Tiếng Việt

New substances of Circular No.39/2016/TT-NHNN

by | Jan 25, 2017 | Banking, EN, Legal Guidance

NEW SUBSTANCES OF CIRCULAR NO.39/2016/TT-NHNN

    On 30 December 2016, the Circular No. 39/2016/TT-NHNN (“Circular 39”) was promulgated by the State Bank of Vietnam and replaced Decision No. 1627/2001/QD-NHNN (hereinafter referred to as “Replaced Documents”) is effective from 15 March 2017 on the Regulation on lending activities of credit institutions and foreign bank branches to customers.

    According to our understanding, the Circular 39 has some new important points about the legal status of borrowers, purposes of borrowing, loan interest rate, loan term, sample credit contract, publication of conditions, overdue debt transfer and debt collection order.

    Specifically, the Circular 39 has some important changes to be considered as follows:

    1. Legal status of Borrowers

    The Circular 39 stipulated that “Customer performing a borrowing transaction with a credit institution (hereinafter referred to as borrowing customer) refers to any legal entity or individual, including: a) Legal entities established and operated within the territory of Vietnam and/or those established abroad and legally operated within the territory of Vietnam; b) Vietnamese and/or foreign nationals.”[1]

    We realize that the difference in this new substance is the customer performing a borrowing transaction with a credit institution only includes legal entities and individuals. It means that organizations being non-legal entity (e.g. households, cooperative groups, private enterprises, other non-legal entities) are not entitled to borrow capital from credit institutions. This is also consistent with the provisions in the Civil Code 2015[2].

    Previously, the Replaced Documents stipulated that customers borrowing from credit institutions shall be Vietnamese and foreign organizations, individuals that are capable of repayment and have demand for funds borrowing…, means that the replaced law allows the borrowers to include households, cooperative groups, private businesses or partnerships company.

    2. Purposes of Borrowing

    In Circular 39, there are two (2) groups of loan purposes, including: Consumer loan and Business loan, namely:

    • Consumer loan means “a credit institution’s granting a loan to an individual customer’s demands for borrowed funds to pay consumption or living expenses for his/her personal or family purposes”[3]; and

    • Business loan means “a credit institution’s granting a loan to a legal entity or individual to meet the demands for borrowed funds other than those referred to in Clause 4 of this Article (Consumer loan), including the demands for borrowed funds by that legal entity or individual, and the demands for borrowed funds by a business household or private company of which that individual is the legal owner”[4].

    We realize that the difference in this new substance is the fact that the Circular 39 does not limit the purposes of borrowing as the Substitute Documents, which divides the demand for loans into the two groups mentioned above. Previously, the Replaced Documents have limited the loan purposes of customers in the implementation of investment projects, plan of production, business and service activity or investment projects, plan of domestic and overseas living standard improvement.

    It should be noted that, according to the Circular 39, although the organizations being non-legal entity will be not entitled to borrow capital from credit institutions, but the Circular 39 allows the credit institutions grant a loan to individual customer who is the head of household business or owner of private enterprise to meet the capital needs of business households and private enterprises.

    3. Loan Re-Structuring

    For the loan re-structuring, the Circular 39 stipulated that Credit institutions shall not be allowed to approve the following loan demands:

    • “Loans used for repaying loan debts owed to lending credit institutions, except for those used for paying loan interest arising during the construction process of which cost is accounted for in the construction cost estimate approved by a regulatory authority in accordance with laws.

    • Loans used for repaying loan debts owed to other credit institutions and foreign loan debts, except for loans used for repaying debts prior to the payment due date that fully meet the following requirements:

    a) Be a loan used for business activities;

    b) Have the loan term that does not exceed the residual loan term of an older loan;

    c) Be a loan under which the debt rescheduling has not been carried out”[5].

     We realize that Circular 39 has a change in the loan re-structuring regulations compared with the Replaced Documents with a view to tighten controlling over lending to repayment.

    4. Loan interest rate

    The Circular 39 stipulated that,

    • Maximum interest rate: “A credit institution and its customer shall agree on the interest rate depending on capital demands and supplies on the market, loan demands and creditworthiness of customers”[6], unless otherwise the interest rate on short-term loan denominated in Vietnamese dong “shall not allow it to exceed the maximum interest rate decided by the State Bank’s Governor over periods of time in order to meet certain demands for borrowed fund”[7];

    • Late payment interest: If a customer fails to make due payment of interest, “the customer must pay late payment interest charged at the interest rate agreed upon between the credit institution and customer which is not allowed to exceed 10%/year interest rate on the outstanding balance of late payment interest in proportion to the period of late payment”[8];

    • Interest on the overdue principal: Where a debt has become delinquent, “the customer owing a delinquent debt must pay interest on the outstanding amount of principal which is overdue in proportion to the period of late payment for which the interest rate charged is not allowed to exceed 150% of the interest rate charged on due repayment that is determined upon the date of such debt becoming delinquent”[9]

    • Variable interest rate: Where the variable interest rate is applied, “a credit institution and customer must enter into an agreement on principles and factors for determination of the variable interest rate, and on the date of adjustment to the loan interest rate. In cases where referring to factors for determination of the variable interest rate results in different loan interest rates, the credit institution shall apply the lowest loan interest rate”[10].

    We realize that the importance in this new substance is the fact that the regulation of maximum interest rate applies only to case of the short-term loan denominated in Vietnamese dong in the priority areas stipulated in Circular 39. Furthermore, in addition to the interest on the principal, there was a clear regulation of the maximum and the calculation of the late payment interest, the interest on the overdue principal and the variable interest rate in order to avoid conflict in the understanding of the parties.

    5. Loan term

    The Circular 39 stipulated that,

    • Loan term refers to “a period of time starting on the day following the day when a credit institution begins to disburse the borrowed fund to a customer and ending on the day when that customer has to repay principal and interest amounts in full as agreed upon between the credit institution and customer”[11];

    • Credit institutions will grant a decision into the following categories:

    • “Short-term loan, defined as loans having the maximum loan term of 01 (one) year.

    • Medium-term loan, defined as loans having the loan term between above 01 (one) year and 05 (five) years at the maximum.

    • Long-term loan, defined as loans having the loan term of more than 05 (five) years”[12].

    We realize that the difference in this new substance is (i) the loan term is not calculated from the received time of the loan by clients; and (ii) the loan term is determined by year rather than month.

    6. Some other substances

    • Currency of repaying debts: Besides the regulations on currency of lending in the same previously, the Circular 39 has a substance specifically on currency of repaying debts – “Currency unit used for debt repayment is the one used in a loan”[13].

    • Fee paid for a commitment to borrowed fund: The Circular 39 has a substance on Fee paid for a commitment to borrowed fund, specifically the credit institution and customers can agree on the payment of “Fee paid for a commitment to borrowed fund withdrawal during the period from the date of entry into force of the loan agreement to the date of initial disbursement of borrowed fund”[14].

    • Penalty and compensation: Circular 39 stipulated that credit institutions and customers have the right to agree on penalties and compensation in case of defaulting on a loan, unless otherwise the loan principal and/or interest. Also, we note that, if there is not an agreement on both of penalty and compensation, the defaulting party shall only be subject to the penalty for violation (without compensation)[15].

    • Delinquent debt: The Circular 39 stipulated that “The credit institution shall perform delinquency procedures for the principal amount of which repayment is not made by the agreed due date and rescheduling is not accepted by the credit institution”[16]. The difference in this new substance is a replacement of “the whole outstanding amount of debt” with “the outstanding amount of principal of customers cannot repay on time” – This is a rule to avoid conflict in the understanding of the parties in past.

    • Post the contract templates, general conditions of lending: The Circular 39 stipulated that the credit institution shall be obliged to

    • “Make a public notice of such contract templates and general contractual terms and conditions regarding lending activities at its office, and make posts on its website;

    • Provide a full amount of information about these contract templates and general terms and conditions of which a customer should be informed prior to conclusion of a loan agreement, and obtain customer’s confirmation that the credit institution has already provided all necessary information”[17].

    • Notify early debt recovery: Upon delinquency, debt termination and debt recovery prior to the agreed due date, the credit institution shall notify the customer of such delinquency, loan termination and early debt recovery[18].

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    [1] Clause 3 Article 2 of Circular No. 39/2016/TT-NHNN

    [2] Civil Code No. 91/2015/QH13 dated 24 month 11 year 2015 by the National Assembly XIII of Viet Nam

    [3] Clause 4 Article 2 of Circular No. 39/2016/TT-NHNN

    [4] Clause 5 Article 2 of Circular No. 39/2016/TT-NHNN

    [5] Clause 5 and 6 Article 8 of Circular No. 39/2016/TT-NHNN

    [6] Clause 1 Article 13 of Circular No. 39/2016/TT-NHNN

    [7] Clause 2 Article 13 of Circular No. 39/2016/TT-NHNN

    [8] Clause 4(b) Article 13 of Circular No. 39/2016/TT-NHNN

    [9] Clause 4(b) Article 13 of Circular No. 39/2016/TT-NHNN

    [10] Clause 5 Article 13 of Circular No. 39/2016/TT-NHNN

    [11] Clause 8 Article 2 of Circular No. 39/2016/TT-NHNN

    [12] Article 10 of Circular No. 39/2016/TT-NHNN

    [13] Clause 2 Article 11 of Circular No. 39/2016/TT-NHNN

    [14] Clause 4 Article 14 of Circular No. 39/2016/TT-NHNN

    [15] Article 25 of Circular No. 39/2016/TT-NHNN

    [16] Article 20 of Circular No. 39/2016/TT-NHNN

    [17] Clause 4 Article 23 of Circular No. 39/2016/TT-NHNN

    [18] Article 20 and Clause 1 Article 21 of Circular No. 39/2016/TT-NHNN

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    @ Copyright 2017 – QNT Law Firm – The article was written within and complies with the relevant legislation at the published time