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LEGAL UPDATE

On June 28, 2023, the Governor of the State Bank of Vietnam issued the Circular No. 06/2023/TT-NHNN, amending and supplementing the Circular No. 39/2016/ TT-NHNN prescribing lending transactions of credit institutions and foreign bank branches with customers. Circular No. 06/2023/TT-NHNN will take effect on September 1, 2023.

Accordingly, compared with the Circular No. 39/2016/TT-NHNN, Circular No. 06/2023/TT-NHNN has some notable points as follows:

Loans used for repaying foreign loans granted in the form of deferred payment of purchased goods are allowed

According to the Circular No. 39/2016/TT-NHNN, credit institutions and foreign bank branches are not allowed to lend for refinancing.

From September 1, 2023, pursuant to the Circular No. 06/2023/TT-NHNN, lending for refinancing is still not allowed in principle, however, borrowing money for paying foreign loans granted in the form of deferred payment of purchased goods is only one exception.

Loans used for repaying early any foreign loans or loans owed to other credit institutions are allowed, no longer limited to just a loan used for business activities

Pursuant to Circular No. 39/2016/TT-NHNN, customers are only allowed to borrow from banks for early repayment of foreign loans or loans owed to other credit institutions if they fully satisfy the following three requirements:

• Be a loan used for business activities;
• Having loan term which does not exceed the remaining loan term of the older loan;
• Be a loan that has not yet been debt rescheduling.

From September 1, 2023, pursuant to Circular No. 06/2023/TT-NHNN, condition (i) has been abolished. This means, customers can borrow to make early repayments for any foreign loans or loans owed to other credit institutions without the limitation of prepayment only for loans used for business activities.

Loans used for savings deposit are not allowed

From September 1, 2023, pursuant to Circular No. 06/2023/TT-NHNN, customers are not allowed to borrow loans used for savings deposit. Examples of the purpose of savings deposit stating in the report on approval of Circular No. 06/2023/TT-NHNN are to prove financial capacity, go to work or study abroad.

Circular No. 39/2016/TT-NHNN has no regulations limiting this.

Loans used for capital contributions or receiving transfer of contributed capital or shares or offset loan are not allowed

From September 1, 2023, pursuant  to Circular No. 06/2023/TT-NHNN, organizations, and individuals are not allowed to borrow for:

• making capital contributions, purchase, receiving transfer of capital contributions of limited liability companies and partnerships;
• making capital contribution, purchase, receiving transfer of shares of joint-stock companies that have not yet listed on the securities market or registered for trading on the UPCOM system;
• making capital contribution under capital contribution contracts, investment cooperation contracts, or business cooperation contracts for the implementation of investment projects that are not eligible for sale as stipulated by laws at the juncture of the credit institution issuing its lending decision;
• offset loan.

However, please note that, on August 23, 2023, the State Bank of Vietnam issued Circular No. 10/2023/TT-NHNN. Accordingly, the new regulation regarding loans used for capital contributions or receiving transfer of contributed capital or shares or offset loan as above-mentioned will be suspended from September 1, 2023 until the effective date of the new legal document regulating this content.

Currency unit used for repayment of the loan may be different from the one used in the loan

Circular No. 39/2016/TT-NHNN stipulates in the "hard" direction, specifically that the Currency unit used for debt repayment is the one used in a loan.

From September 1, 2023, pursuant to Circular No. 06/2023/TT-NHNN, the parties can agree on payment in a currency other than the lending currency. Accordingly, this agreement still needs to comply with relevant legal provisions, including regulations on foreign exchange management.

Specifying the priority order of overdue debt collection

Circular No. 39/2016/TT-NHNN stipulates the debt collection order for overdue loans, the credit institution shall observe the order in which collection of principal amount will take priority over that of interest amount. However, Circular No. 39/2016/TT-NHNN has not clarified the priority order of debt collection with respect to a multi-term loan having due payment periods and past due payment periods.

Circular No. 06/2023/TT-NHNN inherits this provision and supplements scope to guide the case where a loan is paid in many terms but one or some payments are past due. Specifically, from September 1, 2023, in case the borrower violates the payment obligation for one or several payment terms, the credit institution shall collect debts in the following order: (1) overdue principal amount, (2) unpaid interest on overdue principal amount, (3) due principal amount, (4) interest on unpaid principal amount which is not paid when due. This is to minimize the additional interest incurred by the borrower during the overdue periods.

Credit institutions are obliged to issue internal regulations

As analyzed above, Circular No. 06/2023/TT-NHNN has amended and supplemented many important regulations related to credit granting. Accordingly, for these regulations to be implemented in practice, credit institutions and foreign bank branches need to update and supplement their internal regulations quickly.

Therefore, many provisions on Internal Regulations must be revised accordingly. This includes the provisions at Point a, Clause 2, Article 22, specifically the Internal Regulations of credit institutions must clarify the lending conditions, in which stipulating specific criteria to determine the demand for a loan to be used for lawful purposes, having feasible plan to use capital and financial capacity to repay the debt; rejected loan demands; etc.

In general, the provisions of Circular No. 06/2023/TT-NHNN have contributed to clarifying unclear points of Circular No. 39/2016/TT-NHNN. However, with the addition of 4 rejected loan demands as aforementioned, Circular No. 06/2023/TT-NHNN may limit enterprises' ability to access credit for investment, business activities.

Nguyen Thi Hai Yen (ATIM Senior Associate)