On 28 December 2018, the State Bank of Vietnam (SBV) issued Circular 42 amending current foreign currency borrowing regulations (in Circular 24 of the SBV dated 8 December 2015, as amended from time to time (Circular 24/2015)) (Circular 42/2018). Circular 42/2018 will take effect from 1 January 2019.

Changes to permitted lending purpose

Vietnamese banks only lend in foreign currency for a few limited purposes. Circular 42/2018 has following changes to these purposes:

1. Regarding borrower having foreign currency turnover from export, Circular 42/2018 does not provide time limit for the application of provisions relating to the purpose of borrowing short term loan to implement manufacture and business plan of goods to be exported through Vietnam’s border gate. Previous circulars amending Circular 24/2015 only permit such borrowing purpose on a year-by-year basis;

2. Regarding borrower having foreign currency turnover from manufacture and business, short-term borrowing to pay for imported goods and services to implement manufacture and business plan serving domestic demand can only be conducted until 31 March 2019;

3. However, regarding borrower having foreign currency turnover from manufacture and business, short-term borrowing to pay for imported goods and services to implement manufacture and business plan of goods to be exported through Vietnam’s border gate is permitted without time limit;

4. Regarding borrower having foreign currency turnover from manufacture and business, mid-term and long-term borrowing or imported goods and services can only be conducted until 30 September 2019; and

5. Regarding borrowing for overseas investment of large projects, “construction of national importance” and “project/construction of national importance of which investment principal is decided by the Government” is removed from the scope.

Repayment

The provisions relating to repayment currency in Circular 24/2015 is also amended. Circular 42/2018 no longer provides different treatments in repayment for different borrowing purposes. It suggests that the following repayment principles will apply to all borrowing purposes:

1. if the borrower is identified as having sufficient foreign currency turnover to repay the loan before the signing of the loan contract,

1.1. the borrower has to repay the loan from such turnover; or

1.2. if the borrower does not have sufficient foreign currency to repay the loan, the borrower has to:

1.2.1. prove that such insufficiency is caused by objective reason;

1.2.2. buy foreign currency to repay the loan from a selling bank (the selling bank can be the lending bank or another bank – which is new to Circular 24/2015); and

1.2.3. upon the receiving of the borrower of the foreign currency from its manufacture and business, sell such foreign currency to the selling bank.

2. if the borrower is identified as not having sufficient foreign currency turnover to repay the loan before the signing of the loan contract, the borrower has to buy foreign currency to repay the loan.

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

Vietnam Business Law