Circular No. 03/2005/TT-NHNN guiding finance lease companies to restructure repayment terms and transfer overdue debts for leasing activities

CIRCULAR

Guidelines for financial leasing companies to implement

restructuring of debt repayment terms, transferring overdue debts

in financial leasing activities

Implementing Article 42 of Decree No. 16/2001/NĐ-CP dated May 2, 2001 of the Government on the organization and operation of financial leasing companies and to ensure the consistency of legal regulations with other forms of credit provision, the State Bank of Vietnam guides financial leasing companies to implement restructuring of debt repayment terms, transferring overdue debts in financial leasing activities as follows:

1. Financial leasing companies shall implement restructuring of debt repayment terms for financial leasing contracts in two methods as follows:

a. Adjusting the repayment period means that the financial leasing company agrees to change the repayment period within the agreed lease term in the financial leasing contract, without changing the final repayment period.

b. Extending the debt means that the financial leasing company agrees to extend the repayment period for lease payments beyond the agreed lease term in the financial leasing contract.

2. Financial leasing companies shall implement restructuring of debt repayment terms, transferring overdue debts for financial leasing contracts as follows:

a. The financial leasing company decides on restructuring the debt repayment terms based on its own financial capacity and the assessment of the lessee's ability to repay debts in the following cases:

- If the lessee does not have the ability to repay the principal and/or interest of lease payments according to the agreed repayment periods within the lease term stipulated in the financial leasing contract and is assessed by the financial leasing company as having the ability to repay in subsequent periods, then the financial leasing company may consider adjusting the repayment periods for the principal and/or interest of lease payments.

- If the lessee cannot fully repay the principal and/or interest of lease payments according to the agreed lease term stipulated in the financial leasing contract and is assessed by the financial leasing company as having the ability to repay within a certain period after the lease term, then the financial leasing company may consider extending the debt with a suitable period consistent with the lessee's repayment capability.

The financial leasing company classifies the entire outstanding principal balance of lease payments from the lessee, which has been restructured, into appropriate loan categories, sets aside and uses provisions to handle credit risks in accordance with the regulations of the State Bank of Vietnam.

b. In the case where the lessee does not repay the debt according to the agreed repayment period in the financial leasing contract and is assessed by the financial leasing company as not having the ability to repay within a certain period after the lease term, and the financial leasing company does not agree to restructure the debt repayment terms, then the outstanding principal balance of the financial leasing contract is considered overdue debt; the financial leasing company classifies the entire outstanding principal balance of lease payments from the lessee into appropriate loan categories, sets aside and uses provisions to handle credit risks in accordance with the regulations of the State Bank of Vietnam.

3. The financial leasing company must issue a process for restructuring debt repayment terms in compliance with this Circular and relevant laws governing financial leasing activities and submit it to the State Bank of Vietnam's Inspectorate immediately upon issuance.

4. For financial leasing contracts that have had their debt repayment terms restructured, the financial leasing company must report in accordance with the State Bank of Vietnam's reporting and statistical system applicable to credit institutions.

5. Implementation organization:

a. This Circular takes effect fifteen days after its publication in the Official Gazette and replaces Circular No. 01/2003/TT-NHNN dated January 28, 2003 guiding the implementation of adjustments to repayment periods, extensions of repayment periods, and transfers of overdue debts in financial leasing activities.

b. Financial leasing companies shall negotiate with lessees to supplement provisions regarding restructuring of debt repayment terms for financial leasing contracts signed before the effective date of this Circular. In the event of disagreement with the lessee, the financial leasing company shall consider deciding to transfer overdue debts for financial leasing contracts that fail to repay debts on time in accordance with this Circular for classification of debts, setting aside and using provisions to handle risks, but without changing other contents previously agreed upon in the financial leasing contract.

The Director of the Office, Heads of the Legal Department, Monetary Policy Department, and Heads of units under the State Bank of Vietnam; Governors of the State Bank of Vietnam branches in provinces and centrally-administered cities; Boards of Directors, General Managers (Directors) of financial leasing companies are responsible for implementing this Circular./.