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Legal Update

Circular Expanding Scope of Lending in Foreign Currency by Credit Institutions

31 December 2009
Mayer Brown JSM Legal Update

Summary

On 15 December 2009, the Governor of the State Bank of Vietnam released Circular No. 25/2009/TT-NHNN ("Circular 25") with immediate effect, adding to Article 1 of Decision No. 09/2008/QD-NHNN dated 10 April 2008 on lending in foreign currency by credit institutions to borrowers being residents ("Decision 09").

Full Update

Under Decision 09, credit institutions that are permitted to conduct foreign exchange activities may consider and decide to provide foreign currency loans to clients that are "residents" of Vietnam for the following purposes:

  • To make payment to overseas parties for the import of goods and services in support of production and/or business operations.
  • To prepay early an offshore debt if the loan satisfies the following conditions: it complies with the regulations on foreign loans and their repayment as stipulated in the law on foreign exchange; the client borrower has the ability to repay principal and pay interest on the foreign currency loan; and the costs are less than those for obtaining the offshore loan to be prepaid.
  • To make a direct offshore investment pursuant to the law on investment and guidelines of the State Bank.

Circular 25 adds the following additional purposes to Decision 09:

  • To implement an investment project, or plan on production and/or business in export goods and/or services; except in the case of a foreign currency loan to use within Vietnam when the client must sell the amount of the lent foreign currency to the lending credit institution.
  • In the case of capital requirements outside those stipulated in this article, there must be prior written consent from the Governor of the State Bank.

Pursuant to Vietnam's foreign control legislation, residents means organisations and individuals in the following categories:

a) Credit institutions established and carrying on business activities in Vietnam;

b) Economic institutions established and carrying on business activities in Vietnam except for the above entities;

c) State bodies, units of the people's armed forces, political organisations, socio-political organisations, socio-political-professional organisations, social organisations, socio-professional organisations and social funds and charitable funds of Vietnam operating in Vietnam;

d) Diplomatic representative offices and consulates of Vietnam in foreign countries;

e) Representative offices in foreign countries of the entities stipulated in sub-clauses (a), (b) and (c) above;

f) Vietnamese citizens residing in Vietnam; Vietnamese citizens residing overseas for a duration of less than 12 months; and Vietnamese citizens working for any of the organisations stipulated in sub-clauses (d) and (e) above and the individuals accompanying such citizens;

g) Vietnamese citizens travelling overseas for purposes of tourism, study, medical treatment or visits;

h) Foreigners residing in Vietnam for a duration of 12 months or more, except for foreigners coming to Vietnam for study, medical treatment, tourism, or to work for diplomatic representative offices, consulates or representative offices of foreign organisations in Vietnam.

and non-residents means entities other than those defined above.

For inquiries related to this Client Alert, please contact:

Dao Nguyen ( )

Thinh Dan ( )

Learn more about our Vietnam offices and Banking, Finance & Capital Markets practices.

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