Press release on the issuance of the Circular No.13/2017/TT-NHNN

Press release on the issuance of the Circular No.13/2017/TT-NHNN

A new Circular amends and supplements some articles of Circular No. 07/2015/TT-NHNN issued by the Governor of the State Bank of Vietnam on June 25th, 2015 stipulating the bank guarantee.

On September 29th, 2017, the Governor of the State Bank of Vietnam (SBV) issued Circular No.13/2017/TT-NHNN amending and supplementing the Circular No. 07/2015/TT-NHNN issued on June 25th, 2016 on banking guarantee in order to create favorable conditions in accordance with the new legal regulations relating to bank guarantee activities in general and guarantees for sale and hire-purchase of future-acquired houses of credit institutions and foreign bank branches in particular.

The Circular stipulates following main substances:

Amending and supplementing contents relating to bank guarantee activities in selling, renting houses to be formed in the future:

Establishing the list of commercial banks qualify to perform guarantee activities:

The SBV Governor will issue an official Decision publishing a list of qualified commercial banks. Banking Supervision Agency will take a lead for reviewing commercial banks by criteria for submission to the Governor of the lists. Especially, the Agency also has the responsibility to update and amend the list when there are changes.

Qualified commercial banks must meet 2 requirements: (i) In the Establishment and Operation License or in the document amending or supplementing the Establishment and Operation License, there must be a content that allows of commercial bank to perform the bank guarantee activity; (ii) Commercial bank is not forbidden to carry out guarantees for sale and hire-purchase of future-acquired houses during the period of special control.

About the order of guarantee implementation:

Step 1: Commercial banks shall assess the project owner's capability to consider and decide to grant a guarantee

Step 2: Commercial banks sign an agreement with investor to grant a bank guarantee for the real estate projects with purpose of sale or hire-purchase of future-acquired houses in line with provisions of Article 56 of the Law on Real Estate Business.

Guarantee contract is in formulated in the form of guarantee agreement stipulated in Circular No.07 and the contents must be complied with Article 56 of the Law on Real Estate Business.

The maximum guarantee amount for a project is equal to the total amount of money the project owner allowed to receive in advance from the buyer in accordance with Article 57 of the Law on Real Estate Business; and the project owner is obliged to return other sums of money to the buyer under the signed contract of housing sale or hire-purchase if the project owner fails to hand over the house to the buyers when the time for delivery and receipt of the house is reached.

The validity of the guarantee contract shall expire only when the entire guarantee commitments to the buyers ceases to be valid.

Step 3: Commercial banks issues guarantee commitment in the form of Letter of guarantee to each buyer within 5 working days from the date of receiving the contract of housing sale or hire-purchase sent by the project owner. This Circular also regulates responsibilities of the project-owner to send commercial banks the contracts for housing sale or hire-purchase within 10 working days from the signing date.

Determination of the balance of guarantee given to project owner:

Guarantee balance is determined according to the payment schedule of the buyer paying the project owner and shall be reduced gradually when guarantee obligations of commercial banks for the buyers terminate in line with the provisions of Article 23 of Circular No. 07.

This Circular stipulates a lag in updating the money received by project owners to facilitate coalition between commercial banks and project owners; however, both parties must be informed at least once every last date of the month about the money received by project owner for determining the guarantee balance. The project owners are responsible to precisely inform commercial banks the amount of money they received in advance from the buyers in line with payment schedule

Others:

Entities participating in the guarantee transactions:

Entities participating in guarantee transactions (including guaranteed customers and other related parties) are individuals and legal entities (both domestic and foreign). In case of organizations having no legal entity status to participate in guarantee relationship, the participants shall have to establish and execute the guarantee transactions in accordance with the provisions of Article 101 of the Civil Code.

Scope of guaranteed obligations:

Supplementing the regulation to not allow the guarantee for bond settlement of cooperate issuers with purpose of debt restructure, and bond issuance by subsidiaries, affiliates and joint – venture companies of other commercial banks. This additional content is to ensure the synchronization of the SBV's regulations on controlling credit extension activities of credit institutions (CIs) for subsidiaries, associates; and to restrict the CIs from purchasing corporate bonds issued for the purpose of restructuring debts.

Regulations of the relationship between the guarantee commitment and the contract under which contractual obligations are guaranteed:

Supplementing the content: Abolishing Article 22 of Circular No.07 stipulating the relationship between the guarantee commitment and the contract under which contractual obligations are guaranteed at the request of credit institutions to comply with the independence of bank guarantee with guaranteed obligations.

Translated by VA