans to clients that are not members of these banks;

c/ People’s credit funds to provide loan to clients that are not members of these funds;

d/ Micro-finance companies to provide loans to low-income individuals and households and micro-enterprises;

dd/ Financial leasing companies and other finance companies to purchase corporate bonds.

2. Finance companies may:

a/ Take entrustment for investment in production and business projects of institutions and individuals;

b/ Be entrusted by commercial banks, policy banks, foreign bank branches, other finance companies, cooperative banks, institutions and individuals to provide loans to clients;

c/ Be entrusted by financial leasing companies and other finance companies to provide financial leases.

Article 13. Entrustment and entrustment taking by financial leasing companies

1. Financial leasing companies may entrust other financial leasing companies and finance companies to provide financial leases.

2. Financial leasing companies may be entrusted by finance companies and other financial leasing companies to provide financial leases.

3. Financial leasing companies may receive entrusted capital of institutions and individuals to provide financial leases.

Article 14. Entrustment and entrustment taking by cooperative banks

1. Cooperative banks may entrust commercial banks, foreign bank branches and finance companies to provide loans to clients that are not their members.

2. Cooperative banks may entrust people’s credit funds to provide loans to clients that are not members of these funds.

3. Cooperative banks may be entrusted by commercial banks, foreign bank branches and finance companies to provide loans to clients that are not their members.

Article 15. Entrustment taking by people’s credit funds

1. People’s credit funds may receive entrusted capital of institutions and individuals to provide loans.

2. People’s credit funds may be entrusted by commercial banks, foreign bank branches, finance companies and cooperative banks to provide loans to clients that are not their members.

Article 16. Entrustment and entrustment taking by micro-finance institutions

1. Micro-finance institutions may entrust other micro-finance institutions to provide loans to low-income individuals and households and micro-enterprises.

2. Micro-finance institutions may be entrusted by commercial banks, finance companies, foreign bank branches and other micro-finance institutions to provide loans to low-income individuals and households and micro-enterprises.

Chapter III

ACCOUNTING, REPORTING, TRANSITIONAL PROVISIONS

Article 17. Accounting

1. Credit institutions and foreign bank branches that are entrusting parties shall conduct on-balance sheet accounting of entrusted capital amounts used to provide loans or financial leases, invest in production or business projects, contribute capital, purchase shares or corporate bonds for entrusted parties in accordance with the accounting law.

2. Credit institutions and foreign bank branches that are entrusted parties shall conduct off-balance sheet accounting of entrusted capital amounts used to provide loans or financial leases, invest in production or business projects, contribute capital, purchase shares or corporate bonds in accordance with the accounting law.

Article 18. Reporting

1. Credit institutions and foreign bank branches shall report on their entrustment and entrustment taking activities under the State Bank of Vietnam’s regulations on the statistical reporting regime applicable to credit institution and foreign bank branches.

2. Credit institutions and foreign bank branches shall provide information on results of their entrustment and entrustment taking activities to the National Credit Information Center of Vietnam under the State Bank of Vietnam’s regulations on credit information activities.

Article 19. Transitional provisions

Credit institutions and foreign bank branches may continue to perform entrustment contracts signed before the effective date of this Circular according to signed agreements and regulations effective at the time of signing until the expiration of such contracts and may not extend them. Modification and supplementation may be made to such contracts if modified and supplemented contents are compliant with this Circular and relevant regulations.

Chapter IV

ORGANIZATION OF IMPLEMENTATION

Article 20. Responsibilities of the Banking Supervisory Agency

1. To supervise, examine and inspect entrustment and entrustment taking activities of credit institutions and foreign bank branches under this Circular.

2. To sanction administrative violations in entrustment and entrustment taking activities of credit institutions and foreign bank branches in accordance with the law on sanctioning of administrative violations in the monetary and banking fields.

3. To coordinate with the Forecast and Statistics Department, Finance and Accounting Department and Foreign Exchange Management Department in managing entrustment and entrustment taking activities of credit institutions and foreign bank branches.

Article 21. Responsibilities of related units

1. Responsibilities of the Foreign Exchange Management Department:

To monitor and manage foreign loans and repayment thereof related to entrustment and entrustment taking activities credit institutions and foreign bank branches in accordance with law.

2. Responsibilities of the State Bank’s provincial-level branches:

a/ To inspect and supervise the State Bank’s provincial-level branches in localities where the Banking Supervisory Agency has no office in supervising, examining and inspecting entrustment and entrustment taking activities of credit institutions and foreign bank branches based in their localities according to their functions and tasks;

b/ To report the State Bank Governor on violations and handle them according to their competence.

3. Responsibilities of the National Credit Information Center of Vietnam:

a/ To receive and summarize information on entrustment and entrustment taking activities provided by credit institutions and foreign bank branches;

b/ To provide information on entrustment and entrustment taking activities credit institutions and foreign bank branches under the State Bank’s regulations on credit information activities.

Chapter V

IMPLEMENTATION PROVISIONS

Article 22. Effect   

1. This Circular takes effect on January 1, 2015.

2. The following documents and regulations cease to be effective:

- The State Bank’s Circular No. 04/2012/TT-NHNN of March 8, 2012, on entrustment taking and entrustment activities of credit institutions and foreign bank branches;

- Section II of the State Bank’s Circular No. 05/2006/TT-NHNN of July 25, 2006, guiding a number of provisions on financial leasing and service of financial leasing entrustment under the Government’s Decree No. 16/2001/ND-CP of May 2, 2001, and Decree No. 65/2005/ND-CP of May 19, 2005.

3. The Director of the Office, the Chief Inspector of the Banking Supervisory Agency, heads of units of the State Bank, directors of the State Bank’s provincial-level branches, chairpersons of Boards of Directors and Members’ Councils, and general directors (directors) of credit institutions and foreign bank branches shall implement this Circular.

For the State Bank Governor
Deputy Governor
NGUYEN PHUOC THANH