A new resolution of the Supreme Court on borrowing interests in Vietnam

On 11 January 2019, the Supreme Court issued Resolution 1 guiding the application of several regulations on interest, interest rate and relevant penalty (Resolution 1/2019). Resolution 1/2019 will take effect from 15 March 2019. Below are some salient points of Resolution 1/2019

  • Resolution 1/2019 clearly states that the interest rate caps of the Civil Code 2005 and 2015 will not apply to credit contracts between banks and its customers. In the past, there has been long debate regarding whether the interest rate caps of the Civil Code 2005 and 2015 will apply to credit contracts.

  • If the interest rate, overdue interest on principal and overdue interest on interest are higher than the permitted cap, the exceeding interest which has been paid will be deducted from the principal of the loan.

  • A failure to pay outstanding debt on time will only be penalised once (chỉ xử lý một lần). While this is not clear, this seems to be a no double jeopardy rule for a borrower failing to pay a loan on time. In particular, Resolution 1/2019 seems to suggest that in case the borrower breaches its obligation to pay on time, the lender can only get either penalty amount or overdue interest.

  • Resolution 1/2019, the court is not allowed to apply interest on interest for the period before 1 July 2017. It is not clear if this means that courts will not enforce provisions on compound interest in loan contracts (other than credit contracts) before 1 January 2017.

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