Decision No. 1627/2001/QD-NHNN dated December 31, 2001 of the State Bank on issuing regulations on lending by credit institutions to clients

DECISION

ON ISSUING REGULATIONS ON LENDING BY CREDIT INSTITUTIONS TO CLIENTS

THE GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on State Bank of Vietnam and the Law on Credit Institutions dated 12 December 1997;

Pursuant to Decree 15-CP of the Government dated 2 March 1993 on duties, powers and responsibilities for State administration of ministries and ministerial equivalent bodies;

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

DECIDES:

Article 1

To hereby issue with this Decision the Regulations on Lending by Credit Institutions to Clients.

Article 2

This Decision shall be of full force and effect as of 1 February 2002. The Regulations on Lending by Credit Institutions to Clients issued with this Decision shall replace the Regulations on Lending by Credit Institutions to Clients issued with Decision 284-2000-QD-NHNN1 of the Governor of the State Bank dated 25 August 2000.

Article 3

In the case of credit contracts which were entered into prior to the date of effectiveness of this Decision and under which the loans have not been disbursed or not fully disbursed, and in the case of credit contracts with outstanding loans as at the end of 31 January 2002, credit institutions and clients shall continue to implement them in accordance with the clauses in the signed contracts until the loans are fully repaid, or they may agree to amend and add to the credit contracts in order to make them consistent with the Regulations on Lending by Credit Institutions to Clients issued with this Decision.

Article 4

Heads of units under the State Bank, directors of State Bank branches in cities and provinces under central authority, chairmen of boards of management and general directors (directors) of credit institutions, and clients borrowing from credit institutions shall be responsible for implementation of this Decision.

REGULATIONS

ON LENDING BY CREDIT INSTITUTIONS TO CLIENTS
(Issued with Decision 1627-2001-QD-NHNN1 of the Governor of the State Bank dated 31 December 2001)

Article 1Governing scope

These Regulations provide for lending in Vietnamese dong and foreign currency by credit institutions to clients not being credit institutions in order to satisfy capital requirements for production, business, services, investment and development, and living conditions.

Article 2Applicable subjects

1. Credit institutions established and conducting lending in accordance with the Law on Credit Institutions. In the case of lending in foreign currency, credit institutions must be licensed for foreign exchange activities.

2. Clients borrowing loans from credit institutions, comprising:

(a) Vietnamese legal entities and individuals, comprising:

- Legal entities being State owned enterprises, co-operatives, limited liability companies, shareholding companies, enterprises with foreign owned capital, and other organizations satisfying all conditions stipulated in article 94 of the Civil Code;

- Individuals;

- Households;

- Co-operative groups;

- Private enterprises;

- Partnerships;

(b) Foreign legal entities and individuals.

Article 3Interpretation of terms

In these Regulations, the following terms shall have the meanings ascribed to them hereunder:

1. Lending means a form of extension of credit whereby a credit institution provides a client with an amount of money to be used for a certain purpose and within a fixed period of time as agreed on the basis of the principle of repayment of both principal and interest.

2. Loan term means the period of time calculated from the date on which the client commences to receive the loan funds to the date on which principal and interest have been repaid in full as agreed in the credit contract between the credit institution and the client.

3. Repayment periods means the periods of time within the term of a loan which are agreed between the credit institution and the client whereby at the end of each period the client must repay part or the whole of the loan to the credit institution.

4. Adjustment of repayment periods means an agreement between the credit institution and the client to change the repayment periods previously agreed in the credit contract.

5. Extension of the loan term means the approval of a credit institution to extend the loan term agreed in the credit contract for another period.

6. Investment project or plan for production, business and services, or investment project or plan to service living conditions means a group of proposals on capital requirements, means of utilizing capital and its appropriate results with respect to specific operations for production, business, services, investment and development, or servicing living conditions for a fixed period of time.

7. Credit limit means the maximum amount of a loan which is maintained within a fixed period as agreed in the credit contract between a credit institution and the client.

8. Financial capacity of borrower means the capacity of the capital and assets of the borrower to ensure regular operations and to discharge payment obligations.

Article 4Compliance with foreign exchange control regulations

When lending in foreign currency, a credit institution and the client must strictly comply with the regulations of the Government and the guidelines of the State Bank of Vietnam on foreign exchange control.

Article 5Right of credit institutions to autonomy in lending

Credit institutions shall be responsible for their own decisions on lending. No organization or individual may illegally interfere in the autonomy in lending of credit institutions.

Article 6Principles of borrowing

A client borrowing from a credit institution must ensure compliance with the following principles:

1. It must utilize the loan capital for the correct purpose agreed in the credit contract;

2. It must repay on time the loan principal and interest as agreed in the credit contract.

Article 7Conditions for borrowing

A credit institution shall consider and decide on lending when a client satisfies all of the following conditions:

1. The client has civil legal capacity and capacity for civil acts and bears civil responsibility as stipulated by law, in particular:

(a) In the case of a borrower being a Vietnamese legal entity or individual:

- A legal entity must have civil legal capacity;

- An individual or an owner of a private enterprise must have civil legal capacity and capacity for civil acts;

- A representative of a household must have civil legal capacity and capacity for civil acts;

- A representative of a co-operative must have civil legal capacity and capacity for civil acts;

- A partner of a partnership must have civil legal capacity and capacity for civil acts;

(b) In the case of a borrower being a foreign legal entity or individual, it must have civil legal capacity and capacity for civil acts under the laws of the country of which the legal entity holds nationality or of which the individual is a citizen, if the foreign law is required to be applied by the Civil Code of the Socialist Republic of Vietnam or is referred to in an international treaty to which the Socialist Republic of Vietnam is a signatory or participant;

2. It must have a lawful purpose for utilizing the loan capital;

3. The client must have the financial capacity to ensure repayment of the loan within the time-limit undertaken;

4. It must have an investment project or plan for production, business and services which is feasible and effective, or it must have an investment project or a feasible plan to service living conditions which complies with the law;

5. It must comply with the regulations of the Government and the guidelines of the State Bank of Vietnam on security for loans.

Article 8Types of loans

A credit institution shall consider and make a decision on lending to a client the following types of loans, being short term, medium term or long term, to meet capital requirements for production, business, services and living conditions or for investment and development projects:

1. Short term loans means loans with a duration of up to twelve (12) months;

2. Medium term loans means loans with a duration of over twelve (12) months up to sixty (60) months;

3. Long term loans means loans with a duration of over sixty (60) months.

Article 9Objects for which credit institutions may not provide loans

1. A credit institution may not provide loans for the following objects:

(a) In order to procure assets and for costs which will form assets the purchase and sale, transfer or disposal of which is prohibited by law;

(b) In order to make payment for transactions which are prohibited by law;

(c) In order to satisfy financial requirements of transactions which are prohibited by law.

2. A credit institution must conduct loan re-structuring in accordance with the specific regulations of the State Bank of Vietnam.

Article 10Loan term

A credit institution and its client shall agree on a loan term based on the cycle of production or business, the period for recovery of investment project capital, the repayment capacity of the client, and the capital sources of the credit institution which are available for lending. In the case of Vietnamese and foreign legal entities, the loan term shall not exceed the remaining duration of operation pursuant to the decision on establishment or operating licence in Vietnam; and in the case of foreign individuals, the loan term shall not exceed the permitted period of residence of the foreigner in Vietnam.

Article 11Loan interest rates

1. The loan interest rate shall be agreed by the credit institution and its client in accordance with the regulations of the State Bank of Vietnam.

2. The interest rate for overdue debts must be fixed by the credit institution and agreed with the client in the credit contract, but shall not exceed one hundred and fifty (150) per cent of the interest rate applicable during the loan term as agreed or adjusted in the credit contract.

Article 12Lending limits

1. A credit institution shall base its decision on its lending limits on the borrowing requirements of clients and their capacity to repay and on the available capital sources of the credit institution.

2. The total outstanding loans to a single client shall be implemented in accordance with article 18 of these Regulations.

3. The total outstanding loans to the subjects stipulated in article 20 of these Regulations may not exceed five per cent of the equity of a credit institution.

Article 13Repayment of principal and interest

1. A credit institution and a client shall agree on the following with respect to repayment of principal and interest:

(a) Principal repayment periods;

(b) Interest payment periods, which may coincide with principal repayment periods or which may be separate;

(c) Currency of repayment and security for the whole value of the principal in appropriate forms in accordance with the provisions of the law.

2. When repayment of principal or interest falls due and the client is unable to repay on time, if the repayment period of principal or interest is not adjusted or extended, the credit institution shall reclassify the whole of the outstanding debt as an overdue debt.

3. With respect to early repayment of a debt by a client, the credit institution and the client may agree on the conditions, the amount of loan interest and the fees payable.

4. Repayment of debts in foreign currency: any type of lending in foreign currency must be repaid both as to principal and interest in that same foreign currency; if it is repaid in another foreign currency, it must be done so in accordance with an agreement between the credit institution and the client which is consistent with the regulations of the Government and the guidelines of the State Bank on foreign exchange control.

Article 14Loan files

1. A client wishing to borrow a loan shall submit to the credit institution a loan proposal and documents necessary to prove that all conditions for borrowing stipulated in article 7 of these Regulations have been satisfied. Clients shall be responsible before the law for the accuracy and lawfulness of documents that they submit to credit institutions.

2. Credit institutions shall guide clients on the types of documents that they require from them in accordance with the characteristics of each type of client and the type of loan.

Article 15Evaluation and decision on lending

1. Credit institutions shall establish a process of consideration and approval of lending on the basis of the principles of ensuring independence and making a clear distinction between personal responsibility and joint responsibility between the stages of evaluation and decision on lending.

2. In order to make a decision on lending, credit institutions shall consider and evaluate the feasibility and effectiveness of the investment project or plan for production, business and services or the investment project or plan for servicing living conditions and the capacity of the client to repay the loan.

3. Credit institutions shall stipulate and display publicly their own specific rules on maximum time-limits within which to notify a client of a decision on lending or refusal to lend from the date when the credit institution receives a complete and proper loan file and the other necessary information it requires from the client. In the case of a decision to refuse to lend, the credit institution must notify the client in writing of its reasons.

Article 16Method of lending

A credit institution and the borrowing client shall agree on the choice of one of the following methods of lending:

1. Individual lending: On each occasion that a loan is provided, the client and the credit institution shall carry out the necessary procedures and enter into a credit contract.

2. Lending pursuant to a credit facility: The credit institution and the client shall determine and agree on a credit facility to be maintained for a fixed period.

3. Lending pursuant to an investment project: The credit institution shall provide a loan for a client to implement an investment project for development of production, business and services or an investment project for servicing living conditions.

4. Syndicated lending: A group of credit institutions shall provide a loan for the loan project or loan plan of a client, whereby one credit institution acts as the focal institution for making arrangements and co-ordinating with the other credit institutions. Syndicated lending shall be carried out in accordance with these Regulations and with the regulations on co-financing by credit institutions issued by the Governor of the State Bank of Vietnam.

5. Lending on instalment repayment: When providing the loan, the credit institution and the client shall determine and agree on the amount of loan interest that must be paid in addition to the amount of principal which shall be divided into repayment periods during the loan term.

6. Lending pursuant to a reserve credit facility: The credit institution shall undertake to make loans available to a client within the limit of a fixed credit facility. The credit institution and the client shall agree on the period of validity of the reserve credit facility and the fees payable for the reserve credit facility.

7. Lending by way of issuance and use of credit cards: The credit institution shall approve the use by a client of a loan amount within the limit of a credit facility to pay for purchasing goods and services or to withdraw cash at automatic telling machines or at the cash advance agencies of the credit institution. For lending by way of issuance and use of credit cards, credit institutions and clients must comply with the regulations of the Government and of the State Bank on issuance and use of credit cards.

8. Lending pursuant to an overdraft facility: The credit institution shall agree in writing with the client on making payments in excess of the account balance of the client, consistent with the regulations of the Government and of the State Bank on payment operations by credit institutions providing payment services.

9. Other methods of lending not prohibited by law, consistent with these Regulations, the conditions for business operation by credit institutions, and the characteristics of the borrower.

Article 17Credit contracts

Lending by a credit institution to a client must be implemented by way of a credit contract. The credit contract must stipulate the loan conditions, the purpose of loan utilization, the method of lending, the loan amount, the interest rate, the loan term, the form of loan security, the value of security assets, the method of repayment, and the other undertakings agreed by the parties.

Article 18Lending limits

1. The total outstanding loans to a single client may not exceed fifteen (15) per cent of the equity of the credit institution, except in cases of loans funded by capital sources entrusted by the Government, by organizations or by individuals. If the capital requirements of a client exceed fifteen (15) per cent of the equity of the credit institution or if a client wishes to raise capital from a number of sources, credit institutions may enter into a syndicated loan in accordance with regulations of the State Bank.

2. In special circumstances, credit institutions may provide loans in excess of the lending limits stipulated in clause 1 of this article, but only upon approval by the Prime Minister of the Government on a case-by-case basis.

3. The equity of credit institutions on the basis of which the lending limits stipulated in clauses 1 and 2 of this article are calculated shall be determined in accordance with regulations of the State Bank.

Article 19Circumstances in which lending is not permitted

1. A credit institution may not provide loans to the following clients:

(a) Members of the board of management or inspection committee, the general director (director) or deputy general director (deputy director) of the credit institution;

(b) Staff of the credit institution who carry out loan evaluation and approval;

(c) Parents, spouses or children of the members of the board of management or inspection committee, of the general director (director) or deputy general director (deputy director).

2. The provisions of clause 1 of this article shall not apply to co-operative credit institutions.

3. Credit institutions may consider and decide whether or not to apply clause 1(c) of this article to lending to the parents, spouses or children of the director or deputy director of a branch.

Article 20Loan restrictions

A credit institution may not provide loans without security, or loans with preferential conditions on interest rates and lending limits, to the following subjects:

1. Auditing organizations or auditors responsible to carry out audits of the credit institution; inspectors conducting an inspection of the credit institution; the chief accountant of the credit institution;

2. Major shareholders of the credit institution;

3. Enterprises in which more than ten (10) per cent of the charter capital is owned by one of the subjects specified in article 77.1 of the Law on Credit Institutions.

Article 21Inspection and supervision of loans

Credit institutions shall establish, inspect and supervise the processes of lending and of loan utilization and repayment by a client in accordance with the operational characteristics of the credit institution and the characteristics of the loan in order to ensure the effectiveness of lending and the capacity to repay.

Article 22Adjustment of schedule for repayment of principal and interest and extension of term for repayment of principal and interest

1. Adjustment of schedule for repayment of principal and extension of term for repayment of principal:

(a) Where a client is unable to repay the principal on the due date as agreed in the credit contract and makes a written request to adjust the schedule for repayment, the credit institution may consider the re-scheduling of debt repayment.

(b) Where a client fails to repay the whole of the principal within the loan term as agreed in the credit contract and makes a written request to extend the term of the debt, the credit institution may consider a debt extension. For short term loans, the maximum period of debt term extension shall be twelve (12) months; for medium and long term loans, the maximum period of debt term extension shall be equal to one half () of the loan term agreed in the credit contract. If the client requests an extension beyond these limits for objective reasons, in order to enable the client to repay the debt, the chairman of the board of management or the general director (director) of the credit institution shall consider an extension and report it to the State Bank immediately after implementing the decision to extend the loan term.

2. Adjustment of schedule for repayment of interest and extension of term for repayment of interest:

(a) Where a client is unable to repay interest on the due dates as agreed in the credit contract and makes a written request to adjust the schedule for interest repayments, the credit institution may consider the re-scheduling of such repayments.

(b) Where a client fails to repay the whole of the interest within the loan term as agreed in the credit contract and makes a written request to extend the term of interest repayment, the credit institution may consider an extension of the term for repayment of the whole of the interest. The maximum extension of the term for repayment of interest shall be the same as stipulated in clause 1(b) above.

Article 23Exemption from and reduction of loan interest

Credit institutions may decide on exemption from and reduction of loan interest payable by a client on the basis of the following principles:

1. Where a client suffers losses in respect of the assets relating to the loan, resulting in financial difficulties;

2. The rate of exemption from or reduction of loan interest must be consistent with the financial capacity of the credit institution;

3. Credit institutions may not exempt or reduce loan interest for clients being subjects stipulated in article 78.1 of the Law on Credit Institutions;

4. Credit institutions must issue regulations on exemption from and reduction of loan interest for clients, which have been approved by the board of management. A credit institution may only exempt or reduce loan interest for clients in accordance with such regulations.

Article 24Rights and obligations of clients

1. A borrower shall have the following rights:

(a) To refuse to satisfy any requirement of a credit institution which is inconsistent with the terms agreed in the credit contract;

(b) To lodge complaints or to institute legal proceedings in accordance with law for any breach of the credit contract.

2. A borrower shall have the following obligations:

(a) To provide full information and documents relating to the loan and to be responsible for the accuracy of such information and documents;

(b) To utilize the loan monies for the correct purpose and to perform properly the matters agreed in the credit contract and any other undertakings;

(c) To repay the loan principal and interest in accordance with the terms agreed in the credit contract;

(d) To be responsible before the law for failure to perform properly the terms for repayment agreed in the credit contract and the terms relating to obligations for loan security undertaken in the credit contract.

Article 25Rights and obligations of credit institutions

1. A credit institution shall have the following rights:

(a) To require the client to provide documents proving the feasibility of the investment project or plan for production, business and services or investment project or plan for servicing living conditions, and proving the financial capacity of the client and of the guarantor, prior to making a decision on lending;

(b) To refuse the loan application of a client if it considers that the lending conditions have not been satisfied or the lending project or plan is not effective or is inconsistent with the law, or if the credit institution has insufficient capital sources to provide the loan;

(c) To inspect and supervise the processes of lending and of loan utilization and repayment by the client;

(d) To cease lending and to make early recovery of the debt upon discovery that the client has provided false information or has breached the credit contract;

(dd) To institute legal proceedings in accordance with law against a client for breach of the credit contract or against a guarantor;

(e) If the client fails to repay the debt on the due date for repayment and if the parties have not otherwise agreed, the credit institution shall have the right to deal with the assets securing the loan monies as agreed in the credit contract in order to recover the debt in accordance with the provisions of the law, or to require the guarantor to fulfil the obligations in the guarantee where the client has provided a guarantee for the loan;

(g) To implement exemptions from or reductions of loan interest, debt term extensions, and adjustments of repayment periods in accordance with these Regulations; to trade in debts in accordance with regulations of the State Bank and to carry out debt re-structuring, debt blockade or debt write-off in accordance with regulations of the Government.

2. A credit institution shall have the following obligations:

(a) To comply strictly with the agreements in the credit contract;

(b) To maintain credit files in accordance with the provisions of the law.

Article 26Preferential lending and lending for investment projects funded by investment and development capital of the State

1. Credit institutions may provide loans to clients entitled to the preferential credit policy in accordance with the regulations of the Government and the guidelines of the State Bank from time to time.

2. State owned credit institutions which provide loans for investment projects funded by investment and development capital of the State shall comply with the provisions of the laws relating to investment and development capital of the State.

3. With respect to State owned credit institutions which are designated by the Government to provide loans to clients entitled to preferences or to provide loans for investment projects funded by investment and development capital of the State, if they discover any interest difference or loan losses arising for objective reasons, then they shall deal with them in accordance with the regulations of the Government and the guidelines of the State Bank and of related ministries and branches.

4. Prior to providing loans to clients entitled to preferences or providing loans for investment projects funded by investment and development capital of the State, credit institutions shall appraise the effectiveness of the loan project or plan and shall report to the authorized State body any cases considered ineffective or unable to repay loan principal and interest.

Article 27Trust lending

1. Credit institutions may provide trust loans as authorized by the Government and by domestic or foreign organizations and individuals in accordance with trust lending contracts entered into with a representative body of the Government or with domestic or foreign organizations and individuals. Trust lending must be in accordance with current provisions of the law on banking credit and trust contracts.

2. Credit institutions providing trust loans shall be entitled to trust fees and other benefits as agreed in the trust lending contracts in accordance with the provisions of the law and international practice in order to ensure off-set of all costs and risks and profitability.

Article 28Implementing provision

1. Credit institutions and borrowers shall be responsible for implementation of these Regulations. Based on these Regulations and the provisions of relevant legal instruments, credit institutions shall issue specific guidelines for loan business in accordance with their own conditions, characteristics and charter.

2. The Governor of the State Bank shall make decisions on amendments of and additions to these Regulations.