1 May, 2019
New Circular No. 42/2018/TT-NHNN regulating Lending in Foreign Currencies to Borrowers
The State Bank of Vietnam recently issued Circular No. 42/2018/TT-NHNN dated 28 December 2018 (Circular 42) amending and supplementing the current Circular No. 24/2015/TT-NHNN dated 8 December 2015 regulating lending in foreign currency by credit institutions and foreign bank branches to resident borrowers, as amended from time to time (Circular 24). Below are some noteworthy developments contained in Circular 42 as compared to the current Circular 24.
(i) Narrowing the capital requirements permitted for foreign currency loans by credit institutions and foreign bank branches
Under Article 3.1 of Circular 24, credit institutions and foreign bank branches are allowed to make foreign currency loans for short-term, medium-term and long-term loans in order to make offshore payments for the import of goods and services; and · Under Circular 42, such short-time loans are only permissible if they are used for implementing plans on production and trading of goods to be exported. Otherwise, if such short-time loans are used for implementing plans on production and trading of goods to serve domestic demand, credit institutions and foreign bank branches may only provide loans in foreign currency for this purpose until 31 March 2019.
As for medium-term and long-term loans, the timeline thereof shall be until 30 September 2019.
(ii) Removal of the time limit for loans to meet domestic capital demand for implementing plans on production and trading of goods to be exported
Circular 42 continues to allow credit institutions and foreign bank branches to provide short-term loans to meet domestic capital requirements to implement plans to produce and trade goods to be exported via Vietnam’s bordergates if the borrower has sufficient foreign currency revenue from exports to repay such loans. This was previously only permitted until 31 December 2018 under 3.1(c) of the Circular 24.
(iii) Facilitate the purchase of foreign currency
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Under Circular 42, a borrower, in certain circumstances, may now buy foreign currency not only from the lender, but also from another credit institution or foreign bank branch; and
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Circular 42 also expressly provides, in certain circumstances, for the obligation of the lender to sell foreign currency to the borrower in the event that the borrower needs to buy foreign currency from the lender.
(iv) Timing
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The implementation of credit agreements executed before 1 January 2019 shall not be governed by Circular 42.
With respect to any master credit facility agreement executed before 1 January 2019 but that has specific loan agreements signed on or after 1 January 2019, the implementation of such master credit facility agreement and its specific agreement thereof shall be governed by Circular 42.
For further information, please contact:
Mark Fraser, CEO/ Managing Partner, Frasers Law Company
mark.fraser@fraservn.com
