Decision No. 284/2000/QD-NHNN1 dated August 25, 2000 of the State Bank of Vietnam promulgating the Regulation on loan provision to customers by credit institutions

DECISION

REFERRING TO THE ISSUING OF A REGULATION ON CREDIT INSTITUTIONS' LENDING

 THE GOVERNOR OF THE STATE BANK

In accordance with the Law on the State Bank of Vietnam and the Law on Credit Institutions dated December 12, 1997;
In accordance with Government Decree No.15/CP March 2, 1993 on tasks, rights and State management responsibilities of ministries and ministerial-level bodies;
In accordance with the proposal of the Head of the Department of Monetary Policy,

RESOLVES

Article 1:

To issue in attachment to this Decision the Regulation on Credit Institutions' Lending.

Article 2:

This Decision comes into effect on September 15, 2000 and replaces Governor of the State Bank Decision No.324/1998/QD-NHNN1 dated September 30, 1998 regarding the issuing of the Regulation on Credit Institutions’ Lending.

Article 3:

For credit contracts signed before the date this Decision becomes effectives, but where funds have not been either totally or partially disbursed, and for credit contracts that report outstanding loan balances by the end of September 14, 2000, credit institutions and customers shall continue to follow the concluded provisions until all debts are recovered or the agreements are amended, and the credit contracts are supplemented, in order to be responsive to the Regulation on Credit Institutions' Lending issued in attachment to this Decision.

Article 4:

Heads of units under the State Bank of Vietnam, directors of State Bank branches in centrally-governed provinces and cities, chairpersons of management boards and general directors (directors) of credit institutions, and customers who take out loans from credit institutions shall assume the responsibility to implement this Decision.

REGULATION

ON CREDIT INSTITUTIONS' LENDING
(Issued in attachment to Governor of the State Bank Decision No.284/2000/QD-NHNN1 dated August 25, 2000)

Chapter I

GENERAL REGULATIONS

Article 1: Scope of adjustments

This Regulation applies to loans from credit institutions, in Vietnamese dong and foreign currency, to meet capital needs for production, sales, services, development investment and daily lives.

Article 2: Objects of application

1. Credit institutions founded and carrying out professional lending in consonance with the Law on Credit Institutions;

2. Customers borrowing from credit institutions. These include:

a/ Those having a legal status: State-owned enterprises, co-operatives, limited companies, joint stock companies, foreign-invested businesses and other organisations meeting all conditions decreed in Article 94 of the Civil Code;

b/ Individuals;

c/ Families;

d/ Co-operatives;

e/ Private businesses;

f/ Companies under collective names.

Article 3: Explanation of terms

In this Regulation, the terms are interpreted as follows:

1. Lending is a form of credit where credit institutions provide customers a sum of money for use for specific purposes and over a specific period of time according to the agreement and the rule of refunding both principal and interest.

2. Loan time-limit is a span of time beginning when the customer receives a loan and extends to the moment of refunding all principal and interest following agreements in the credit contract between the credit institution and the customer.

3. Due dates are within the time-limit of landing that is identified in the agreement between the credit institution and the customer where, by the end of each span of time, the customer must pay part or the entire amount of loan to the credit institution.

4. Adjustment of due dates for debt payment is when the credit institution and the customer agree on adjustment of due dates clarified previously in the credit contract.

5. Extention of a loan is when the credit institution agrees to extend the loan beyond the time-limit of the loan agree in the credit contract.

6. Investment project, production, sale and service scheme, or investment project and a scheme to cater to livelihoods are a range of proposals on capital needs, mode of capital use and responsive results reported during a specific period in specific activities targeting production, sales, services, development investment or catering to livelihoods.

7. Credit limit is the maximum level of an outstanding loan maintained during a specific agreed period, in the credit contract, by the credit institution and the customer.

Article 4: Observation of the regulations on management of foreign exchange

While lending in foreign currency, credit institutions and customers must follow Government regulations and State Bank instruction on foreign exchange management.

Chapter II

DETAILED REGULATIONS

Article 5: Credit institutions' right to self-control in lending

Credit institutions are personally-responsible for their lending decisions. No organisations or individuals are permitted to illegally intervene in credit institutions� right to autonomy in lending.

Article 6: Rule on borrowing

Customers borrowing from credit institutions must observe the following rules:

1. Properly use loans in accordance with the agreements in the credit contract;

2. Refund principal and loan interest as agreed in the credit contract;

3. Loan underwriting must follow the regulations of the Government and the Governor of the State Bank.

Article 7: Conditions of borrowing

Credit institutions shall consider and determine loans after customers meet all of the following conditions:

1. Take full responsibility for observing civil laws and civil acts and take civil responsibility according to legal regulations. Concretely:

a/ The legal person must have full civil capacity;

b/ Individuals and private business owners must have full legal capacity and full competence for civil acts;

c/ Representatives of co-operatives must have legal capacity and competence for civil acts;

d/ Representatives of co-operatives must have legal capacity and competence for civil acts;

e/ Collectively-named members of collectively-named companies must have legal capacity and competence for civil acts;

2. Be financially capable of securing loan repayments within the committed term;

3. The purpose of using loans must be lawful;

4. Investment projects; schemes for production, sales and services must be feasible and effective; or feasible investment projects and feasible schemes must cater to livelihoods associated with feasible refund schemes;

5. The Regulations on loan underwriting must be implemented in conformity with Government stipulations and the Governor of the State Bank instructions.

Article 8: Types of loans

1. Short-term loans: Credit institutions provide customers with short-term loans to meet their capital needs for production, sales, services and livelihoods.

2. Medium-term and long-term loans: Credit institutions provide customers with medium-term and long-term loans to accomplish projects for investment to develop production, sales, services and livelihoods.

Article 9: Objects of loans

1. Credit institutions shall provide loans with the following objectives:

a/ Loans shall have the value of materials, goods, machinery and equipment including the value added tax (VAT) that is included in the local value of the batch of goods, and expenses, for implementing investment projects, schemes for production, sales and services, or investment projects and schemes to cater to livelihoods;

b/ Loans shall meet the financial needs of the following:

- The amount of import-export taxes that customers must pay in order to fulfill import-export procedures for that batch of goods, the value of which is partly paid for in loans from the credit institution;

- The amount of loan interest paid to the credit institution that lends during the period of construction when the project is not yet transferred and fixed assets are not yet used. Such loans are either medium or long term and are for investment in fixed assets; and payable interest is calculated on those fixed assets;

- The amount of money that the customer borrows for payment of financial borrowings (in cash) for foreigners which are underwritten by a domestic credit institution and meet the following conditions: the investment projects, the scheme for production, sales and services, or the investment project and the scheme to cater to basic survival that use the above noted borrowing are being implemented productively; the borrowing is within the term for debt payment; the customer obtains more favourable conditions for borrowing loans or for cutting expenditures in comparison with foreign loans, and the customer is solvent;

- Other financial needs in production, sales, services and basic survival according to the State Bank regulations.

2. Credit institutions must not lend for the following payments:

a/ The amount of tax contributed directly to the State Budget; excluding the amount of export and import taxes clarified in the first paragraph of b of 1 of this Article;

b/ The amount of money used for payment of principal and loan interest to other credit institution;

c/ The amount of loan interest paid to the lending credit institution; excluding the case of lending at an interest rate defined in the second paragraph of b of 1 of this Article.

Article 10: Loan time-limits

Credit institutions and customers agree on loan time-limits in two forms:

1. Short-term lending: The maximum time-limit is 12 months and is identified corresponding to the production and sale cycle and customer's solvency.

2. Medium-term and long term lending: The loan time-limit is defined in correspondence with the term for recovering capital of investment projects, customer's solvency and the characteristics of the credit institution:

a/ Medium-term loan time-limits: From more than 12 months to 60 months;

b/ Long-term loan time-limits: More than 60 months, but not exceeding the remaining operational term according to the enterprise's Establishment Decision or the Establishment Licence applicable for legal persons and no longer than 15 years for loan projects to assist in basic survival.

Article 11: Loan interest rates

1. The loan interest rate is agreed upon by the credit institution and the customer and follows the State Bank regulations on loan interest rates effective at the moment of signing the credit contract. The credit institution shall take the responsibility to publicly inform customers of loan interest rates.

2. Preferential loan interest rates are offered to customers eligible for interest subsidies according to the Government regulations and the instructions of the State Bank.

3. In cases where the loan is transformed into overdue debts, overdue debt interest rates are obligatorily applied at the moment of signing the credit contract, according to the Governor of the State Bank's regulations.

Article 12: Lending rates

1. Credit institutions shall consider the customer's need for the loan, Governmental regulations in Decree No.178/1999/ND-CP clarifying the lending rates over the value of security assets, customer solvency and credit institutions' capital before making a decision on lending rates.

2. Customer's total outstanding loan balance must not exceed 15 per cent of the credit institution's equity capital, except in the case of loans from sources of consigned capital of the Government, organisations and individuals, or in cases where the borrowing customer is a credit institution.

3. The total outstanding loan balance of those parties identified in Article 21 of this Regulation must not exceed five per cent of the credit institution's equity capital.

Article 13: Payment of principal and interest

1. Based on the actual status of production, sales, services, financial capacity, income and customer's source of debt payments, the credit institution and the customer shall agree on payment of principal and loan interest as follows:

a/ Due dates for refund of principal;

b/ Due dates for payment of loan interest and due dates for payment of principal or particular due dates;

c/ Currency used for payment of debt and the issue of conserving the value of principal in appropriate forms and in accordance with the laws.

2. When payment of a debt is due or when the loan term ends, if the customer is unable to repay the debt in a timely manner or adjust the due date for the debt or extend the debt or the amount due, the unpaid debt shall be transformed into overdue debt, and the customer must be subject to overdue debt interest rates for the amount of overdue debt.

3. In cases where the customer repays a debt prior to the due date, the credit institution and the customer shall agree on the amount of payable loan interest which must not exceed the interest rate already specified in the credit contract.

Article 14: Borrowing formalities

1. When seeking a loan, the customer shall send the credit institution the following documents:

- A request, in writing, for borrowing capital. The request document must specify the following: name and address of the borrower; amount of requested loan; purpose of borrowing; the commitments to using the loan, paying the debt, paying interest and other commitments;

- Documents necessary for testifying a customer's meeting of all the conditions for borrowing a loan are decreed in Article 7 of this Regulation;

The customer must take legal responsibility for the accuracy and legality of the documents addressed to the credit institution.

2. Credit institutions shall provide detailed regulations on the various types of documents that need to be sent by customers and correspond to specific characteristics of each kind of customer and each type of loan according to the regulations in 1 of this Article.

Article 15: Lending examination and decision

1. The credit institution shall design a process for examining and approving loans under the rule of securing the autonomy and specifying the responsibilities of individuals and joint auditing responsibilities and decision on the loan.

2. The credit institution shall check the documents sent by the customer, while examining and evaluating the feasibility and efficiency of the investment project, the scheme for production, sales and services, or the investment project, the scheme to promote basic survival, and customer's ability to repay the debt.

In case of necessity or according to legal regulations, the credit institution is allowed to either form a credit council or hire related consulting bodies to examine and assess the customer's investment project, the scheme for production, sales and services, or the customer's investment project and spending for basic survival.

3. The credit institution must take a decision and announce whether it will lend or not the customer no later than 10 working days after it receives lawful loan documents and necessary information from the customer, in the case of short-term loans, and no later than 4 working days, in the case of medium-term and long-term loans. In case loan requests are rejected, the credit institution must inform the customer, in writing, specifying the reasons for refusal.

Article 16: Mode of lending

Based on the customer's actual request for use of each loan and the ability to check and supervise customer's use of loans, the credit institution shall agree with the customer on choosing a lending scheme in one of the following modes:

1. One shot lending: For each specified loan, the customer and the credit institution shall fulfill necessary lending procedures and sign a credit contract.

2. Lending according to the credit limits: The credit institution and the customer shall identify and agree on a credit limit to be applied over a specific term or according to the production and sales cycle.

3. Lending according to the investment project: The credit institution shall provide a loan to the customer for executing projects to invest to develop production, sales and services and those projects to support basic survival.

4. Lending a pool of capital: A group of credit institutions may act in concert to make loans for a customer's project to borrow capital or a scheme to borrow capital; where one credit institution acts as a leader in the arrangement and co-ordination with other credit institutions. The lending of a capital pool shall observe this regulation and the regulations on co-financing by credit institutions issued by the Governor of the State Bank.

5. Hire-purchase lending: When lending, the credit institution and the customer shall clarify and agree on the amount of payable loan interest plus the amount of principal divided in multiple payments to be brought during the lending term.

6. Lending according to standby credit limits: The credit institution shall commit to lend the customer funds within a specific credit limit. The credit institution and the customer shall agree on the effective term of the standby credit limit and the fee payable for the standby credit limit.

7. Lending via issuing operations and using credit cards: The credit institution shall allow the customer to use the loan within the credit limit for payment for purchase of goods, services and withdrawal of cash at automated teller machines or at cash provision point which are agents of the credit institution. When issuing and using credit cards, the credit institution and the customer must follow the regulations of the Government and the State Bank of Vietnam regarding the issuance and use of credit cards.

8. Other modes of lending shall correspond to this regulation and other State Bank regulations.

Article 17: Lending in foreign currency

1. Credit institutions authorised to operate foreign exchanges are allowed to lend foreign currency to customers who are residents, following the Government regulations and State bank instructions on management of foreign exchange.

The term "resident" is defined according to the regulations in Article 4 of Government Decree No.63/1998/ND-CP dated August 17, 1998 on management of foreign exchange.

2. Loan procedures: Apart from the documents identified in Article 14 of this Regulation, customers must provide the credit institution with the following: the Import Licence or Import Quota (if any); the import or consigned import contract; and other papers relating to using the loan.

3. Payment of principal and interest: Debts must be paid in the same foreign currency as the loan. Payment of debts in other foreign currency, or in Vietnamese dong, shall be made in accordance with the agreement between the credit institution and the customer, and shall be based on the exchange rate or the rule on identifying exchange rates already agreed in the credit contract. Foreign-invested businesses subject to self-balancing of foreign currency must not pay foreign currency debts in Vietnamese dong.

Article 18: Credit contract

After agreeing to make a loan, the credit institution and the customer shall sign a credit contract, the credit contract must refer to conditions for lending, purposes of using the loan, mode of disbursement and use of the loan, the amount of the loan, the interest rate, loan term, mode and due date of paying debts, mode of securing the loan, value of security assets, measures to deal with security assets, transference or non-transference of the credit contract, and other commitments agreed by the parties.

Article 19: Lending limits

1. A customer's total outstanding loan balance must not exceed 15 per cent of the credit institution's equity capital, excluding loans from sources of consigned capital of the Government, organisations and individuals. In cases where the customer's demand for capital exceeds 15 per cent of the credit institution's equity capital, or where the customer needs to raise capital from different sources, credit institutions shall jointly lend according to the Governor of the State Bank's regulations.

2. In special cases, credit institutions will only be only be allowed to lend in excess of the lending limit defined in 1 of this Article after the Prime Minister approves each specific case.

3. The calculation of credit institutions' equity capital that provides a basis for estimation of loan limit stipulated in 1 and 2 of this Article shall follow the State Bank regulations.

Article 20: Cases of forbidden loans

1. Credit institutions must not lend to the following customers:

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

b/ Auditors, examiners and approvers of loans;

c/ The father, mother, wife or child of a member of the management board or the control board, or of the general director (the director) or of the deputy general director (the deputy director).

2. The regulations in 1 of this Article are inapplicable to co-operative credit institutions.

Article 21: Loan restrictions

Credit institutions must not lend without security, or lend at preferential interest and loan rates, to the following parties:

1. Auditing organisations, auditors who are auditing at the credit institution; chief accountants, or inspector;

2. Large share holders of credit institutions;

3. Businesses having one of the objects that are identified in 1 of Article 77 of the Law on Credit Institutions and own more than 10 per cent of those businesses' chartered capital.

Article 22: Audit and supervision of loans

1. Credit institutions shall assume the responsibility to audit and supervise customer's borrowing a loan, using the loan and repaying the debt.

2. Credit institutions shall audit and supervise before, during and after lending in corresponding with the operational characteristics of the credit institution and the characteristics of the customer's business and loan use.

Article 23: Extension of loans and adjustments of the deadlines for debt payment

1. When payment of the debt is due and the customer is unable to pay the whole amount due to natural reasons and has a proposal, in writing, for extension of the debt, the credit institution shall consider the extension of the debt according to the regulations:

a/ The maximal time-limit for extending a short-term loan shall equal a cycle of production and sales, but must not exceed 12 months; except in special cases that are either allowed by the Governor of the State Bank or transferred to the credit institution for consideration and termination;

b/ The maximal time-limit for a medium-term and long-term loan is half of that for the lending already agreed in the credit contract; except for special cases that are either allowed by the Governor of the State Bank or transferred to the credit institution for consideration and termination;

c/ Debts that are due, but are not repaid in a timely manner and are not extended, must be transformed into overdue debt and overdue debt interest rates must be applied.

2. In cases where the customer is unable to pay debt as timely as agreed in the credit contract due to natural reasons and has a proposal, in writing, the credit institution shall consider the adjustment of the deadline for debt payment. If unable to adjust the deadline for debt payment, the credit institution shall transform that amount of due debt into overdue debt.

3. The proposal for extension of the debt, adjustment of the deadline for the customer's debt, as well as the credit institution's determination on debt extension and adjustment of the debt deadline must be made before the due date; and the parties are permitted to amend the credit contract following the new time-limit for debt payment.

4. Over the time-limit for which the debt is either extended or adjusted, the interest rate (agreed in the credit contract of the loan shall continue to apply on the initial time-limit until the time-limit either extended or adjusted.

Article 24: Exemption and reduction of loan interest

Credit institutions are free to decide on exemption and reduction of loan interest payable to customers under the following rules:

1. Customers report a loss of assets relating to the loan and stemming from natural causes that result in a financial standstill;

2. The rate of exemption and reduction of loan interest matches the credit institution's financial capacity;

3. Credit institutions must not exempt and reduce loan interest for customers subject to the regulations in 1 of Article 78 of the Law on Credit Institutions;

4. Credit institutions must issue a regulation on exemption and reduction of loan interest for customers that are approved by the management board. The exemption and reduction of loan interest for customers is only effective when the credit institution has a regulation on exemption and reduction of loan interest.

Article 25: Rights and obligations of customers

1. Borrowers have the following rights:

a/ To refuse demands of credit institutions that are beyond the agreements in the credit contract;

b/ To complain and bring a sue against the violations of the credit contract according to the laws;

2. Borrowers have the following obligations:

a/ To provide comprehensive and truthful information and documents relating to borrowing loans and to be responsible for the accuracy of the information and documents provided;

b/ To use the loan for proper purpose and closely follow the agreements in the credit contract;

c/ To pay principal and loan interest as agreed in the credit contract;

d/ To assume legal responsibility for not observing the agreements on payment of debts and to fulfill all obligations in securing the debt as committed to in the credit contract.

Article 26: Rights and obligations of credit institutions

1. Credit institutions have the following rights:

a/ To require customers to provide documents that testify to the feasibility of the investment project and the scheme for production, sales and services, or the investment project and the scheme to promote their survival; and their financial capacity and that of the guarantor, before making a loan decision;

b/ To refuse a customer's request for a loan when the customer does not meeting the conditions for borrowing a loan, or when the credit institution determines that the project or the borrowing scheme is ineffective and unresponsive to the legal regulations; or when the credit institution does not have enough capital to provide the loan;

c/ To examine and supervise the process of a customer's borrowing, use of the loan and repayment of it;

d/ To cease lending and to withdraw the debt before the due date when detecting customer fraud and violation of the credit contract;

e/ To bring suit against the customer who violates the credit contract or against the guarantor according to the laws;

f/ When the debt is due, but the customer does not repay it, and if the parties do not have additional agreements, the credit institution has the right to attach the loan-securing assets as agreed in the contract, in order to call back the loan according to the legal regulations; or to require the guarantor to fulfill the security obligation in cases where the customer has secured the loan;

g/ To waive and reduce loan interest, to extend the debt and to adjust the deadline for debt payment in following this regulation; to trade in the debt according to State Bank regulations; and to take one bank's loan for payment of other bank’s loan, freeze and write off the debt in conformance with Government regulations.

2. Credit institutions have the following obligations:

a/ To fulfill the agreements in the credit contract;

b/ To file credit procedures in consonance with legal regulations.

Article 27: Provision of preferential loans and loans for basic construction under the State plans

1. Credit institutions shall lend to customers enjoying credit preferences according to the Government's regulations and the State Bank's instructions in each period.

2. State-run credit institutions lending for investment in construction under the State plans shall follow the legal regulations on construction investment and the Government's regulations on credit for construction investment under the annual State plans.

3. For State-owned credit institutions that the Government appoints to make loans to customers subject to its priorities and to provide loans for construction investment under the State plans; and in case of reporting differentials in interest rates and a loss of loans due to natural causes, resolution of this problem shall be in accordance with the Government's regulations and the State Bank's instructions and the guidelines of related ministries and branches.

4. Before providing preferential loans and loans for construction investment under the State plans, credit institutions shall examine the efficiency of the project or the scheme to borrow loans. If the projects are deemed inefficient with little capacity to refund the loan principal and interest, the credit institution shall report to competent State bodies, and if necessary, report to the Prime Minister, for consideration and resolution.

Article 28: Consignment lending

1. Credit institutions shall provide loans on consignment, for the Government, organisations and individuals, both at home and overseas, under a loan consignment contract concluded with representative bodies of the Government or domestic and foreign organisations and individuals. The consigned loans must match existing legal regulations on bank credits and consignment contracts.

2. Credit institutions lending on consignment shall enjoy consignment fees and other benefits as agreed in the consigned loan contract in accordance with legal regulations and international rules and capacity to fully cover expenses and risks and earn profits.

Chapter III

IMPLEMENTATION PROVISIONS

Article 29: Credit organisations and borrowers have the responsibility to fulfill this Regulation. Based on this Regulation and other related legal regulations, credit organisations shall issue documents guiding detailed professional operations in accordance with their conditions, characteristics and rules.

Article 30: Organisations and individuals violating these regulations will be punished according to the character and level of violation, and may be punished for administrative violations or be prosecuted in accordance with the laws.