On 15 December 2011, the State Bank of Vietnam ("SBV") issued Circular No. 42/2011/TT-NHNN ("Circular 42") to guide syndicated credit extension by credit institutions for clients.

Circular 42 consolidates various legal instruments into one single legal instrument and extends the cases of applicability of co-financing to cover the provision of co-financing for important projects pursuant to instructions from the Government.

Of note, the facility agent may take on the roles of arranger, payment agent and security agent. However, foreign banks participating in syndication are not permitted to act as facility agent, payment agent or security agent.

Some salient provisions of Circular 42 are discussed below.

Scope and applicability

Circular 42 regulates provision of co-financing by credit institutions and foreign bank branches (hereinafter collectively called "credit institutions") for clients with a project or plan for production or business in Vietnam.

Circular 42 applies to:

  • commercial banks
  • co-operative banks and people's credit funds
  • finance companies and finance leasing companies
  • foreign bank branches
  • foreign banks
  • clients

Forms of co-financing

Co-financing means two or more credit institutions jointly arrange provision of credit to a client via professional activities of lending, discounting, finance leasing, debt factoring, bank guarantee or other professional activities of extending credit. The currency for use in co-financing is Vietnamese dong or a foreign currency depending on the requirements of the client to implement the project, consistent with legislation on extension of credit and on foreign exchange control.

Circular 42 provides for the following forms of co-financing:

  • syndicated loan
  • co-financing in order to provide a guarantee
  • co-financing in order to provide discounting
  • syndicated finance leasing
  • co-financing in order to conduct debt factoring
  • co-financing in order to provide a combination of the above forms of extension of credit
  • co-financing in order to extend credit in other forms.

Cases of applicability of co-financing

Under Circular 42, co-financing applies to the following cases:

  • A request by a client for extension of credit to finance a project exceeds the single borrower limits on extension of credit by a credit institution.
  • The financial capability and capital sources of any one credit institution are insufficient to satisfy the request for project financing.
  • Any one credit institution needs to share the risks.
  • A client wishes to raise capital from a number of different credit institutions in order to implement a project.
  • Credit institutions provide co-financing for important projects as instructed by the Government.

Conditions for participating in co-financing

Applicable entities may participate in co-financing when satisfying all the following conditions:

For a member being a credit institution:

  • It is established and operates in accordance with the Law on Credit Institutions;
  • It still complies with prudential ratios after signing the co-financing contract and the loan contract; and
  • It is not in breach of the limits on extension of credit stipulated in the Law on Credit Institutions (including the co-financed loan balance of the client whom the credit institution or foreign bank branch proposes to co-finance).

For a member being a foreign credit institution:

  • It is a credit institution established in accordance with foreign law;
  • It complies with the regulations on provision of co-financing in Circular 42, with regulations on investment and on lending, with regulations on foreign exchange control, and with other relevant laws.
  • Where a foreign credit institution participates in co-financing, the client must comply with the regulations on registration of a foreign loan, and on opening and using a foreign loan capital and repayment account in accordance with relevant legislation on foreign loans and their repayment.

Transitional provision

Financing contracts and co-financing contracts in other forms of extension of credit which were signed prior to 15 December 2011 will continue to be performed under the signed agreements until expiry of the contractual duration. The above contracts may only be amended or supplemented if such amendments or additions are consistent with the provisions of Circular 42.


Circular 42 took effect as from 15 December 2011 and replaces Decision 286/2002/ QD-NHNN of the SBV dated 3 April 2002 issuing the regulations on co-financing by credit institutions, and Decision 886/2003/QD-NHNN dated 11 August 2003 which amended the said Decision 286; and Circular 08/2006/TT-NHNN of the SBV dated 12 October 2006 providing guidelines on co-financing activities by finance leasing companies pursuant to Decree 16/2005/ND-CP of the Government dated 2 May 2001 regulating finance leasing companies and Decree 65/2005/ND-CP dated 19 May 2005 which amended the said Decree 16.

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

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