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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Confusion regarding time limitation under Vietnamese Civil Code 2015

Under the Civil Code 2015, the time limitation for making a claim is longer than that of the Civil Code 2005. For example,

Under the Civil Code 2015, a claim for breach of contract or for non-contractual damages now has a time limitation of three years commencing on the date on which the claimant knows or should have known that the claimant’s rights or interests have been violated. This is longer than two years under the Civil Code 2005. In addition, the two year time limitation period under the Civil Code 2005 may commence on a much earlier date (i.e. the date on which the claimant’s rights or interests have been violated).
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Previously, a land user who leases land from the Government with annual payment is not allowed to lease houses and building attached to the land unless such land user registers for real estate business under the Law on Real Estate Business 2014. The restriction has been removed by Decree 1/2017. Decree 1/2017 has, among others, clarified the issue of right to lease buildings attached to land with annual rental payment. In particular, Decree 1/2017 provides that a land user who leases land from the State and pays annual rental may lease their assets attached to the land piece if:

Vietnam Business Law