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Legal Update

Vietnam Restricts Use of Cash Payment in Loan Disbursements

18 April 2012
Mayer Brown JSM Legal Update

On 10 April 2012, the State Bank of Vietnam (SBV) issued Circular No. 09/2012/TT-NHNN (Circular 09) providing for the use of payment instruments by credit institutions and foreign bank branches to disburse loan capital to clients.

Loan capital disbursement means a credit institution or foreign bank branch delivers to the borrower a sum of money to make payment to or pay out to the beneficiary for the loan purpose set out in the loan contract signed between the borrower and the credit institution or foreign bank branch.

Circular 09 aims at promoting non-cash payment and monitoring the use of loan proceeds by clients for the purposes agreed in loan contracts. 

Scope and applicability

Circular 09 regulates the use of payment instruments by credit institutions and foreign bank branches to disburse loan capital to clients and applies to:

  • credit institutions and foreign bank branches conducting lending operations pursuant to SBV rules and other relevant regulations;
  • borrowers at credit institutions and foreign bank branches; and
  • organisations and individuals related to the use of payment instruments for loan capital disbursement.

Payment instruments for loan disbursements

Credit institutions and foreign bank branches must use non-cash payment instruments to make loan capital disbursements and must make direct payment to beneficiaries, except for the cases below.

Credit institutions and foreign bank branches may make a decision on using non-cash payment instruments, cash, or the payment account of the borrower in order to make loan capital disbursements in the following six circumstances:

  • payment to a beneficiary being an organisation in an amount under VND 100 million on one disbursement request;
  • payment to the beneficiary being an individual with a payment account with the payment service provider in an amount under VND 100 million on one disbursement request;
  • payment to the beneficiary being an individual who has no payment account with the payment service provider;
  • in order to cover that part of equity or capital source which the borrower used to implement an investment project or a plan on production, business or services or an investment project, or a plan servicing living conditions;
  • to pay salary to staff;
  • to remit loan capital into the payment account of the borrower in order for the borrower to make payment for objectives which must be implemented via the payment account of the borrower as required by law.

Responsibilities of credit institutions and foreign bank branches

Credit institutions and foreign bank branches must

  • issue regulations on their use of payment instruments in accordance with Circular 09 and regulations on their measures for supervising loan capital to ensure loan capital disbursements are conducted pursuant to the schedule for loan capital utilisation as set out in the loan plan or project and in the items agreed in the loan contract; and
  • publicly notify clients of SBV regulations and of their own regulations on use of payment instruments to disburse loan capital to clients.

Implementation of Circular 09

Circular 09 will take effect as from 1 June 2012.

As for loan contracts signed prior to 1 June 2012, the borrower and the credit institution or foreign bank branch concerned are allowed to use payment instruments for loan capital disbursement in accordance with the signed credit contract and compliant with law, or will reach agreement on supplementing and amending the loan contract in line with Circular 06.

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

Learn more about our Vietnam offices and Banking & Finance practice.

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