Following the implementation of the Civil Code No. 91/2015/QH13, which came into effect on 1 January 2017 (2015 Civil Code), the State Bank of Vietnam (SBV) issued circular No. 39 on the Lending Activities of Credit Institutions and Foreign Bank Branches with Clients, which will take effect on 15 March 2017.
Circular No. 39 supersedes decision No. 1627 of the SBV, which provided Regulations on Lending by Credit Institutions with Clients and served as the master legal framework for lending activities in Vietnam since its enactment on 31 December 2001, nearly two decades ago.
Circular No. 39 establishes new lending policies in alignment with the 2015 Civil Code and the Law on Credit Institutions 2010. Key components of circular No. 39 are listed below.
Prohibited lending purposes
In contrast to decision No. 1627, circular No. 39 includes more details on prohibited loan restructuring. Circular No. 39 establishes that credit institutions must not provide loans for the purposes of refinancing another loan by means of:
• Lending to pay a debt to the lending credit institution itself; except for lending for interest payment arising from construction projects, of which such loan interest has been included in the project construction as approved by competent authority; and
• Lending to pay a debt to another credit institution or to pay an offshore loan, except when the purpose of lending is to prepay the loan satisfying certain conditions.
Lending interest rates
Taking into consideration the 2015 Civil Code and the Law on Credit Institutions 2010, circular No. 39 provides clear regulations on lending interest rates. According to circular No. 39, loan interest rates are subject to the agreement of the credit institution and its clients.
Such interest rates, for short-term loans in Vietnamese dong only, shall not exceed the maximum rate stipulated by the State Bank of Vietnam from time to time, for certain funding demands.
Furthermore, in case of failing to pay either in whole or in part the principal and/or the interest when the loan becomes due, the borrower must pay, in addition to the interest on the principal, at the agreed rate: (i) in case of late payment of interest, the late payment interest rate not exceeding 10% per annum; or (ii) in case the loan turns overdue, the interest on the overdue principal not exceeding 150% of the interest rates.
Circular No. 39 substitutes the concept of credit contracts under decision No. 1627 with lending agreements. Accordingly, lending transactions must be in written form, and under the title of “lending agreement” (thóa thuân cho vay).
A lending agreement may be prepared in the form of a specific lending agreement or a master agreement. A lending agreement must contain the following minimum required contents: currency of the loan, loan purpose, loan disbursement and payment methods of such disbursement, loan repayment and interest payment, restructuring of loan repayment period, amendments to the payment schedule, information provisions, termination of lending activities, handling of outstanding loans, penalties and punitive damages, rights and obligations of the parties, validity of the lending agreement, etc.
Therefore, with respect to those credit contracts executed before the implementation of circular No. 39, the credit institutions may continue performing the executed contracts or may consider amending or supplementing such contracts to be in line with the provisions specified in circular No. 39. For the sake of own interest, credit institutions should revise the current credit contracts or any other forms of similar nature based on circular No. 39 to avoid any possible challenge from the SBV after the implementation of this circular.
It is also worth noting that if a credit institution applies standard terms and conditions for lending agreements, such terms and conditions must be publicized at its headquarters and online portal.