On 28 June 2023, the State Bank of Vietnam (SBV) issued Circular No. 06/2023/TT-NHNN (Circular 6) amending Circular No. 39/2016/TT-NHNN (Circular 39) regulating lending transactions of credit institutions and foreign bank branches with customers. Circular 6 loosens some restrictions on lending and debt repayment currency while introducing certain new requirements and restrictions. Besides, it also creates a new legal framework for digital lending activities.
Circular 6 will come into effect on 1 September 2023.
This update will highlight some significant points of Circular 06 as below:
1. Additional Capital Demands Prohibited for Lending
Circular 39 provides that credit institutions and foreign bank branches are prohibited from lending for certain capital demands/purposes. Circular 6 adds the four following prohibited capital demands for the use of loans to the list in Circular 39. Loans cannot be used for:
- making saving deposits;
- making capital contributions to, buying or receiving the transfer of stakes of a limited liability company or a partnership, or shares of a joint-stock company that is not yet listed on the securities market or registered for trading on the UPCOM exchange;
- making capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts for executing investment projects that are unfit for sale or for business operation as prescribed by laws when the credit institution issues its lending decision; or
- financial offsetting purposes.
Important to note is that SBV issued Circular 10/2023/TT-NHNN which is also effective from 1 September 2023to suspend the implementation of items b., c. and d. above. This is done to stimulate economic growth and enhance companies' ability to obtain financing until new relevant regulations are issued. Accordingly, pending new regulations, credit institutions and foreign bank branches may extend loans for these purposes.
2. Currency Used for Debt Repayment
According to Circular 39, the currency used for debt repayment must be the same as the currency used in the loan. But in Circular 6, the borrower can pay the debt in another currency if agreed between the credit institution and the customer.
3. Lending to Secure Obligations
Circular 6 refers to lending to pay monies to secure obligations, whereby loans extended for the purpose of securing obligations must be frozen at the lending credit institution after disbursement, until the secured obligation is terminated.
4. Debt Collection Sequence Clarification
Circular 6 clarifies that the lender will prioritise the collection of debt in case a loan has one or more overdue repayment periods. The order will be as follows:
- Overdue principal;
- Interest accrued on overdue principal;
- Due principal; and
- Interest accrued on due principal.
5. New Regulations on Digital Lending
If a loan is extended loans through electronic means, the following principles must be followed:
- Credit institutions and foreign bank branches must adopt the digital lending method in a manner that is appropriate for their business conditions and loan features, and ensures the security, safety and protection of data messages as well as the confidentiality of information;
- The digital lending information system must satisfy level-3 or higher-level information system security requirements provided in the Government's regulations on the security of information systems;
- Credit institutions and foreign bank branches must:
- Store and manage the information and data in accordance with relevant regulations;
- Store and back up the information and data safely;
- Keep the information and data confidential;
- Ensure the adequacy and integrity of the information and data to facilitate access or use, where necessary, or to serve the inspection, verification and resolution of trace requests, complaints, or disputes, or to be provided at the request of competent authorities; and
- Credit institutions and foreign bank branches must have technologies and solutions to perform the know-your-client process, ensure accuracy, confidentiality in collecting, using data, prevent forgery and falsification of data, control risks; and
- Credit institutions and foreign banks must have risk management policies and clearly delegate responsibilities to relevant departments and persons.
6. Electronic Know-Your-Customers (eKYC) for Digital Lending
Furthermore, each credit institution must:
- Adopt solutions and technologies
- To identify its customers; and
- To verify customer identification data during its provision of digital lending services;
- Shall assume responsibility for all risks that may arise; and
- Meet the requirements specified in Circular6.
The identification and verification of customer identification information applies to customers who is an individual borrowing capital to serve their daily life needs and who establishes a relationship at a credit institution for the first time.
Individuals who borrow for living or daily purposes and have been identified via an eKYC can have a loan balance not exceeding VND 100,000,000 at a credit institution.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.