Decree No. 85/2002/ND-CP dated October 25, 2002 of the Government amending and supplementing Decree No. 178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security

DECREE

AMENDING AND SUPPLEMENTING DECREE No. 178/1999/ND-CP OF DECEMBER 29, 1999 ON CREDIT INSTITUTIONS LOAN SECURITY

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the December 12, 1997 Vietnam State Bank Law and Credit Institution Law;

At the proposal of the Governor of Vietnam State Bank,

DECREES:

Article 1.-To amend and supplement a number of articles of the Government’s Decree No.178/1999/ND-CP of December 29, 1999 on credit institutions loan security as follows:

1. To add Clause 3 to Article 1 as follows:

"For credit granted by the Development Assistance Fund and other State-run financial institutions, if securing measures therefor are prescribed by law, the provisions of this Decree may also apply."

2. To amend and supplement Clause 3 of Article 2 as follows:

"Loan-security properties mean properties of the borrowers or the guarantors used to secure the performance of the debt-repayment obligations, including: the properties under the ownership and the value of the land use right of the borrowers or the guarantors; the properties under the management or use right of the borrowers or the guarantors being State enterprises; and the properties formed from the loan capital."

3. To amend and supplement Clause 6 of Article 2 as follows:

"Guarantee with the third party’s (called the guarantor) property means the guarantor commits with the credit institution to use the property under his/her/its ownership or the value of his/her/its land use right or, for State enterprises, the property under its management or use right, for the performance of the debt-repayment obligation for the borrower, provided that when the debt turns due the borrower has failed to fulfill the debt-repayment obligation."

4. To amend and supplement Clause 9 of Article 2 as follows:

"Borrowers mean individuals, households, cooperative groups, private enterprises, partnerships, Vietnamese legal persons as well as foreign individuals and legal persons that meet all conditions for capital borrowing at credit institutions according to the stipulations of Vietnam State Bank."

5. To amend and supplement Clause 3 of Article 6 as follows:

"Credit institutions are entitled to decide on the selection of qualified properties as security for their loans; and decide on the selection of the third party to provide property guarantee for the borrowers. In cases where credit institutions decide to select foreign individuals or legal persons as property guarantors for the borrowers, the guarantee must comply with the provisions of the Government’s Decree No.178/1999/ND-CP of December 29, 1999, this Decree and other relevant legal documents, except otherwise provided for by international agreements which the Socialist Republic of Vietnam has signed or acceded to."

6. To amend and supplement Clause 4 of Article 6 as follows:

"Guarantors may provide guarantee only with their own properties; property being the land use right value; or properties under their management or use right, if they are State enterprises. The credit institutions and the guarantors shall reach agreement on the application or non-application of the measure of pledging or mortgaging the guarantors’properties to secure the performance of the guarantee obligation. If the guarantors are credit institutions, the guarantee shall comply with the provisions of the Credit Institution Law and the Vietnam State Bank Law."

7. To amend Clause 5 of Article 6 as follows:

"If the land use right value or properties affixed to the land are qualified to secure loans under law provisions, the mortgage of or the guarantee with, the land use right value together with or separately from properties affixed to the land shall be agreed upon by the concerned parties. In cases where the parties agree to mortgage or provide guarantee with properties affixed to the land and land use right value separately, the credit institutions accepting such mortgage or guarantee must be capable of managing the properties in the lending process and handling such properties to recover debts if the borrowers are unable to repay them."

8. To add Clause 6 to Article 6 as follows:

"Where a loan-security transaction is considered partly or wholly invalid, such will not affect the validity of the credit contract for which that security transaction is a condition."

9. To amend and supplement Article 7 as follows:

"Article 7. Conditions and procedures for making loan security with the borrowers pledged or mortgaged properties and loan guarantee with the third party’s properties

1. Properties, conditions for accepting pledged, mortgaged or guarantee properties, procedures for conclusion and implementation of pledge, mortgage or guarantee documents or contracts (hereinafter referred collectively to as security documents or contracts) and the security transaction registration shall comply with the provisions of the legislation on security transactions and the guidance of Vietnam State Bank. The security documents and contracts shall be notarized by the State Public Notary or authenticated by the competent People’s Committees if the parties so agree, except otherwise prescribed by law.

2. If the borrowers and the guarantors may mortgage or provide guarantee with the land use right value, including the value of leased land, of which the paid leasing duration remains less than 05 years, they shall comply with the provisions of the land legislation and the guidance of Vietnam State Bank.

3. The credit institutions shall examine conditions of the loan-security properties. The borrowers and the guarantors shall take responsibility for the legality of the loan-security properties."

10. To amend Clause 1 of Article 8 as follows:

"A loan-security property must be valued at the time of signing the security contract; the determination of the property value at this time only serves as basis for determining the amount to be lent by the credit institution and shall not apply when disposing of the property for debt recovery. The determination of the value of the loan-security property must be made in a separate document or recorded in the credit contract."

11. To amend and supplement Clause 3 of Article 8 as follows:

"The value of the mortgaged or guarantee land use right shall be determined as follows:

a/ For land assigned by the State to households or individuals for agricultural production or forestry; residential land; land with the use right already lawfully transferred to households or individuals; land assigned by the State to economic organizations with the collection of land use levy; and land with the use right already lawfully transferred to economic organizations, the value of the mortgaged or guarantee land use right shall be agreed upon by the credit institutions and the borrowers or the guarantors according to the actually transferred land prices in concerned localities at the time of mortgage. The credit institutions shall consider and decide on the loan amounts and take self-responsibility for the risks of the loan capital.

b/ For land leased by the State to households, individuals or economic organizations, for which the land rents have been paid for the whole leasing term or for many years, the value of the mortgaged or guaranteed land use right shall include the compensations for damage and ground clearance (if any) when the land is leased by the State, the land rents already paid to the State after subtracting the amounts payable for the period during which the land was used.

c/ Where the land use right value is mortgaged or used for guarantee and the land lessees are entitled to the land rent exemption or reduction under law provisions, the value of the mortgaged or guarantee land use right shall be calculated according to the pre- exemption or -reduction value of the leased land."

12. To annul Clause 4 of Article 8.

13. To amend and supplement Article 11 as follows:

"Article 11. The scope of securing loans by properties

A security property may be used to secure the performance of many debt-repayment obligations at one or many credit institutions. In cases where a property is used to secure many debt-repayment obligations at many credit institutions, the following conditions must be fully met:

1. The security transactions related to that property have already been registered at the security transaction registry.

2. The credit institutions that accept the same security property must reach written agreement with one another on nominating a representative to keep the originals of papers related to the security property, and on the disposal of the security property to recover debt if the borrower is unable to repay it.

3. The security property value determined at the time of signing the security contract must be larger than the total value of the secured debt-repayment obligations, except otherwise prescribed by law."

14. To amend and supplement Clause 2 of Article 12 as follows:

"For pledged or mortgaged properties being transport means or fishing vessels which have registration certificates, the credit institutions shall keep the originals of such registration certificates while the borrowers, when using the means, may use their copies notarized by the State Public Notary and certified by the pledge- or mortgage-accepting credit institutions, for the circulation of their means during the time of pledge or mortgage. The credit institutions shall make certification in only one copy of the means registration certificate after it has already been notarized by the State Public Notary. If the pledged or mortgaged properties are airplanes or sea-going vessels operating on international routes, the credit institutions shall keep the copies of registration certificates, already notarized by the State Public Notary."

15. To amend Clause 4 of Article 12 as follows:

"Where properties are pledged or mortgaged for syndicated capital loans, the credit institutions participating in the syndication shall agree in writing to nominate a representative to manage the loan-security properties and title deeds thereof."

16. To amend Clause 1 of Article 14 as follows:

"Credit institutions shall consider and decide on loan security with properties formed from loan capital, if the borrowers and such properties meet all the conditions prescribed in Clause 17 of this Article."

17. To amend and supplement Article 15 as follows:

"Article 15. Conditions for borrowers and properties formed from loan capital

1. For the borrowers:

a/ Having the financial capability to fulfill the debt-repayment obligations;

b/ Having feasible and efficient investment projects and production, business and/or service provision plans; or having investment projects or plans in service of daily life feasible and compliant with the provisions of law;

c/ Having their own capital amounts for participation in the investment projects or production, business, service provision and/or daily-life service plans and value of the pledged or mortgaged loan-security properties equal to at least 15% of the investment capital of those projects or plans.

2. For the properties:

a/ Properties formed from loan capital and used as loan security must be determined in terms of their ownership right or management and use right as well as their value and quantities, and must be allowed for transaction. For properties formed from loan capital being supplies or goods, the credit institutions must, apart from meeting all these conditions, be capable of managing and monitoring the security properties.

b/ For properties which, as prescribed by law, require insurance, the borrowers must commit to buy insurance for the whole capital-borrowing term when such properties have been formed and commissioned."

18. To amend Article 20 as follows:

"Article 20. The borrowers having no security properties must meet all the following conditions:

1. Using the loan capital efficiently and repaying both loan principals and interests on time in the capital-borrowing relation with the lending credit institutions or other credit institutions.

2. Having feasible and efficient investment projects or production, business and/or service provision plans; or having investment projects or plans in service of daily life feasible and compatible with the provisions of law.

3. Having financial capability to fulfill the debt-repayment obligations.

4. Committing themselves to apply measures of security with properties at the request of the credit institutions if using loan capital in contravention of the commitment in the credit contracts; committing themselves to repay debts ahead of time if failing to apply measures of security with properties as prescribed at this point."

19. To annul Clauses 2 and 3 of Article 21.

Article 2.-Implementation provisions

1. This Decree takes effect 15 days after its signing.

2. The provisions on loan security at points d and e, Clause 6, Section III of the Government’s Resolution No.11/2000/NQ-CP of July 31, 2000 on a number of measures to administer the socio-economic development plan in the last six months of 2000 cease to be effective.

3. The State Bank of Vietnam shall have to guide the implementation of this Decree.

4. The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government and the presidents of the People’s Committees of the provinces and centrally-run cities shall have to implement this Decree.