Circular No. 42/2011/TT-NHNN dated December 15, 2011 of the State Bank of Vietnam on providing for the extension of syndicated credit by credit institutions to clients

THE STATE BANK OF VIETNAM

Circular No. 42/2011/TT-NHNN of December 15, 2011, providing for the extension of syndicated credit by credit institutions to clients

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. 96/2008/ND-CP of August 26, 2008, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam (below referred to as the State Bank) provides for the extension of syndicated credit by credit institutions to clients as follows:

Chapter 1

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. Scope of regulation

This Circular provides for the extension of syndicated credit by credit institutions and foreign bank branches (below collectively referred to as credit institutions) to clients having production and business projects or plans in Vietnam.

2. Subjects of application

a/ Commercial banks;

b/ Cooperative banks and people’s credit funds;

c/ Financial companies and financial leasing companies;

d/ Foreign bank branches;

e/ Foreign credit institutions;

f/ Clients.

3. When extending credit to clients in Vietnam, foreign credit institutions shall observe this Circular’s provisions on extension of syndicated credit, regulations on investment, lending and foreign exchange management, and other relevant regulations.

4. The Central People’s Credit Fund shall extend syndicated loans to clients under this Circular pending its transformation into a cooperative bank under the 2010 Law on Credit Institutions.

Article 2. Interpretation of terms

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

1. Extension of syndicated credit means co-extension of credit by two (2) or more credit institutions to clients through lending, discount, financial lease, factoring, bank guarantee and other operations of credit extension.

2. Lender of syndicated credit means a credit institution or foreign credit institution defined in Clauses 2 and 3, Article 1 of this Circular which co-pledges to extend credit to a client for the implementation of a production and business project or plan or its component (below referred to as project).

3. Syndicated credit-extending member (below referred to as member) means a credit institution (or its duly authorized branch), Vietnam-based foreign bank branch or foreign credit institution co-extending syndicated credit under this Circular.

4. Focal-point syndicated credit extension-arranging member means a credit institution which receives clients’ credit request dossiers and issue letters of invitation to other credit institutions to extend syndicated credit or which is selected by syndicated credit-extending members to act on the latter’s behalf as the focal point in arranging the extension of syndicated credit to clients.

5. Focal-point syndicated credit-extending member means a capable member selected by other syndicated credit-extending members to act as the focal point to perform operations of a syndicated credit extension process.

6. Focal-point payment member means a member selected by other members to act as the focal point in disbursing capital, collecting debts and performing other payment operations related to the extension of syndicated credit for a project.

7. Focal-point security asset-receiving member means a member selected by other members to act as the focal point in receiving and managing security assets for syndicated credit extended to a client.

8. Foreign credit institution means a credit institution established overseas under foreign law.

9. Syndicated credit extension contract (below referred to as loan syndication contract) means a written agreement between syndicated credit-extending members to extend credit to a client.

10. Syndicated credit extension contract with a client (below referred to as credit extension contract) means a written agreement on the extension of credit by syndicated credit-extending parties to a client.

11. Outstanding credit loans of a syndicated credit-extending member means an individual member’s actual outstanding credit loans extended to its clients at a certain point of time. Outstanding credit loans of a credit institution being a syndicated credit-extending member shall be summarized and included in its total outstanding credit loans and serve as a basis for calculating its prudential ratios.

Article 3. Principles of syndicated credit extension

1. Syndicated credit shall be extended voluntarily by members on the principle of co-appraisal and co-decision on extension of credit to clients and co-accountability for credit extension results.

2. Members shall contribute capital (or perform obligations) according to their extension proportions specified in the loan syndication contract, enjoy benefits (interests and charges under regulations) and share arising expenses and risks stated in the loan syndication contract.

3. The focal-point syndicated credit-extending member may act as the focal-point syndicated credit extension-arranging member, focal-point payment member or focal-point security asset-receiving member. Cooperative banks, people’s credit funds or financial companies may only act as focal-point syndicated credit-extending members or focal-point payment members in case they co-extend credit for projects. Foreign credit institutions, when participating in extending syndicated credit, may not act as focal-point syndicated credit-extending members, focal-point payment members or focal-point security asset-receiving members.

4. Members shall discharge their assigned duties and receive remunerations from the discharge of duties authorized by other members.

5. Extension of syndicated credit for each specific operation complies with this Circular and relevant regulations applicable to such operation.

Article 4. Forms of syndicated credit extension

1. Provision of syndicated loan.

2. Loan syndication for guarantee.

3. Loan syndication for discount.

4. Loan syndication financial lease.

5. Loan syndication for factoring.

6. Loan syndication for combination of the above forms of credit extension.

7. Loan syndication for extension of credit in other forms.

Article 5. Cases of syndicated credit extension

1. Credit requested by a client to implement a project exceeds the law-prescribed credit limits of individual credit institutions.

2. The financial capacity and capital sources of an individual credit institution fail to meet the credit demand of a project.

3. Credit institutions need to disperse risks.

4. A client wishes to receive credit from different credit institutions to implement a project.

5. Credit institutions extend syndicated credit for important projects as instructed by the Government.

Article 6. Currency used in syndicated credit extension

The currency used in the extension of syndicated credit is Vietnam dong or a foreign currency, depending on borrowers’ need for loans to implement a project under regulations on credit extension and foreign exchange management.

Chapter 2

SPECIFIC PROVISIONS

Article 7. Conditions for syndicated credit extension

Entities defined in Article 1 of this Circular may extend syndicated credit when fully meeting the following conditions:

1. For credit institutions

a/ Being established and operating under the Law on Credit Institutions;

b/ Assuring prudential ratios after signing loan syndication contracts or credit contracts;

c/ Not breaching their credit extension limits specified in the Law on Credit Institutions (including outstanding syndicated credit loans of the client that the credit institution or foreign bank branch is to finance).

2. For foreign credit institutions

a/ Being established under foreign law;

b/ Observing this Circular’s provisions on extension of syndicated credit, regulations on investment, lending and foreign exchange management, and other relevant regulations.

3. To receive syndicated credit from foreign credit institutions, clients must satisfy requirements on registration of overseas loans, opening and use of accounts for borrowing of overseas loans and payment of overseas debts, and observe relevant regulations on borrowing of overseas loans and payment of overseas debts.

Article 8. Proposal for syndicated credit extension

1. After receiving clients’ credit request dossiers, credit institutions shall appraise the dossiers and feasibility and the clients’ requests for credit.

2. When seeing it necessary to extend syndicated credit to a client, credit institutions shall issue letters of invitation for extension of syndicated credit, enclosed with relevant documents, to credit institutions or foreign credit institutions expected to extend syndicated credit.

Article 9. Process of arranging syndicated credit extension

1. Based on letters of invitation of focal-point syndicated credit extension-arranging credit institutions, invited credit institutions shall issue official replies to accept (indicating maximum credit amounts to be extended) or refuse to extend syndicated credit.

2. If the number of credit institutions and their committed credit amounts fail to meet the project’s requirements, the focal-point syndicated credit extension-arranging credit institutions may issue letters of invitation to other eligible credit institutions.

3. Based on written replies of invited credit institutions, the focal-point syndicated credit extension-arranging credit institution shall consider and decide on the number of members to extend syndicated credit and convene a members’ meeting to reach agreement on the extension of syndicated credit.

Article 10. Appraisal of and decision on syndicated credit extension

1. Members shall reach agreement on the form of appraising a loan syndication project, the appointment of a representative joining the appraisal, authorization of the focal-point credit-extending member or hiring of a third party to conduct appraisal.

2. Members shall themselves reach agreement on appraisal expenses and make a record thereof.

3. Based on final appraisal results, members shall consider and decide on their credit extension proportions, then notify such to the focal-point syndicated credit extension-arranging member and take accountability for their decisions.

Article 11. Loan syndication contract

1. Based on members’ notices, the focal-point syndicated credit extension-arranging member shall convene a members’ meeting to reach agreement on the loan syndication contract.

2. A loan syndication contract must comply with regulations on civil contracts and credit extension and relevant regulations, and has the following principal details:

a/ Names and addresses of members;

b/ Name of the client, name of the project and its principal information;

c/ The focal-point syndicated credit-extending member;

d/ The focal-point syndicated credit extension-arranging member, if any;

e/ The focal-point payment member, if any;

f/ The focal-point security asset-receiving member, if any;

g/ Form of credit extension and total amount of syndicated credit; credit extension proportions of individual members for the project; interest to be earned by individual members and expenses arising in the process of extending syndicated credit under law;

h/ Methods of capital disbursement and collection of loan principal and interest;

i/ Security assets and management thereof; mechanism for handling security assets when clients fail to pay debts on time;

j/ Remunerations to be paid to focal-point members, if any;

k/ Rights and obligations of members and focal-point members;

l/ Method of handling risks in the process of extending syndicated credit, and of dealing with conflicts between members;

m/ Mechanism for examination during and after extension of syndicated credit;

n/ Mechanism for provision of information on extension of syndicated credit;

o/ Agreement on the appointment of a member to act as owner representative of financial leasing assets for the client in the syndication operation for financial lease;

p/ Other agreements.

3. In case a member breaching the loan syndication contract, other members may initiate a lawsuit against that member under law.

Article 12. Credit extension contract

1. Members shall sign the credit extension contract or authorize the focal-point syndicated credit-extending member to represent all members to sign the contract with the client.

2. A credit extension contract must comply with regulations on civil contracts and credit extension and relevant regulations and must define rights and obligations of the syndicated credit-extending parties and the client. A credit extension contract shall be made in many copies for the client and members to keep one each.

Article 13. Security assets in syndicated credit extension

1. Members shall agree and decide on the form of security or non-security with assets in accordance with law.

2. Members shall agree to appoint a representative or authorize the focal-point security asset-receiving member to represent all members in managing, monitoring and handling security for extended credit under law.

3. Members may have their capital refunded and shall pay arising expenses in proportion to their extended syndicated loans in case the syndicated credit-extending party handles security assets for debt collection. These expenses shall be agreed and specified in the loan syndication contract or credit extension contract.

Article 14. Focal-point payment member and payment operations

1. The focal-point payment members shall collect capital from other members, disburse capital, collect debts (both principal and interest) and conduct other payment operations related to the extension of syndicated credit for a project.

2. The focal-point payment member shall supervise and promptly notify other members of information relating to payment transactions between the syndicated credit-extending party and the client; request the client and other members to transfer money on time for conducting payment transactions; and transfer lawful earnings to other members.

Article 15. Examination of extended credit and the risk handling process in the extension of syndicated credit

1. Members shall take turns, appoint a representative or authorize the focal-point syndicated credit-extending member to supervise and examine extended credit.

2. If detecting that the client breaches the credit extension contract, a member shall immediately notify such to other members to decide on handling measures.

3. The syndicated credit-extending party may initiate a lawsuit under law in case the client breaches the credit extension contract.

Article 16. Information and reporting regulations

1. A client shall report to the focal-point syndicated credit-extending member on the progress of using the extended credit and provide necessary reports and information at the latter’s request. A client shall bear responsibility for the lawfulness and accuracy of its provided information.

2. The focal-point syndicated credit-extending member shall provide other members with information on the client and its project eligible for syndicated credit as stated in the loan syndication contract.

3. The focal-point syndicated credit-extending member shall report to the State Bank on the extension of syndicated credit according to the form provided in an appendix to this Circular (not printed herein).

Chapter 3

ORGANIZATION OF IMPLEMENTATION

Article 17. Transitional provisions

Contracts on co-financing or contracts on extension of syndicated credit in other forms signed before the effective date of this Circular continue to be performed until their expiration. These contracts may be modified only when such modifications comply with this Circular.

Article 18. Effect

This Circular takes effect on December 15, 2011, and replaces the State Bank Governor’s Decision No. 286/2002/QD-NHNN of April 3, 2002, promulgating the Regulation on co-financing by credit institutions, and Decision No. 886/2003/QD-NHNN of August 11, 2003, amending and supplementing the Regulation on co-financing by credit institutions, promulgated together with the State Bank Governor’s Decision No. 286/2002/QD-NHNN of April 3, 2002; the State Bank’s Circular No. 08/2006/TT-NHNN of October 12, 2006, guiding syndication financial leasing activities of financial leasing companies under the Government’s Decree No. 16/2001/ND-CP of May 2, 2001, on organization and operation of financial leasing companies, and Decree No. 65/2005/ND-CP of May 19, 2005, amending and supplementing a number of articles of Government’s Decree No. 16/2001/ND-CP of May 2, 2001.

Article 19. Organization of implementation

The Chief of the Office, the director of the Credit Department and heads of units under the State Bank, directors of the State Bank’s provincial-level branches; chairpersons of boards of directors, chairpersons of members’ councils and directors general (directors) of syndicated credit-extending credit institutions, foreign bank branches and foreign credit institutions and clients shall implement this Circular.-

For the State Bank Governor
Deputy Governor
NGUYEN DONG TIEN