Press release on the issuance of Circular No.36/2018/TT-NHNN
On December 25th 2018, the Governor of the State Bank of Vietnam (SBV) issued Circular No.36/2018/TT-NHNN regulating the lending operations by credit institutions, foreign bank branches to customers for offshore investment. This Circular replaces Circular No. 10/2006/TT-NHNN dated December 21, 2006 guiding the provision of loans by credit institutions to their customers for offshore direct investment. The new Circular is composed of 14 Articles. The new points of the Circular focus on the following substances:
The need for the issuance of the Circular:
The Law on Investment No. 67/2014/QH13 dated November 26, 2014, which was passed by the National Assembly and took effect from July 1, 2015, replacing the Law on Investment No. 59/2005/QH11. On September 25, 2015, Decree No. 83/2015/ND-CP (Decree 83) stipulating the outward investment was signed by the Prime Minister, replacing Decree No. 78/2006/ND-CP dated August 9, 2006 providing for offshore direct investment. Accordingly, Decree 83 stipulates the responsibilities of the SBV to take lead in issuing necessary mechanisms and policies on credit, foreign exchange management and money laundering control related to offshore investment activities; to supervise the commercial banks’ lendings to investors to carry out offshore investment activities in accordance with the legal provisions on foreign exchange management.
Due to the fact that Circular No. 10/2006/TT-NHNN was issued as a guiding document for Decree No. 78/2006/ND-CP, which has expired and been replaced by Decree No. 83/2015/ND-CP, thus in order to complete the legal basis to meet the demands for offshore investment loans, it is necessary to issue a new Circular to replace Circular No. 10/2006/TT-NHNN.
Circular No.36/2018/TT-NHNN includes the following main substances:
1. Scope of regulation and subjects of application:
The Circular regulates the lending activities by credit institutions to their customers for offshore investment in the forms of investment specified in points a, b, c and dd of Paragraph 1, Article 52 of the Law on Investment. The lending credit institutions include commercial banks, non-bank credit institutions and foreign bank branches. The borrowers are investors as defined by the Law on Investment and other guiding documents (excluding credit institutions).
2. Demands for offshore investment loans:
The Circular specifies that credit institutions may consider lending to customers having capital demands in accordance with the investment forms stipulated in the Law on Investment, specifically as follows: (i) Contributing capital to establish an economic organization in accordance with the provisions of the recipient country’s investment law; (ii) Purchasing a part or whole of the charter capital of an overseas economic organization to participate in managing and carrying out overseas business investment activities; (iii) Contributing capital to perform Business cooperation contracts (referred to as BCCs) overseas; (iv) Capital needs to carry out offshore investment in the forms specified at point dd of Paragraph 1, Article 52 of the Law on Investment.
3. Lending conditions:
The Circular specifies that credit institutions may consider lending to customers who meet the requirements of legal capability; having been granted a certificate of offshore investment registration and their investment activities have been approved or licensed by the competent authority of the recipient country; having an offshore investment project or plan which has been evaluated by the credit institution as feasible and customers are capable of repaying the loans; having at least 2 consecutive years without bad debts up to the time of loan application.
4. Lending rates:
The Circular regulates that the lending rates should be agreed between the credit institution and the customer, but shall not exceed 70% of the customers' offshore investment capital. This provision is to ensure that the customer/investor must arrange other capital sources such as their equity capital for the participation in the offshore investment project or plan, in order to reduce the risks for credit institutions; at the same time, proving the ability of the customer in arranging the needed finance.
5. Inspection and supervision over the use of loans:
The Circular stipulates that the lending credit institutions have the rights and obligations to inspect and supervise the use of the loans and repayment of their customers in accordance with the legal provisions; the credit institutions have the right to request the customers to report on the results of the operations and use of the loans, or provide documents to prove the use of the loans; the customers are responsible for using the loans and repayment in accordance with the substances of the loan agreement; reporting and providing documents to prove the use of the loans at the request of the credit institution.
Translated by VA