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On 28 June 2023, the State Bank of Vietnam (SBV) issued Circular 6 (Circular 6/2023) to amend Circular 39/2016 on lending activities of credit institutions (CIs) and foreign bank branches (FBBs). Circular 6/2023 will take effect from 1 September 2023.

Circular 6/2023 introduces stricter control over lending activities conducted by CIs and FBBs. In this post, we will summarize some of the key points of Circular 6/2023.

Additional prohibited lending purposes

Circular 6 provides for certain new scenarios where CIs and FBBs are prohibited from providing loans. These cases include:

Less restrictions to lend for repayment of existing loans

Circular 39/2016 prohibits CIs and FBBs from providing loans to refinance existing loans, including both foreign and domestic loans except where the existing loan meets the following conditions:

a)         The existing loan is for business purposes;

b)         The term of new loan does not exceed the remaining term of the existing loan; and

c)         The existing loan has not been restructured.

Circular 6/2023 has excluded deferred payment foreign loans from the category of prohibited refinanced loans. Additionally, the condition outlined in (a) has been abolished. This implies that CIs/FBBs are now permitted to lend if the existing loans are intended for any lawful purposes, such as living expenses.

Loan repayment currency

Unlike Circular 39/2016, which mandates that the loan repayment currency must be the same as the currency of the loan, Circular 6/2023 permits borrowers to repay the loan in a different currency subject to the agreement between the borrower and the lender and the applicable laws.

Debt collection sequence

Circular 6/2023 provides clarity on the sequence for debt collection in cases where loans have one or more overdue repayment periods. In such situations, CIs/FBBs will prioritize the collection of outstanding debt in the following order: overdue principal, accrued interest on overdue principal, due principal, and accrued interest on due principal that remains unpaid.

CIs/FBBs’ obligation to check and monitor loan use of customers

To align with the provisions of the Law on Credit Institutions 2010, Circular 06/2023 explicitly outlines that CIs/FBBs have both the right and obligation to monitor and oversee the utilization of loans as well as the repayment of their customers. In contrast, under Circular 39/2016, this responsibility was solely considered a right of the CIs/FBBs.

Lending for the purpose of payment to ensure the fulfillment of obligations

Circular 6/2023 supplements a case where the loan is granted for the purpose of payment to ensure the fulfillment of obligations. This aims to address Article 3.3 of Decree 21/2021 on secured obligations.

Specifically, where the CI/FBB extends loan for the purpose of payment to ensure the fulfillment of obligations, it must set aside the disbursed loan amount at the lending CI/FBB until the termination of the security obligation.

Lending via electronic channels

In line with the Digital Transformation Strategy for the banking sector until 2025 as set forth by the SBV, Circular 06/2023 enables CIs/FBBs to provide loans to customers through electronic channels. However, this extension of loans through electronic means is subject to specific conditions imposed by Circular 06/2023. For instance:

a)         The electronic lending information system must adhere to regulations ensuring information system security at level 3 or above;

b)         CIs/FBBs must have solutions and technical technologies in place to perform KYC processes and assume responsibility for any associated risks; and

c)         The outstanding loan amount for an individual customer borrowing funds for living purposes should not exceed 100,000,000 Vietnamese dong at a CI/FBB.

This post is written by Hoang Thi Thanh Thuy and edited by Nguyen Quang Vu.