Decision No. 1325/2004/QD-NHNN of October 15, 2004, on the issuance of the regulation on the discount, rediscount of the valuable papers by the credit institutions to customers

DECISION

ON THE ISSUANCE OF THE REGULATION ON THE DISCOUNT, REDISCOUNT OF THE VALUABLE PAPERS BY THE CREDIT INSTITUTIONS TO CUSTOMERS

THE GOVERNOR OF THE STATE BANK

- Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated 12 December 1997 and the Law on the amendment, supplement of several Articles of the Law on the State Bank of Vietnam No. 10/2003/QH11 dated 17 June 2003;
- Pursuant to the Law on the Credit Institutions No. 02/1997/QH10 dated 12 December 1997 and the Law on the amendment, supplement of several Articles of the Credit Institutions No. 20/2004/QH11 dated 15 June 2004;
- Pursuant to the Decree No. 86/2002/ND-CP dated 5 November 2002 of the Government providing for the function, assignment, authority and organizational structure of the ministries, ministerial-level agencies;
- Upon the proposal of the Director of the Monetary and Policy Department,

DECIDES:

Article 1.To issue in conjunction with this Decision the Regulation on the discount, rediscount of valuable papers by the Credit institutions to customers

Article 2.This Decision shall be effective after 15 days from the date of its publication in the Official Gazette.

Article 3.Heads of the State Bank s units, General Managers of State Banks branches in provinces, cities under the central Governments management, Chairperson of the Board of Directors, General Directors (Directors) of credit institutions shall be responsible for the implementation of this Decision.

REGULATION

ON THE DISCOUNT, REDISCOUNT OF VALUABLE PAPERS BY THE CREDIT INSTITUTIONS TO CUSTOMERS
(issued in conjunction with Decision No. 1325/2004/QD-NHNN dated 15 October 2004 of the Governor of the State Bank)

Article 1.Governing scope

This Regulation shall provide for the discount of valuable papers by credit institutions to customers and the rediscount of valuable papers among credit institutions.

This Regulation shall not provide for the discount, rediscount of commercial papers.

Article 2.Subjects of application

1. Credit institutions, which are set up, operating and permitted to engage in the discount, rediscount operation of valuable papers in accordance with provisions of the Law on the Credit Institutions. In case of discount, rediscount of valuable papers in foreign currency, credit institutions must be permitted to engage in foreign exchange activity.

2. Customers, who have valuable papers discounted at credit institutions and are owners of those valuable paper, including Vietnamese organizations, individuals; foreign organizations, which and individuals, who are living and legally operating in Vietnam; credit institutions.

3. Customers, who have valuable papers rediscounted at credit institutions and are credit institutions that own those valuable papers.

Article 3.Interpretation

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

1. Discount shall be an act where a credit institution purchases valuable papers prior to their maturity date from customers

2. Rediscount shall be an act where a credit institution repurchases valuable papers prior to their maturity date, which have been discounted under the outright purchase mode.

3. Remaining term of valuable papers shall be a period of time calculated from the date when the discount, rediscount of valuable papers is accepted by a credit institution to the maturity date of those valuable papers.

4. Discount, rediscount term shall be a period of time calculated from the date when the discount, rediscount of valuable papers is accepted by a credit institution to the date when customers are obliged to perform their commitment on the repurchase of those valuable papers.

5. Discount, rediscount price shall be the amount, which a credit institution pays to its customer upon performing the discount, rediscount.

Article 4.Principles of discount, rediscount

The discount, rediscount of valuable papers by a credit institution to customers shall ensure following principles:

1. Performed in compliance with agreements between the credit institution and customers provided that those agreements are in line with provisions in this Regulation, applicable provisions of related laws and international rules;

2. Credit institutions recover fully and timely the discount, rediscount amount and discount, rediscount interest of valuable papers and comply with applicable provisions of the State Bank on prudential ratios;

3. For valuable papers, face value of which is stated in foreign currency, the discount, rediscount must be consistent with provisions on foreign exchange control of the Government and the guidance of the State Bank of Vietnam.

Article 5.Types of valuable papers entitled to be discounted, rediscounted

Types of valuable papers, which the credit institutions choose for discount, rediscount, shall include:

1. Valuable papers issued by credit institutions in accordance with provisions of the Law on the Credit institutions and guidance of the State Bank of Vietnam;

2. State Bank bills issued in accordance with provisions of the State Bank

3. Bonds of all kinds issued in accordance with provisions of the Government and guidance of the Ministry of Finance, including Treasury Bills, Treasury Bonds, Bonds for central Governments projects, Investment Bonds, Foreign currency Bonds, Government Bonds for the construction of Motherland; Bonds guaranteed by the Government; Bonds of local Government;

4. Bills, term Bills, Bonds issued by other organizations and permitted to be discounted, rediscounted in accordance with provisions of applicable laws.

Article 6.Conditions for the discount, rediscount acceptance of valuable papers

Credit institutions shall accept the discount, rediscount of valuable papers when they fully satisfy following conditions:

1. They belong to the legal ownership of customers;

2. They are not yet matured;

3. They are permitted for transactions (purchase, sale, offer, conversion, transfer, mortgage, guarantee and other lawful transactions);

4. They are paid in accordance with provisions of issuing organizations.

Article 7.Currency used for discount, rediscount

1. For valuable papers denominated in VND, credit institutions shall carry out the discount, rediscount in VND;

2. For valuable papers denominated in foreign currency, credit institutions shall carry out the discount, rediscount as follows:

a. They shall be discounted, rediscounted in the foreign currency, in which valuable papers are denominated;

b. In case where the discount, rediscount is made in VND, the parties shall agree, in compliance with applicable provisions of the State Bank of Vietnam, on the foreign exchange rates applicable to credit institutions, which are permitted to engage in foreign exchange business.

Article 8.Modes of discount, rediscount

Credit institutions and their customers shall agree on and select one of following discount, rediscount modes:

1. Discount, rediscount for the entire remaining term of valuable papers, which is the outright purchase of valuable papers at the discount, rediscount price and where customers transfer immediately their ownership of those valuable papers to credit institutions. When those valuable papers become due, credit institutions shall present them to the issuing organizations for payment;

2. Time discount, rediscount:

a. Credit institutions shall purchase valuable papers for terms and at corresponding discount, rediscount prices together with customers commitment on their repurchase of those valuable papers on the date where the discount, rediscount becomes due;

b. In case where customers fail to perform the repurchase of valuable papers by the end of the discount, rediscount term, credit institutions shall become lawful owners and entitled to enjoy the entire rights, which arise from those valuable papers.

Article 9.Term, price and interest rate of the discount, rediscount

1. The discount, rediscount term shall be agreed upon by the credit institutions and customers, but shall not be in excess of the remaining term of valuable papers;

2. The discount, rediscount price shall be agreed upon by the credit institutions and customers provided that they ensure principles stipulated in Article 4 of this Regulation. Major factors for consideration and agreements on the discount, rediscount price shall be the value of the valuable papers at their maturity date, the discount interest rate, rediscount interest rate and the remaining term of valuable papers;

3. The discount interest rate, rediscount interest rate shall be agreed upon by the credit institutions and customers.

Article 10.Discount, rediscount level for a single customer

The discount, rediscount level for a single customer shall be equal to 15% of the own capital of the credit institution at the maximum. In case of foreign banks branches, which are operating in Vietnam, it shall be 15% of the own capital of their mother banks at the maximum

Article 11.Procedures for the performance of discount, rediscount

1. When there is a demand for the discount, rediscount of valuable papers, customers shall submit the application for the discount, rediscount of valuable papers to the credit institutions. Customers shall be responsible before the laws for the legality, validity of valuable papers, which are discounted, rediscounted at credit institutions.

2. Credit institutions shall verify conditions for the discount, rediscount of valuable papers. In case of necessity, they may require the customers to submit documents that prove their discount, rediscount conditions as provided for in Article 6 of this Regulation.

3. When credit institutions accept the discount, rediscount, customers shall at once deliver valuable papers and complete procedures for the transfer of valuable paper ownership to credit institutions:

a. For valuable papers, which are issued in form of a bearer certificate, customers shall directly deliver the valuable papers to credit institutions that undertake the discount, rediscount;

b. For valuable papers, which are issued in form of a non-bearer certificate, customers shall deliver the valuable papers and complete procedures for transfer of valuable paper ownership to credit institutions that undertake the discount, rediscount;

c. For valuable papers, which are issued in form of a book-entry, customers shall deliver the certificate of their ownership and complete procedures for transfer of the valuable paper ownership to the credit institutions that undertake the discount, rediscount in accordance with provisions of applicable laws and of issuing organizations;

d. For valuable papers, which are kept in the custody at organizations that are permitted to engage in the custody activity in accordance with provisions of applicable laws, credit institutions and customers may authorize a custody organization to complete procedures for the delivery of valuable papers and the transfer of the valuable paper ownership from customers to credit institutions.

4. Agreements on the discount, rediscount between the credit institutions and customers must be made in writing. Contents of the agreement on the discount, rediscount must be in compliance with provisions of this Regulation, provisions of other related laws and the pro-forma contract issued by the Banking Association of Vietnam.

5. For the time discount, rediscount, credit institutions shall deliver the valuable papers and transfer the ownership of those valuable papers to customers in the process stipulated in Paragraph 3 of this Article, when customers have completed their commitment for the repurchase of valuable paper.

Article 12.Classifying, setting up provisions and dealing with risks concerning the discount, rediscount amount

Credit institutions shall carry out the classification, setting up of provisions and settlement of the risks for the discount, rediscount amount in accordance with applicable provisions of the State Bank of Vietnam on the classification of assets, provisioning and risk settlement in banking activity of credit institutions.

Article 13.Dealing with violation

Credit institutions and customers shall be entitled to impose a compensation for damages, to perform their recourse right, complaint and initiate a court suit against the violating party if it is agreed upon by the parties or provided for by the laws.

Article 14.Organization of the implementation

1. Credit institutions and customers that have a demand for the discount, rediscount of valuable papers at credit institutions shall be responsible for implementation of this Regulation.

2. On the basis of this Regulation, provisions of related laws and international rules, credit institutions shall issue a process for the implementation of the discount, rediscount operation of valuable papers in line with their conditions, characteristics and charter.

3. The amendment of, supplement to this Regulation shall be decided upon by the Governor of the State Bank.