8 February, 2019
On 28 December 2018, the State Bank of Vietnam (SBV) issued Circular No. 42/2018/TT-NHNN (Circular No. 42) to amend Circular No. 24/2015/TT-NHNN (Circular No. 24) dated 08 December 2015, of the Governor of the SBV regulating lending in foreign currencies to borrowers being residents (borrowers) by credit institutions and foreign bank branches established and operating in Vietnam, as amended from time to time. Circular No. 42 took effect from 01 January 2019, repealing Circular No. 18/2017/TT-NHNN (Circular No. 18) of the SBV dated 27 December 2017.
Credit agreements executed before 01 January 2019 will not be subject to Circular No. 42, except credit agreements in the form of credit lines executed before 01 January 2019 having each specific loan agreements executed after 01 January 20191. Amendments and supplements of credit agreements must also comply with provisions of Circular No. 422.
Key Features
Some notable points of Circular No. 42 are as follows:
- Stricter conditions and cut-off timeline for lending in foreign currencies for offshore payments of imported goods and services
- Previously, under Circular No. 24, onshore credit institutions and foreign bank branches may provide short-, mid- and long-term loans in foreign currencies for the purpose of offshore payment for import of goods and services if the borrowers have sufficient foreign currencies from production and business income to repay such loans3.
- Under Circular No. 42, the above purpose is only permissible if the import of goods and services is to implement production and business plan serving domestic demand. Moreover, credit institutions and foreign bank branches may only lend in foreign currencies for this purpose until 31 March 2019 (for short-term loans) and 30 September 2019 (for midand long-term loans).
- Other than to serve domestic demand, Circular No. 42 also allows credit institutions and foreign bank branches to provide short-term loans in foreign currencies for offshore payments of imported goods and services to implement plans to produce and/or trade goods exported through Vietnam’s border checkpoints.
- Continue allowing short-term lending in foreign currencies to meet borrowers’ domestic capital requirement to implement plans to produce and/or trade goods exported through Vietnam’s border checkpoints.
- Circular No. 42 allows credit institutions and foreign bank branches to continue providing short-term loans to meet borrowers’ domestic capital requirements to implement plans to produce and/or trade goods exported through Vietnam’s border checkpoints. This will only be allowed if the borrowers have sufficient foreign currencies from export income to repay such loans, which was previously only permitted until 31 December 2018 under Circular No. 184.
Repayment currencies
- Under Circular No. 42, a borrower may now buy foreign currencies from other credit institutions and foreign bank branches to repay the loan if:
- due to objective reasons, the borrower does not have enough foreign currencies when repayment is due; or
- before execution of the credit or loan agreement, the lending credit institutions and foreign bank branches assess that the borrower does not have sufficient income in foreign currencies.
If the borrower buys foreign currencies from other credit institutions and foreign bank branches, such credit institutions and foreign bank branches must transfer such foreign currencies to the lending credit institutions and foreign bank branches.
For further information, please contact:
Oanh H. K. Nguyen Partner, Baker & McKenzie
oanh.nguyen@bakermckenzie.com
