New measures to address non-performing loans in Vietnam

The National Assembly has just passed an important resolution specifically addressing non-performing loans (NPLs) held by credit institutions (NPL Resolution). The NPL Resolution takes effect for a period of five years from 15 August 2017. The NPL Resolution only applies to (1) NPLs arising before 15 August 2017 or (2) NPLs arising after 15 August 2017 from loans which have been extended before 15 August 2017. The NPL Resolution does not make clear whether a credit institution may acquire NPLs from other non-bank entities and use the powers under NPL Resolution to enforce such NPLs.

Classification of non-performing loans in Vietnam

A foreign investor interested in investing in non-performing loans (NPL) in Vietnam should at first know which type of NPL exists in Vietnam. Depending on the types of the existing lenders, NPLs can be classified into:

NPLs held by onshore credit institutions (Bank NPL). A foreign entity may acquire and transfer Bank Loans in general. The legal framework for investing in Bank NPLs is most advanced. There are separate regulations of the State Bank of Vietnam (SBV) on transfer of bank loans and there has just been a special resolution of the National Assembly dealing with Bank NPLs incurred before 15 August 2017 (NPL Resolution). In theory, a Bank Loan transferred to a foreign entity could be considered as a foreign loan and be subject to foreign loan regulations. However, the SBV has indicated that a Bank NPL sold to a foreign entity is not regarded as a foreign loan;

New limitation on foreign loans and grant of guarantees by Vietnamese Governments

Under Decision 544/2017, the Prime Minister has approved the program for management of Government loans for the period 2016 – 2018. The Prime Minister is exercising his authority under the Law on Management of Public Debts 2009. Decision 544/2017 contains various limitations on the ability of Vietnamese companies to obtain foreign loans under this period. In particular,

New Bank Lending Regulations Circular 39/2016 (2)

On 14 March 2017, the State Bank of Vietnam (SBV) has issued an Official Letter No. 1576/NHNN-CSTT (OL 1576) explaining several points of its Circular 39/2016, including:

confirmation that applicable interest rate of a loan can be described in general in a frame loan agreement and specified (with conversion to per cent per annum) in a relevant debenture note;
confirmation that commitment fee can only be applied one time only; and
a further guidance that if the bank and its customer agree on an interest rate calculated on the basis of a year having 360 days, then the loan agreement also has to include an interest rate calculated on the basis of a year having 365 days;
if the repayment period is restructured, overdue interest can be applied to overdue interest amount but it cannot be accumulated over overdue principal amount during the extended period; and
regarding floating interest, if the formula or its calculating factor is not clear which resulted to different interest rates, the lowest one shall be applied by default.

One important change made by Circular 39/2016 is that the loan period will start on the day immediately after the disbursement date rather than the disbursement date itself as provided by previous legislation. Consequently, interest payable by the borrower will also have to be calculated on that day. This change may appear small in theory but could cause material change in practice. This is because most banks are using software to calculate interest. And it appears that many systems have been set up according to previous practice which cannot be easily changed to reflect the change introduced by Circular 39/2016. The SBV however has not offered any clarification on this point.

This post is contributed by Nguyen Hoang Duy, an associate at Venture North Law Limited.

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Vietnam Business Law