Circular 07 Restricting Lending in Foreign Currency by Credit Institutions in Vietnam

In an effort to implement the Government monetary policies to restrict lending and tighten monetary policies, on 24 March 2011, the State Bank of Vietnam (SBV) issued Circular No. 07/2011/TT-NHNN (Circular 07) which restricts banks from lending in foreign currency in Vietnam.

Banks include foreign bank branches.

Cases where banks may lend in foreign currency

Circular 07 allows banks to lend in foreign currency only in the following cases:

• short-term, medium-term and long-term loans to make payment to overseas parties for the import of goods and services; or
• short-term loans to implement production plans and business in exporting goods via Vietnamese border gates; if the borrower borrows in foreign currency for these capital requirements to use inside Vietnam, they must sell foreign currency to the lending credit institution in the form of a spot transaction.

In the above cases, borrowers must demonstrate they will have sufficient foreign currency to repay such loans for their business. This is a new requirement that many borrowers will be unable to meet. It is also the first time exporters are targeted.

Outside of the above purposes, approval from the SBV is required.

Implementing provision

• Circular 07 took effect as of 9 May 2011 (Effective Date) and replaced Decision No. 09/2008/QD-NHNN dated 10 April 2008 of the Governor of the SBV on lending foreign currency by credit institutions to borrowers being residents and Circular No. 25/2009/TT-NHNN dated 15 December 2009 which supplemented Article 1 of said Decision 09/2008/QD-NHNN.
• Any credit agreement executed prior to the Effective Date will continue to be valid and Circular 07 will only apply to new loans/facilities.

For inquiries related to this Legal Update, please contact:

Dao Nguyen (dao.nguyen@mayerbrown.com)

Jim Dao (jim.dao@mayerbrown.com)

Thinh Dan (thinh.dan@mayerbrown.com)

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