Circular 08/2023/TT-NHNN conditions on borrowing of foreign loans not eligible for government guarantee

CIRCULAR

Providing conditions on borrowing of foreign loans not eligible for government guarantee

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Pursuant to the Law No.46/2010/QH12 on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010, and the Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Ordinance on Foreign Exchange dated December 13, 2005 and the Ordinance on amendments to a number of Articles of the Ordinance on Foreign Exchange dated March 18, 2013;

Pursuant to the Government's Decree No. 219/2013/ND-CP dated December 26, 2013, on management of enterprises’ borrowing of foreign loans and payment of foreign debts without government guarantee;

Pursuant to the Government’s Decree No. 102/2022/ND-CP dated December 12, 2022, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the request of the Director of the Foreign Exchange Management Department;

The Governor of the State Bank of Vietnam hereby promulgates the Circular providing conditions on borrowing of foreign loans not eligible for government guarantee.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

This Circular prescribes conditions for borrowers to take foreign loans not eligible for government guarantee.

Article 2. Subjects of application

1. Residents being enterprises, cooperatives, cooperative unions, credit institutions and foreign bank branches established and carrying out business activities in Vietnam that are foreign loan borrowers (below collectively referred to as borrowers).

2. Credit institutions and foreign bank branches in Vietnam where the borrowers open their foreign loan borrowing and repayment accounts (hereinafter referred to as account service-providing banks).

Article 3. Interpretation of terms

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

1. Self-borrowed and self-paid short-term foreign loan (below referred to as short-term foreign loan) means a foreign loan with a term of up to one year, which is not guaranteed by the Government.

2. Self-borrowed and self-paid medium- or long-term foreign loan (below referred to as medium- or long-term foreign loan) means a foreign loan with a term of over one year, which is not guaranteed by the Government.

3. Investment projects mean projects that are granted Investment Certificates, Investment Registration Certificates or written approvals of investment policies by competent authorities in accordance with the law on investment and other provisions of relevant laws.

4. Other projects mean projects other than investment projects specified in Clause 3 of this Article.

5. Foreign loan cost means the total expense expressed as an annual percentage based on the value of a foreign loan, which includes the interest rate of the loan and other expenses related to that loan the borrower must pay to the lender, guarantor, insurer, agents and other related parties.

6. Foreign debt restructuring means the payment of existing foreign debts from new borrowed foreign capital.

7. Vietnam-dong foreign loan means a foreign loan eligible for drawdown into the borrower’s foreign loan borrowing and repayment account in Vietnam dong or of which the debt obligation is denominated in Vietnam dong.

8. Debt obligation of a loan denominated in Vietnam dong means that the loan is drawdown in foreign currency but the debt receipt value under a foreign loan agreement is recorded in Vietnam dong at the foreign currency buying or selling rate listed by a credit institution as agreed by the parties.

Article 4. Application of relevant laws

1. Borrowers who take out foreign loans in the form of international bond issuance, in addition to meeting the borrowing conditions specified in this Circular, must comply with the law on offering corporate bonds to the international market and other relevant laws.

2. Borrower being state enterprises, in addition to meeting the loan conditions specified in this Circular, must comply with the law on management and use of state capital invested in production and business at enterprises and other relevant laws.

Article 5. Foreign loans provided in the form of import of goods on deferred payment

1. Borrowers who take out foreign loans in the form of import of goods on deferred payment are not required to comply with the conditions for foreign loans specified in this Circular.

2. Borrowers who take out foreign loans in the form of import of goods on deferred payment shall comply with instructions on foreign exchange management for enterprises’ borrowing and repayment of foreign loans, commercial law, law on foreign trade management and other relevant laws.

Article 6. Principles of using foreign loans

1. The borrower shall be fully responsible for the proper use of foreign loan capital for the lawful purposes specified in this Circular.

2. In case the loan has been drawn down but temporarily unused for the lawful foreign borrowing purposes specified in this Circular, the borrower may use this money to deposit at credit institutions or foreign bank branches operating in Vietnam. The maximum term of each deposit must not exceed 1 month.

Article 7. Plans on use of foreign loans

1. Plan on use of foreign loans means a production and business plan using foreign loans, which proves the borrower’s lawful and reasonable use purpose of, and demand for, foreign loans. The borrower’s plan on use of foreign loans must be approved by the competent authority in accordance with the Law on Investment, the Law on Enterprises, the Law on Credit Institutions, the Law on Cooperatives, and the charter of the borrower and other relevant laws (hereinafter referred to as the authority competent to approve as prescribed by law).

2. Basic contents of the plan on use of foreign loans in case the borrower is a credit institution or foreign bank branch:

a) Name of the borrower, type of credit institution, core capital, address, license for establishment and operation of the credit institution or license for establishment of foreign bank branch, outstanding balance of the short-, medium- and long-term foreign loans up to the time of making the plan;

b) The borrower's business objectives, overall capital and foreign capital mobilization needs;

c) Information about the expected foreign loan;

d) Purposes of foreign borrowing: information about the group(s) of customers expected to be granted credit from foreign loans, expected interest rates, and expected loan terms;

dd) Scale of foreign loans: loan value, credit growth targets, credit growth situation up to the time of making the plan, compare the size of foreign loans with the remaining credit growth scale at the end of the year or with the credit growth scale of the previous year in case there is no information on the credit growth target of the current year;

e) Measures to manage risks arising from foreign loans;

g) Competence to approve plans on use of foreign loans: competent authorities for approval, grounds for determining approval competence;

h) Other contents (if any).

3. Basic contents of the plan on use of foreign loans in case the borrower is not a credit institution or foreign bank branch:

a) Borrower’s name, business type, charter capital, address, establishment license, business registration certificate, cooperative or cooperative union registration certificate, amending and supplementing documents (if any) or other papers of equivalent value, the scope of lawful production and business lines related to the borrower’s purpose of using foreign loans;

b) Information about the expected foreign loan;

c) Purposes and scale of foreign borrowing:

Information on other production, business activities, and projects using foreign loans within the legal scope of the borrower's activities:

For short-term foreign loans: The list of the needs for using short-term foreign loans (hereinafter referred to as the list of capital use needs) shall be made according to the form specified in the Appendix to this Circular and comply with the principles specified in Clause 4 of this Article.

For medium-term and long-term foreign loans: the overall capital scale of production and business activities; capital structure; scale of foreign loans; expenses expected to be paid from foreign medium- and long-term loans;

d) Measures to manage risks arising from foreign loans (if any);

dd) Competence to approve plans on use of foreign loans: competent authorities for approval, grounds for determining approval competence;

e) Other contents (if any).

4. Principles of making a list of capital needs:

a) For the purpose of paying short-term debts payable in cash (excluding principal debts arising from domestic loans):

The borrower shall declare in the list of capital needs and payment obligations during the loan term on the basis of the estimated amount to be paid according to the documents and files giving rise to the payment obligation such as invoices, agreements, contracts that are signed and issued before the borrower withdraws loan capital.

In case for objective reasons such as the beneficiary does not deliver enough goods, the parties may negotiate the delay of payment or speed up the payment schedule, clearing the debt, or the tax authority notifies the change of the payable tax leads to a change in the actual payment value compared to the value stated in the list of capital needs, the borrower shall adjust the plan on use of foreign loans in which the list of capital needs is updated in accordance with reality and supplemented with other lawful short-term debts obliged to pay within the loan term by the borrower (if any);

b) For the purpose of using short-term foreign loans to serve the borrower's professional activities, which must ensure financial safety criteria in accordance with specialized laws:

The borrower shall declare in the list of capital use needs the total amount expected to be used for each specific professional activity of the borrower on the basis of the business plan in accordance with specialized laws.

In case there is a change in the actual capital use value compared with the value stated in the list of capital needs due to the change in the business plan, the borrower shall adjust the plan on use of foreign loans, including an updated list of data on capital needs and additional lawful capital use purposes (if any);

c) The borrower must adjust the plan on use of foreign loans in case there is a change in the list of capital use needs specified at Points a and b of this Clause before the changes take place and ensure compliance with regulations on responsibility for storing and presenting documents to serve the inspection and examination of the purpose of using foreign loans as prescribed in Clause 4, Article 19 of this Circular.

Article 8. Plan for restructuring foreign debts

1. Foreign debt restructuring plan (hereinafter referred to as “debt restructuring plan”) means a collection of information on the use of new foreign loans to repay existing foreign loans legally. A debt restructuring plan must be approved by the competent authority in accordance with law regulations.

2. Such a plan must contain the following principal details:

a) Information about the foreign borrower:

The information specified at Point a, Clause 2, Article 7 of this Circular, in case where the borrower is a credit institution or foreign bank branch.

The information specified at Point a, Clause 3, Article 7 of this Circular, for the borrower other than a credit institution or foreign bank branch;

b) Information about existing loans and outstanding foreign loans: lender, loan amount, borrowed currency, loan term, loan cost, loan purpose, capital withdrawal, debt repayment, balance debt of the loan at the time of making the debt restructuring plan, expected value of the loan structure and code (applicable to existing foreign loans that are medium- and long-term loans), a list of using short-term loans of existing foreign loans (applicable to existing foreign loans that are short-term loans);

c) Information about the new foreign loan: the lender, the loan amount, the loan currency, the loan term, the loan cost, the capital withdrawal plan, the payment plan for the outstanding balance of the existing foreign loan;

d) Competence to approve debt restructuring plans: competent authorities for approval, grounds for determining approval competence;

dd) Other contents (if any).

Chapter II

GENERAL CONDITIONS

Article 9. Foreign loan agreements

1. Foreign loan agreement means one or a collection of several documents recording an agreement between the parties, whereby the lender delivers or commits to hand over to the borrower a sum of money or property (in the case of foreign loans in the form of a financial leasing contract) to be used for a specified purpose within a certain period of time with the principle of repayment of both principal and interest (if there is an agreement on interest).

2. The foreign loan agreement must be made in writing. In case of an agreement in the form of an electronic data message, it must comply with the law on e-transactions.

3. The foreign loan agreement must be signed before or on the date of withdrawal of the foreign loan. A foreign loan agreement shall only be signed on the date of withdrawal of a foreign loan in the following cases:

a) Short-term foreign loans provided that the loan disbursement is made after the parties sign the loan agreement;

b) Foreign loans arising from the transfer of money for investment preparation of projects that have been granted investment registration certificates into foreign loans in accordance with the law on foreign exchange management for foreign debt repayment activities and foreign direct investment activities in Vietnam.

Article 10. Currency of foreign loans

1. A foreign loan shall be borrowed in a foreign currency.

2. A foreign loan may be borrowed in Vietnam dong only in the following cases:

a) The borrower is a micro-finance institution;

b) The borrower is a foreign-invested enterprise which takes out the loan from profits from direct investment activities in Vietnam of the lender being a foreign investor contributing capital to the borrower;

c) The borrower withdraws capital and repays debt in foreign currency, and debt obligations of the loan are determined in Vietnam dong.

Article 11. Security transactions for foreign loans

The borrower and related parties are solely responsible for complying with the current law on secured transactions and other relevant laws when signing and performing security transactions for foreign loans.

Article 12. Foreign loan cost

1. Borrowers and related parties are solely responsible for complying with current laws related to foreign loan interest rates and other costs related to foreign loans when reaching an agreement on foreign loan costs.

2. In order to administer the limit of self-borrowed and self-paid foreign loans, when necessary, the Governor of the State Bank of Vietnam may decide on application of conditions on foreign loan cost; and set and announce the cap of foreign loan cost in each period.

Article 13. Foreign borrowing by state enterprises

The state enterprise’s foreign loan must be approved in principle, appraised and accepted by competent authorities in accordance with the law on assignment and decentralization of the performance of state owners’ and state owner representatives’ rights, responsibilities and obligations for state enterprises, and comply with the law on management and use of state capital invested in production and business at enterprises.

Chapter III

ADDITIONAL CONDITIONS

Section 1

ADDITIONAL CONDITIONS APPLICABLE TO BORROWERS BEING CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Article 14. Purposes of foreign borrowing

1. A borrower may take out a short-, medium- and long-term foreign loan for the following purposes:

a) Supplementing capital for credit extension activities according to the borrower’s credit growth;

b) Restructuring foreign debts of the borrower;

2. A borrower taking out a medium- and long-term foreign loan must prove the purpose of foreign loans through:

a) The plan on use of foreign loans as prescribed in Clause 2, Article 7 of this Circular in case of borrowing to accomplish the purposes specified at Point a, Clause 1 of this Article;

b) Debt restructuring plan as prescribed in Article 8 of this Circular in case of borrowing to accomplish the purposes specified at Point b, Clause 1 of this Article.

Article 15. Short-term foreign borrowing limits

Borrowers may only borrow short-term foreign loans in case the short-term foreign borrowing limit is met as of December 31 of the year preceding the time of loan origination. Short-term foreign borrowing limit is the maximum ratio of the total principal balance of short-term foreign loans based on core capital, specifically as follows:

1. 30%, for commercial banks;

2. 150%, for foreign bank branches or other credit institutions.

Article 16. Prudential ratios

1. When taking out short-term foreign loans, the borrower must ensure compliance with the law on prudential ratios in the Law on Credit Institutions at the end of the last 3 months prior to the date of signing a foreign loan agreement or an agreement to increase the value of foreign loans, except for the case specified at Point c, Clause 2 of this Article.

2. When taking out medium- and long-term foreign loans, the borrower shall be responsible for complying with the law on prudential ratios in the Law on Credit Institutions at the end of the last 3 months prior to the date of signing the foreign loan agreement or the agreement to increase the value of foreign loans to the end of the latest month before the time of submitting the complete dossier for administrative procedures in accordance with the current law guiding foreign exchange management for enterprises’ foreign borrowing and repayment, except for the following cases:

a) The medium- or long-term foreign loan is eligible for being accounted as tier-2 capital of the credit institution or foreign bank branch and such loan helps the credit institution or foreign bank branch satisfy regulations on prudential ratios.

b) Borrowers who take out foreign loans in the form of issuing bonds to the international market shall be responsible for complying with the State Bank of Vietnam’s regulations regarding the prudential ratios specified in the Law on Credit Institutions at the end of the last 3 months prior to the date of submission of the dossier for issuance registration;

c) Borrowers being supporting credit institutions under the approved recovery plans, or credit institutions under special supervision shall apply the prudential ratio as prescribed for these groups of subjects in the Law on Credit Institutions.

Section 2

ADDITIONAL CONDITIONS APPLICABLE TO BORROWERS OTHER THAN CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Article 17. Purposes of foreign borrowing

1. Purposes of short-term foreign borrowing:

a) Borrowers may only use short-term foreign loans to restructure their foreign debts and pay their short-term debts payable in cash (excluding principals of domestic loans). Short-term liabilities specified in this Clause include debts incurred during the implementation of investment projects, production and business plans and other projects of the borrowers, that are determined in accordance with current law guiding the enterprise accounting regime;

b) In addition to the purposes specified at Point a, Clause 1 of this Article, the borrowers who are required to ensure financial safety criteria according to specialized laws may use short-term foreign loans to serve their professional operations with a term of not more than 12 months from the time of withdrawal of foreign loans.

2. Purposes of medium- and long-term foreign borrowing:

A borrower may take out a medium- and long-term foreign loan only for the following purposes:

a) Implementing the borrower's investment project;

b) Implementing production, business plans and other projects of the borrower;

c) Restructuring foreign debts of the borrower.

3. The borrower's use of foreign loans specified in Clauses 1 and 2 of this Article must be consistent with:

a) The scope of business registration of the enterprise, establishment license, investment certificate, investment registration certificate, written approval of investment policy, certificate of registration of cooperative or cooperative union, or other papers of equivalent value as prescribed by law;

b) Other legal scope of activities specified in current legal documents regulating the charter of organization and operation of the borrower.

4. A borrower must prove the purpose of foreign loans through:

a) Investment certificate, investment registration certificate or decision on approval of investment policy in accordance with the law on investment and the current provisions of relevant laws, in case of borrowing foreign loans to implement the borrower's invest project;

b) The plan on use of foreign loans as prescribed in Clause 3, Article 7 of this Circular in case of borrowing foreign loans to implement the production and business plans, or other projects of the borrower;

c) Debt restructuring plan as prescribed in Article 8 of this Circular in case of borrowing foreign loans to restructure foreign debts.

Article 18. Foreign borrowing limits

1. In case of borrowing foreign loans for implementation of investment projects:

a) Principal balance of medium- and long-term domestic and foreign loans of the borrower (including short-term loans extended and overdue short-term loans turned into medium- and long-term loans) serving an investment project must not exceed the borrowing limit of the investment project;

b) The borrowing limit of an investment project specified at Point a, Clause 1 of this Article is the difference between the total investment capital of the investment project and the investor's contributed capital recorded in the investment certificate, investment registration certificate, written approval of investment policy.

2. In case of borrowing foreign loans for implementation of production and business plans, and other projects of the borrower:

The borrower's balance of medium- and long-term domestic and foreign loans (including short-term loans extended and overdue short-term loans turned into medium- and long-term loans) for this purpose must not exceed the total demand for loan capital in the plan on use of foreign loans approved by competent authorities in accordance with law.

3. In case of borrowing foreign loans to restructure foreign debts of the borrower:

a) The maximum amount of a foreign loan for the purpose of restructuring foreign debt must not exceed the total value of the principal balance, the amount of interest, unpaid fees of the existing foreign debt, and the fee of the loan newly determined at the time of structure;

b) In case the new foreign loan is a medium- or long-term loan, within 5 working days from the date of withdrawal of the new loan, the borrower must repay the existing foreign loan so that past the above period of 5 working days, the borrower shall ensure the borrowing limit specified in Clauses 1 and 2 of this Article;

4. Short-term foreign loans are not subject to the regulations on foreign borrowing limits specified in Clauses 1 and 2 of this Article.

5. Exchange rates used to calculate foreign borrowing limits:

a) For the purpose of borrowing foreign loans to implement an investment project, if the currency of foreign loans is different from the currency recorded in the investment certificate, investment registration certificate, written approval of investment policy, the borrower shall use the foreign currency accounting rate announced by the Ministry of Finance (the State Treasury) applied at the time of signing foreign loan agreements or agreements on changes related to the loan value to calculate the borrowing limit;

b) For the purpose of borrowing foreign loans to implement production, business plans and other projects of the borrower, in case the demand for loan capital in the plan on use of foreign loans is calculated in a currency other than the currency of foreign loans, the borrower shall use the foreign currency accounting rate announced by the Ministry of Finance (the State Treasury) applied at the time of making the plan on use if foreign loans to calculate the borrowing limit;

b) For the purpose of borrowing foreign loans to implement production, business plans and other projects of the borrower, in case the demand for loan capital in the plan on use of foreign loans is calculated in a currency other than the currency of foreign loans, the borrower shall use the foreign currency accounting rate announced by the Ministry of Finance (the State Treasury) applied at the time of making the plan on use if foreign loans to calculate the borrowing limit;

Chapter IV

RESPONSIBILITIES OF RELATED PARTIES

Article 19. Responsibilities of borrowers

1. To comply with the regulations on foreign borrowing conditions specified in this Circular and current regulations on foreign exchange management.

2. To take responsibility for compliance with the provisions of civil law, law on enterprises, law on investment, secured transaction, anti-money laundering, specialized laws, other relevant laws and international practices when concluding and performing foreign loans.

3. To take responsibility before law for the accuracy and truthfulness of documents proving the purpose of foreign loans and ensure the use of foreign loans in accordance with the documents proving the foreign borrowing purposes specified in Clause 2, Article 14 and Clause 4, Article 17 of this Circular.

4. To fully archive receipts and documents proving the use of foreign loans in accordance with the foreign borrowing purposes specified in Articles 14 and 17 of this Circular, and documents related to the change of the list of capital use needs (if any) under Clause 4, Article 7 of this Circular and fully present the above documents to serve the inspection and examination of the foreign borrowing purposes by the competent authority.

5. To make a table to monitor each idle amount in case of term deposit at credit institutions, foreign bank branches in Vietnam according to the principles of capital use specified in Article 6 of this Circular and produce together with documents proving the compliance with the provisions of Article 6 of this Circular to serve the inspection and examination of the use of foreign loans by competent authorities when necessary.

Article 20. Responsibilities of the account service-providing banks

1. To check and keep documents suitable to actual transactions to ensure that the provision of foreign exchange services is carried out for the right purposes and in accordance with the law.

2. To cooperate in providing information and documents of the borrower during the State Bank of Vietnam's inspection and examination of the borrower's compliance with foreign borrowing conditions.

Chapter V

IMPLEMENTATION PROVISIONS

Article 21. Effect

1. This Circular takes effect from August 15, 2023, except for the cases specified in Clause 2 of this Article.

2. Provisions on short-term foreign borrowing limits specified in Article 15 of this Circular take effect from January 1, 2024.

3. To repeal Circular No. 12/2014/TT-NHNN dated March 31, 2014, of the Governor of the State Bank of Vietnam, providing conditions on enterprises’ foreign borrowing without government guarantee

4. To amend, supplement and repeal a number of phrases, clauses and articles of Circular No. 12/2022/TT-NHNN dated September 30, 2022, of the Governor of the State Bank of Vietnam, guiding foreign exchange management for foreign loan borrowing and repayment by enterprises as follows:

a) To repeal Point c, Clause 3, Article 15; Clause 5, Article 15; Clause 10, Article 16; Clause 3, Article 20 and the phrase “except Vietnam-dong foreign loans which are subject to consideration and approval by the State Bank Governor” at Point b, Clause 1, Article 20;

b) To replace the phrase “or a document proving the borrower’s non-compliance with regulations on credit extension limits and prudential ratios as approved by the Prime Minister or State Bank Governor in accordance with law (if any)” in Clause 7, Article 16 with the phrase “or a document proving the borrower falling in the cases specified at Point c, Clause 2, Article 16 of Circular No. 08/2023/TT-NHNN providing conditions on borrowing of foreign loans not eligible for government guarantee”;

c) To amend the “Note” in Appendix 02 as follows: “The borrower falling in the cases specified at Point c, Clause 2, Article 16 of Circular No. 08/2023/TT-NHNN providing conditions on borrowing of foreign loans not eligible for government guarantee, which specifies ratios that are not subject to compliance, and the time of non-compliance with the prudential ratios in the operations of credit institutions and foreign bank branches”.

Article 22. Transitional provisions

For foreign loan agreements signed before the effective date of this Circular and in accordance with the law at the time of signing, the borrowers may continue to perform under the signed agreements and the State Bank of Vietnam's written confirmations of registration, or registration for change of foreign loans (if any) until the end of the foreign loan terms. The modification of such agreements shall be performed if the modified contents comply with this Circular and relevant laws.

Article 23. Implementation organization

The Chief of the Office, the Director of the Foreign Exchange Management Department, and heads of the units under the State Bank of Vietnam, directors of State Bank branches of provinces and centrally-run cities, credit institutions and foreign bank branches, enterprises, cooperatives and unions of cooperatives shall organize the implementation of this Circular./.

* All Appendices are not translated herein.