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Legal Update

Short-term Lending in Foreign Currency Now Allowed to Resident Borrowers

23 May 2012
Mayer Brown Legal Update

On 2 May 2012, the State Bank of Vietnam (SBV) issued Decision 857/QD-NHNN (Decision 857) regulating short-term lending in foreign currency by credit institutions and foreign bank branches (collectively "credit institutions") to resident borrowers.

Under the new piece of legislation, credit institutions can now make loans in foreign currency available to customers residing in the country. This aims to help meet domestic capital requirements by resident borrowers who have demand for foreign currency in their business production for exports and who will have sufficient foreign currency from export earnings for loan repayment.

Credit institutions must also evaluate and assure that production plans are feasible and that borrowers fully satisfy conditions for borrowing as required by laws. Borrowers must demonstrate that they are able to make repayment from their own foreign currency revenue streams.

When the credit institution disburses loan monies to the borrower, the latter must sell the foreign currency loan proceeds to the former by way of a spot foreign exchange transaction, unless allowed by law to use loan proceeds in foreign currency to pay for eligible transactions.

Decision 857 came into effect from 2 May 2012 until the end of 2012.

For inquiries related to this Legal Update, please contact Hoang Anh Nguyen, Mai Phuong NguyenCuong Nguyen or your usual contacts with our firm.

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