Vietnam Implements Enhanced Regulations on Foreign Bank Branch Lending Activities
The State Bank of Vietnam (SVB) issued Circular 06/2023 in June 2023, which introduces stricter control over the lending activities of credit institutions and foreign bank branches in Vietnam. The circular takes effect from September 1, 2023.
On June 28, 2023, the State Bank of Vietnam issued No.06/2023/TT-NHNN (Circular 06/2023), which amends previous Circular 39/2016. The amendments introduce new scenarios in which credit institutions (CI) and foreign bank branches (FBB) are prohibited from providing loans to customers.
According to the SVB, these amendments aim to improve the safety and efficiency of transactions conducted by CIs and FBBs.
What are the amendments?
Prohibited lending purposes
Circular 6/2023 has set out additional activities in which CI and FBB are prohibited to provide loans.
- Loans used for deposits;
- Loans for the acquisition of limited liability enterprises and partnerships, for the purchase of and transfer shares of joint stock enterprises that have not been listed on the stock market or have not registered for trading on the Unlisted Public Company Market (UPCoM) trading system (borrowers are only allowed to obtain short-term loans);
- Loans to repay foreign loans and loans at other credit institutions;
- Loans to make capital contributions in accordance with capital contribution contracts, investment cooperation contract, or business cooperation contract of investment projects that are not eligible to operate as prescribed by law at the time of lending; and
- Loans are used to make financial reimbursements.
Circular 6/2023 allows CIs and FBBs to provide loans through electronic channels. This is, however, subject to strict conditions imposed under the circular.
- The outstanding loan value for an individual who borrows money for their living expenses must not exceed VND100 million (US$4,222);
- The CIs and FBBs must have ‘know-your-customer’ (KYC) processes in place; and
- The electronic lending system must have at least three security levels or above.
Loan repayment currency
Circular 6/2023 permits borrowers to repay their loans in either the Vietnamese dong or a foreign currency, subject to an agreement between the borrower and the lender. Credit institutions and customers agree on lending in Vietnam dong or foreign currencies under these circular and relevant laws.
Debt collection order
If a loan has one or more overdue repayment periods, the CIs and FBBs will prioritize the collection of the debt in the following order:
- Overdue principal;
- Accrued interest on the overdue principal;
- Due to principal; and
- Accrued interest on the due principal.
What are the conditions to obtain a bank loan in Vietnam?
To obtain a bank loan in Vietnam, the customer must comply with the following conditions:
- The customer must be a legal entity with civil legal capacity as prescribed by the law;
- The use of the capital must be for legal activities;
- Customers must produce a feasible business plan for the use of the capital;
- Customers have the financial ability to repay the debt; and
- When a customer borrows a loan from a credit institution at an agreed interest rate, the credit institution must determine whether the customer has a transparent and healthy financial position before offering a loan.
The impact of Circular 6
As mentioned, Circular 6 will be implemented from September 1, 2023. As such, any loan agreements signed before this date are not required to follow the requirements under Circular 6.
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