Vietnamese banking regulations do not have clear mechanics for transfer of loan commitments between banks or credit institutions in Vietnam. In particular:
- Under Circular 9/2015 of the State Bank of Vietnam (SBV) on loan transfer, loan transfer is defined to mean the transfer of “the right to collect loan” arising from the lending operation by a bank (the Original Bank) to a loan purchaser, which may or may not be a bank. The definition of loan under Circular 9/2015 does not include loan commitment where a bank only commits to lend to a borrower but has not actually disbursed the loan. Accordingly, all the loan transfer mechanics under Circular 9/2015 do not directly apply to transfer of loan commitment.
- One way for banks to overcome the lack of regulations on transfer of loan commitment is for the Original Bank to actually disburse the loan and then transfer such loan to another bank (New Bank) in accordance with Circular 9/2015. However, under Circular 9/2015, if the loan purchaser is a bank, then the SBV requires the New Bank to have a loan purchase license. Not all banks in Vietnam are granted a loan trading licence by the SBV.
- Under the lending regulations (Circular 39/2016), a loan commitment could be understood to be an undertaking by a bank to handover to the client an amount of money to use. Therefore, it appears that a loan commitment is regarded as an obligation to lend by a bank (which, of course, is usually conditional on the borrower’s satisfying certain conditions precedent). Therefore, transfer of a loan commitment is regarded as a transfer of obligation and will require the consent of the borrower. Borrower’s consent is usually not a problem since any proper loan agreement will include a transfer clause which allows the bank to transfer any of its rights and obligations under the loan agreement to a third party.
- After buying the loan commitment, the New Bank will have obligation to lend to the borrower. Therefore, the New Bank and the borrower will need to comply with Circular 39/2016 on bank lending. In the context of a transfer of loan commitment, it is not clear how the New Bank and the borrower could comply with Circular 39/20176. For example, pursuant to Article 4.1 of Circular 39/2016, lending activities of the credit institution to its client is conducted under “the agreement between the credit institution and the client”. In the case of transfer of the commitment, the New Bank does not have a direct agreement with the Borrower. When a bank extends loan to a customer, Article 9 of Circular 39/2016 requires the borrower to send to the credit institution documents evidencing satisfaction of lending conditions. The Original Bank may have these documents but the New Bank may not receive these documents directly from the Borrower upon the transfer of the commitment. Article 16 of Circular 39/2016 requires a credit institution to provide to its borrowers certain information before signing the loan agreement. In a transfer of loan commitment, the New Bank may not approach and provide such information to the Borrower directly.
- One possible way to comply with various requirements under Circular 39/2016 is to structure the transfer of loan commitment as part of a syndication lending. Under Circular 42/2011, syndication lending is the situation where two or more credit institutions together (“cùng thực hiện”) extends loans to the same borrower. It is arguable that after the New Bank purchases a loan commitment from the Original Bank, the New Bank and the Original Bank together extend loan to the same borrower. Accordingly, if the New Bank and the Original Bank agree to coordinate their lending activities, then the lending activities between the New Bank and the Original Bank could be subject to regulations on syndication lending. The regulations on syndication lending allow a syndication bank to rely on certain actions of the agent bank such as borrower due diligence or signing credit agreement. Relying on the syndication lending regulations is however subject to various uncertainties. For example, in this case, the Original Bank must be willing to act as the agent bank for the syndication created as a result of the transfer of loan commitment. Even if the Original Bank agrees to act as an agent bank acting on behalf of the New Bank, the original loan documents were signed by the Original Bank on its own behalf before the New Bank participates in the deal. The New Bank may arguably rely on the provisions of the Civil Code 2015 to confirm that the New Bank will be bound by the original loan documents signed by the Original Bank. However, the Borrower may still challenge that confirmation.
Given the lack of clarity and mechanics on transfer of loan commitment under Vietnamese law, a transfer clause in bank loan will need to provide more detailed mechanics for a transfer of loan commitment to work.
This post is contributed in parts by Nguyen Hoang Duy, an associate of Venture North Law.