Circular No. 03/2009/TT-NHNN on the provision of secured loans through pledge of negotiable instruments by the State Bank of Vietnam to banks.

CIRCULAR

Regulations on secured lending by the State Bank of Vietnam using collateral in the form of negotiable instruments for banks.

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Based on the Law on the State Bank of Vietnam 1997, the Law Amending and Supplementing Certain Provisions of the Law on the State Bank of Vietnam 2003;

Based on the Law on Credit Institutions 1997, the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions 2004;

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam stipulates regulations on secured lending by the State Bank of Vietnam using collateral in the form of negotiable instruments for banks as follows:

Section I.

GENERAL PROVISIONS

Article 1. Scope of Regulation

These regulations govern short-term lending in Vietnamese Dong (VND) by the State Bank of Vietnam to credit institutions that are banks and non-bank credit institutions when permitted by the Prime Minister (hereinafter referred to as banks), in the form of secured lending using collateral in the form of negotiable instruments, aimed at providing short-term capital and payment means for banks.

Article 2. Interpretation of Terms

In this Circular, the following terms shall be understood as follows:

1. Secured lending using collateral in the form of negotiable instruments (hereinafter referred to as collateral lending) is a form of lending by the State Bank of Vietnam (hereinafter referred to as the State Bank) to banks based on the pledge of negotiable instruments owned by the bank to guarantee the obligation to repay debt.

2. Pledge of negotiable instruments is the act of the State Bank holding the original negotiable instrument, or requiring the bank to transfer the negotiable instrument into an account opened by the State Bank at the Securities Trading Center to ensure the fulfillment of the obligation to repay debt for one or more collateral loans from the bank to the State Bank.

3. Collateral lending interest rate is the rediscount rate applied by the State Bank when implementing collateral lending to banks and announced by the State Bank during each period.

4. Remaining term of negotiable instruments is the time calculated from the date the State Bank disburses the collateral loan to the bank until the due date of the negotiable instrument.

Article 3. Objects eligible for collateral lending at the State Bank

1. Credit institutions that are banks established and operating under the Law on Credit Institutions.

2. Non-bank credit institutions when permitted by the Prime Minister.

Article 4. Principles of collateral lending

The State Bank's collateral lending to banks shall be carried out according to the following principles:

1. The collateral loan is guaranteed by negotiable instruments meeting the criteria specified in Article 7 of this Circular;

2. Collateral lending of negotiable instruments aims to provide short-term capital and payment means for banks experiencing temporary liquidity shortages;

3. Banks receiving collateral loans must fully and timely repay the State Bank's loan (principal and interest).

Article 5. Methods of implementing collateral lending

1. Direct method: Banks transact directly with the State Bank.

2. Indirect method: Banks transact through the computer network system as guided by the State Bank.

Article 6. Issuance of code numbers, keys, and electronic signatures

Banks are issued code numbers, keys, and electronic signatures for their representatives to conduct transactions through the computer network system with the State Bank in market operations to implement security measures.

Article 7. Valuable papers subject to pledge

1. Criteria for valuable papers subject to pledge:

a. Issued in Vietnamese Dong (VND);

b. Permitted to be transferred;

c. Remaining term is at least equal to the loan period;

d. The valuable paper must be legally owned by the borrowing bank.

2. The list, priority order of valuable papers used for pledge loans, and the ratio between the value of the valuable paper and the pledged loan amount at the State Bank shall be specified by the Governor of the State Bank during each period.

3. The State Bank will only approve pledge loans with second-tier valuable papers and other types of papers when the borrowing bank does not own or has already used up first-tier valuable papers in monetary transactions at the time of application.

Article 8. Value of valuable papers used as collateral for pledge loans

1. The value of valuable papers used as collateral for pledge loans is the total issuance value of the valuable papers calculated based on their face value.

2. The guarantee ratio of the value of the valuable paper compared to the pledged loan amount shall be specified by the Governor of the State Bank during each period.

Chapter II.

SPECIFIC PROVISIONS

Article 9. Conditions for pledge loans

The State Bank will consider and decide to implement pledge loans for banks that meet the following conditions:

1. They are the banks stipulated in Article 3 of this Circular and are not placed under special control measures;

2. Possess valuable papers meeting the pledge criteria as prescribed in Article 7 of this Circular;

3. Submit a loan application for pledge at the State Bank in accordance with the provisions of Article 14 of this Circular;

4. Have no overdue debt at the State Bank at the time of application;

5. Commit to using the borrowed funds for the intended purpose and repaying the principal and interest to the State Bank according to the prescribed timeframe.

Article 10. Term of pledge loans

1. The State Bank grants pledge loans to banks for a maximum of one year (365 days). The term of pledge loans includes holidays, public holidays, and New Year's Day. If the repayment date falls on a holiday, public holiday, or New Year's Day, the loan term will be extended until the next working day.

2. Based on the purpose of the loan, the State Bank decides the loan term and repayment period for each specific case.

3. In exceptional cases, the State Bank may consider extending the pledge loan, but the extension period shall not exceed the initial loan term.

Article 11. Interest rate for pledge loans

1. The interest rate for pledge loans for banks is the rediscount rate applied by the State Bank when granting pledge loans to banks at the time of disbursing the loan and maintained throughout the loan term.

2. In the event that the outstanding balance of the pledge loan becomes overdue, the bank must bear an overdue interest rate of 150% of the loan interest rate stated in the credit agreement.

Article 12. Loan amount for pledge loans

1. Based on the monetary policy objectives in each period, the demand for loans, the value of the valuable papers serving as collateral, and the outstanding balances of other loans of the bank at the State Bank, the State Bank decides the loan amount for pledge loans for the borrowing bank.

2. The maximum loan amount shall not exceed the converted value of the valuable papers serving as collateral as specified by the State Bank.

Article 13. Authority to Participate in Collateral Loan Business

1. The General Director (Director) of the bank is the person authorized to sign documents participating in collateral loan business at the State Bank.

2. The General Director (Director) of the bank may delegate authority to the Deputy General Director (Deputy Director) to sign documents participating in collateral loan business at the State Bank in accordance with the provisions of the law and shall be responsible for such delegation. The person delegated shall not further delegate to a third party.

Article 14. Documents for Requesting Collateral Loans

When there is a need to request collateral loans from the State Bank, the bank shall submit to the State Bank the documents requesting collateral loans, including:

1. Application for collateral loan at the State Bank (according to Model 01/NHNN-CC);

2. List of negotiable instruments proposed to be pledged for borrowing from the State Bank, confirmed by the issuing organization, issuing agent, or depositary organization (according to Model 02/NHNN-CC);

3. Certain indicators regarding the bank's capital sources and usage according to Model 03/NHNN-CC; The bank's transaction situation with the State Bank according to Model 04/NHNN-CC; Calculation table of the demand for VND loans from the State Bank according to Model 05/NHNN-CC;

4. The bank's balance sheet at the most recent time point.

Article 15. Approval and Rejection of Bank's Collateral Loan Requests

1. Based on the bank's collateral loan request documents, the State Bank will consider the bank's loan application and within a maximum period of two working days from the date of receiving complete and valid collateral loan request documents as stipulated in Article 14 of this Circular, the State Bank will notify the requesting bank in writing about approval (according to Model 06a/NHNN-CC) or non-approval for collateral loan (according to Model 06b/NHNN-CC) and send it to relevant units.

2. The State Bank will not consider the bank's collateral loan request when the bank does not meet all conditions prescribed in Article 9 of this Circular.

Article 16. Delivery and Return of Negotiable Instruments Used as Collateral

1. After receiving notification of approval for collateral loan from the State Bank, the requesting bank must proceed to transfer negotiable instruments to be used as collateral to the State Bank.

2. The State Bank will pledge negotiable instruments according to the approved list of negotiable instruments, sign a credit agreement, and disburse funds in accordance with regulations.

In case the requesting bank needs to exchange negotiable instruments currently held in pledge at the State Bank with other negotiable instruments meeting the criteria and included in the list of negotiable instruments eligible for collateral loan, the requesting bank must provide a written explanation of the reasons, and the State Bank will examine and decide on a case-by-case basis.

3. After the bank has fully repaid the principal and interest of the loan, the State Bank will return the negotiable instruments used as collateral to the bank.

Article 17. Implementation of Collateral Loans

1. Collateral loans for banks are implemented at the State Bank's Trading Department.

The State Bank's Trading Department will base on the approved loan collateral request documents by the Governor of the State Bank to process the receipt of collateral, sign a credit agreement with the bank, and transfer the loan amount into the bank's deposit account at the State Bank.

2. In necessary cases, the Governor of the State Bank may delegate authority to the Director of the State Bank branch in provinces and centrally-administered cities to implement collateral loans for banks whose headquarters are located in their respective areas. The implementation procedures for collateral loans at State Bank branches in provinces and centrally-administered cities are the same as those at the State Bank's Trading Department.

Article 18. Repayment of Collateralized Loans

1. When the repayment period arrives, banks shall repay the principal and interest of collateralized loans to the State Bank and reclaim the securities.

2. In cases where the bank fails to repay the principal or interest at maturity, the State Bank shall take compulsory measures to recover the debt (principal and interest) as follows:

a. Deduct from the bank's deposit account with the State Bank to collect the debt;

b. Collect the debt from other sources (if available) of the bank;

3. If after deducting from the deposit account and collecting from other sources of the bank, the amount still falls short of fully recovering the debt, the State Bank will transfer the remaining debt to overdue debt and apply the overdue interest rate. The State Bank may sell or settle with the issuer of the collateral securities on the money market to recover the bank's overdue debt.

Article 19. Responsibilities of Banks Requesting Collateralized Loans

1. Provide complete and timely documents and materials as prescribed in this Circular and bear legal responsibility for the accuracy and legality of the data and materials provided to the State Bank.

2. Fulfill all commitments made to the State Bank when borrowing through collateralization regarding the proper use of borrowed funds for their intended purpose, full and timely repayment of the loan including both principal and interest.

3. Transfer all securities used as collateral assets and reclaim the entire collateral asset after fully repaying the loan (principal and interest) to the State Bank.

4. Accept supervision and inspection by the State Bank during the borrowing period.

Section III.

IMPLEMENTATION

Article 20. Liability of units under the State Bank of Vietnam

1. Monetary Policy Department

a. Take the lead and coordinate with relevant units to determine the level of money supply for quarterly and annual refinancing purposes, including collateralized refinancing, to be submitted to the Governor of the State Bank for approval and notification to relevant units.

b. Advise the Governor of the State Bank to determine and announce the refinancing interest rate to serve as the basis for applying to the collateralized securities lending business.

c. Coordinate with relevant units to resolve difficulties and obstacles arising during the implementation of collateralized lending.

2. Department of Credit

a. Receive and review applications for collateralized loans from banks.

b. Submit applications for collateralized securities lending from banks to the Governor of the State Bank for approval, delegate the State Bank branch in provinces and centrally-administered cities to implement (if applicable), and notify the requesting bank of the approval or rejection of the loan.

c. Forward approved applications to the State Bank Trading Department to implement collateralized lending.

d. Lead and coordinate with relevant units to resolve difficulties and obstacles arising during the implementation of collateralized lending.

đ. Summarize the implementation status of collateralized lending from the State Bank Trading Department and State Bank branches in provinces and centrally-administered cities monthly, quarterly, and annually to report to the Governor of the State Bank.

e. Submit to the Governor of the State Bank for approval the list and priority order of securities to be used in collateralized lending operations and the ratio between the value of securities and the amount of collateralized loans in each period.

3. State Bank of Vietnam's Trading Department

a. Based on the approved application for collateralized lending, implement the collateralized lending and pledge of securities, and recover the principal and interest according to the provisions of this Circular.

b. Organize the handover, storage, preservation of collateral assets, file documentation, return of securities, and accounting for collateralized lending according to regulations.

c. Coordinate with relevant units to resolve difficulties and obstacles arising during the implementation of collateralized lending.

đ. Summarize data on collateralized lending occurring at the Trading Department periodically monthly, quarterly, and annually, promptly identify difficulties and obstacles during implementation, and send them to the Department of Credit for consolidation and reporting to the Governor of the State Bank.

đ. Implement the registration of securities used for collateralized borrowing at the State Bank according to regulations, confirm the registration of securities of the requesting bank in cases where the bank requests collateralized borrowing while the securities are registered at the State Bank.

e. Guide the process of implementing collateralized lending operations of the State Bank for banks.

4. Department of Finance and Accounting: Guide the accounting procedures related to collateralized lending operations.

5. Information Technology Division

a. Install software programs and ensure stable, secure, and confidential communication infrastructure for collateralized lending.

b. Define codes, passwords, and electronic signatures for participants in the State Bank's and banks' collateral operations.

Article 21. Branches of the State Bank in provinces and centrally administered cities

1. Carry out pledge loans for banks with headquarters within their jurisdiction upon authorization by the Governor of the State Bank.

2. Organize the receipt, storage, preservation of pledged assets, documentation, return of negotiable instruments, and accounting for pledge loans in accordance with regulations.

3. Monthly, quarterly, and annually, compile information and data on pledge loans occurring at the branch, promptly identify difficulties and obstacles during implementation, and submit them to the Credit Department for consolidation and reporting to the Governor of the State Bank.

Article 22. Effectiveness

1. This Circular takes effect forty-five days from the date of issuance and replaces Decision No. 1452/2003/QĐ-NHNN dated November 3, 2003 of the Governor of the State Bank on the issuance of the Regulation on secured loans by pledge of negotiable instruments by the State Bank for banks, Decision No. 94/2004/QĐ-NHNN dated January 2, 2004 of the Governor of the State Bank of Vietnam on amending certain Articles of the Regulation on secured loans by pledge of negotiable instruments by the State Bank for banks issued together with Decision No. 1452/2003/QĐ-NHNN dated November 3, 2003 of the Governor of the State Bank, and Clause 2, Article 1 of Decision No. 1909/QĐ-NHNN dated December 30, 2005 of the Governor of the State Bank on credit institutions using certain types of bonds in State Bank refinancing transactions.

2. Existing outstanding pledge loans as of the effective date of this Circular shall continue to be implemented according to signed credit contracts until the State Bank recovers all debts.

3. The Director of the Office, Heads of the Credit Department, and Heads of units under the State Bank of Vietnam, Governors of State Bank branches in provinces and centrally administered cities; Management Boards, General Directors (Directors) of credit institutions are responsible for implementing this Circular./.