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Guidance on foreign loans of enterprises

VGP – The State Bank of Viet Nam on March 31, 2014 issued Circular 12/2014/TT-NHNN providing for conditions regarding foreign loans of enterprises not guaranteed by the Government (Circular 12), amending and supplementing Circular 09/2004/TT-NHNN dated February 21, 2004 guiding the borrowing and repayment of foreign loans of enterprises (Circular 09).

April 14, 2014 3:36 PM GMT+7

Question: What are the new features of the Circular?

Answer:

Foreign loans pertaining to an enterprise’s projects where the borrower directly contributes investment capital

According to Circular 12, besides foreign loans serving trading and production and investment projects of enterprsies themselves as stipulated in Circular 09, the parties can enter into loan agreements for the production, trading and investment projects of enterprises in which the borrower directly contributes investment capital.

In this case, the borrowing limit of the borrower on the loan turnover serving the trading and production plans and investment projects do not exceed the maximum contribution ratio of the borrower for the enterprises that the borrower contributes capital.

Allowing foreign loans in VND

In addition to foreign currencies, foreign loan can be performed in VND in some limited cases as follows: (i) the borrower is a microfinance institution; (ii) the borrower is a foreign invested enterprise, borrowing from the shared profits in VND from the direct investment activities of lender being the foreign investor contributing capital into the borrower’s enterprise; and (iii) other cases which are subject to the approval of the Governor of the State Bank.

Supplementing conditions on short-term, medium and long term foreign loans

For the borrower as a credit institution or branch of foreign bank, short-term foreign loans must comply with the provsions on safety ratio in banking operations unless they are not obliged to comply with this rate with the approval of the Prime Minister or the Governor of the Bank; and the foreign short-term loan is only to supplement short-term credit capital. For medium and long-term foreign loans, like short-term loans, the credit institution or branch of the foreign bank must comply with the safety ratio in banking operations except for other cases where there is approval from the Prime Minister and the Governor of the Bank; and where the medium and long-term foreign loans are eligible to secondary capital of the credit institution or branch of the foreign bank and the implementation of the loans helps the credit institution or branch of the foreign bank to meet their safety ratio obligations.

For the borrower as a state owned enterprsie borrowing medium and long-term foreign loans, Circular 12 abrogates a condition requiring a consulting dispatch of the State Bank as provided in Circular 09. State owned enterprises will only need a written approval of the policy by a state authrity to borrow the medium and long-term foreign loans.

For enterprsies that are not state-owned (irrespective of enterprises with foreign investment capital or enterprises with 100% Vietnamese capital as provided in Circular 09), if the borrower has an investment project using foreign loans that has been granted investment certificates, the maximum debit balance of the medium and long-term loan (including the local debit balance) of the borrowers serving that project must not exceed the difference between the total investment capital and the contributed capital recorded in the Investment Certificate; according to Circular 09, this debit balance must be within the limit of capital entitled to be borrowed and shall not exceed the total loan demand of trading and production plans and investment projects that have been approved by the competent authority as regulated.

 Circular 12 takes effect from May 15, 2014 and the provisions of this Circular will replace the borrowing conditions detailed in Chapter II of Circular 09./.