Circular No. 04/2012/TT-NHNN on agency business and entrustment of credit organizations and foreign bank branches

CIRCULAR

Regulations on agency business and entrustment of credit organizations and foreign bank branches

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Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

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;

Considering the proposal of the Director of the Monetary Policy Department;

The Governor of the State Bank of Vietnam issues this Circular to specify the agency business and entrustment of credit organizations and foreign bank branches in areas related to banking activities as prescribed by the Law on Credit Organizations,

Section 1

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular specifies in detail the agency business and entrustment of credit organizations and foreign bank branches in areas related to banking activities as prescribed by the Law on Credit Organizations, including: Credit organizations and foreign bank branches accepting entrustment from other credit organizations and foreign bank branches and other entities that are not credit organizations and foreign bank branches; credit organizations and foreign bank branches entrusting to other credit organizations and foreign bank branches.

Article 2. Applicability

1. The party accepting entrustment includes credit organizations and foreign bank branches established and operating in accordance with the Law on Credit Organizations, including commercial banks, financial companies, financial leasing companies, cooperative banks, people's credit funds, microfinance organizations, and foreign bank branches.

2. The entrusting party includes:

a) Credit organizations and foreign bank branches established and operating in accordance with the Law on Credit Organizations: commercial banks, financial companies, cooperative banks, microfinance organizations, and foreign bank branches.

b) Other domestic entities that are not credit organizations and foreign bank branches (hereinafter referred to as other entities) are legal persons with civil capacity under the provisions of the law.

c) Foreign entities are legal persons established and operating under the laws of their respective countries of establishment, having civil capacity under the Civil Code regarding the civil capacity of foreign legal persons.

Article 3. Explanation of Terms

In this Circular, the following terms are understood as follows:

1. Entrustment in areas related to banking activities is the act where the entrusting party assigns the entrusted party to perform banking-related business as prescribed by the Law on Credit Organizations and relevant laws; the entrusting party must pay the entrustment fee to the entrusted party.

2. Acceptance of entrustment in areas related to banking activities is the act where the entrusted party performs banking-related business as prescribed by the Law on Credit Organizations and relevant laws; the entrusted party receives the entrustment fee paid by the entrusting party.

3. Entrusted Lending is the act where the entrusting party provides capital to the entrusted party for lending to customers as prescribed by the Law on Credit Organizations and relevant laws; the entrusting party must pay the loan entrustment fee to the credit organization or foreign bank branch accepting the loan entrustment.

4. Acceptance of loan entrustment is the act where the entrusted party accepts capital from the entrusting party to lend to customers as prescribed by the Law on Credit Organizations and relevant laws; the entrusted party receiving the loan entrustment receives the loan entrustment fee paid by the entrusting party.

5. Agency agreement and entrustment in areas related to banking activities is a written agreement between the party accepting entrustment and the entrusting party to establish, change, or terminate the rights and obligations of the parties concerning entrustment and acceptance of entrustment.

6. Agency agreement and loan entrustment agreement is a written agreement between the party accepting loan entrustment and the entrusting party to establish, change, or terminate the rights and obligations of the parties concerning loan entrustment (hereinafter referred to as loan entrustment agreement).

7. Entrustment period is the time period calculated from when the party accepting entrustment begins performing banking-related business until the completion of tasks according to the agency and entrustment agreement.

8. Loan entrustment period is the time period calculated from when the party accepting entrustment begins accepting entrusted capital until the full repayment of the accepted entrusted capital and interest on loans to the entrusting party according to the loan entrustment agreement.

9. Entrustment fee is the amount of money that the entrusting party pays to the party accepting entrustment to perform tasks according to the agency and entrustment agreement.

10. Related customers in the context of agency and entrustment business of credit organizations and foreign bank branches are individuals and other entities.

Section 2

REGULATIONS ON AGENCY BUSINESS AND ENTRUSTMENT IN AREAS RELATED TO

BANKING ACTIVITIES OF CREDIT ORGANIZATIONS AND FOREIGN BANK BRANCHES

Article 4. Scope of Activities

1. Credit institutions and foreign bank branches may carry out entrusted activities and/or entrust one or several business operations related to banking activities in accordance with the Law on Credit Institutions and the contents recorded in the License issued by the State Bank of Vietnam for credit institutions and foreign bank branches.

2. Credit institutions and foreign bank branches shall not accept entrustment from individuals.

Article 5. Application Mechanism

1. The acceptance of entrustment and entrusting loans by credit institutions and foreign bank branches for customers shall be carried out in accordance with the provisions of Section 3 of this Circular.

2. The acceptance of entrustment and entrusting by financial leasing companies for financial leasing shall be carried out in accordance with the regulations of the State Bank of Vietnam on the operation of financial leasing by financial leasing companies.

3. For entrusted activities and entrusting by credit institutions and foreign bank branches for business operations outside the provisions of Clauses 1 and 2 of this Article, which are assessed by credit institutions and foreign bank branches as effective for their business operations and consistent with relevant laws, credit institutions and foreign bank branches shall establish procedures for implementation and submit a written request to the State Bank of Vietnam for approval. Credit institutions and foreign bank branches may only implement such activities upon written approval by the State Bank of Vietnam.

Article 6. Classification of debts, provision for impairment and risk management

1. The entruster shall be responsible for handling risks when carrying out entrusted business operations in areas related to banking activities.

2. When the entruster is a credit institution or foreign bank branch, it shall classify debts, set aside reserves, and handle risks when carrying out entrusted business operations in areas related to banking activities in accordance with the law and guidelines of the State Bank of Vietnam.

Article 7. Accounting, Statistics, and Reporting of Entrusted Activities and Entrusting by Credit Institutions and Foreign Bank Branches

1. Credit institutions and foreign bank branches shall conduct accounting for entrusted activities and entrusting in accordance with the accounting and statistical regulations of the State Bank of Vietnam for credit institutions and foreign bank branches.

2. Monthly, credit institutions and foreign bank branches shall conduct statistics and report the situation of entrusted activities and entrusting to the State Bank of Vietnam in accordance with the annex attached to this Circular and relevant laws.

Section 3

PROVISIONS ON ENTRUSTED ACTIVITIES AND LOAN ENTRUSTING OF CREDIT INSTITUTIONS,

FOREIGN BANK BRANCHES

Article 8. Recipient of Entrustment and Loan Entruster

1. The recipient of loan entrustment is a credit institution or foreign bank branch established and operating in accordance with the Law on Credit Institutions, including commercial banks, finance companies, cooperative banks, people's credit funds, microfinance organizations, and foreign bank branches.

2. The loan entruster includes:

a) Credit organizations and foreign bank branches established and operating in accordance with the Law on Credit Organizations: commercial banks, financial companies, cooperative banks, microfinance organizations, and foreign bank branches.

b) Other domestic legal entities.

c) Organizations abroad.

Article 9. Principles for Accepting Entrustment and Entrusted Lending

1. Credit organizations and foreign bank branches may carry out accepting entrustment and/or entrusted lending in accordance with the provisions of the Law on Credit Organizations and the contents recorded in the License issued by the State Bank of Vietnam to credit organizations and foreign bank branches.

2. Accepting entrustment and entrusted lending shall be carried out through an entrusted lending agreement in compliance with the provisions of this Circular and relevant laws.

3. When a credit organization or foreign bank branch accepts entrustment from another organization to lend, it must include the loan amount from entrusted funds in the total outstanding loan balance.

4. A credit organization or foreign bank branch that accepts entrustment shall not re-entrust to a third party to implement lending.

5. A credit organization or foreign bank branch that accepts entrusted lending shall provide loans to customers in accordance with the regulations of the State Bank of Vietnam on the lending rules of credit organizations and foreign bank branches for customers and relevant laws.

In the case where a credit organization or foreign bank branch accepts entrusted lending in foreign currency, it must comply with the regulations of the State Bank of Vietnam on lending in foreign currency by credit organizations and foreign bank branches to resident borrowers, foreign exchange management laws, and other relevant laws.

In the case where a credit organization or foreign bank branch accepts entrusted lending for non-resident borrowers, it must comply with the regulations of the State Bank of Vietnam on foreign lending and debt recovery by credit organizations and foreign bank branches, foreign exchange management laws, and other relevant laws.

In the case where a credit organization or foreign bank branch accepts entrusted lending from an overseas organization (including the case where a foreign bank branch accepts entrustment from its parent bank), it must comply with the laws on foreign borrowing, repayment, foreign exchange management, and other relevant laws.

In the case where a credit organization or foreign bank branch accepts entrusted lending for customers to invest directly abroad, it must comply with the regulations of the State Bank of Vietnam on credit organizations and foreign bank branches providing loans to customers for direct investment abroad.

6. The entrusting party pays the entrustment fee to the credit organization or foreign bank branch accepting entrusted lending. The entrustment fee is agreed upon by both parties and recorded in the entrusted lending agreement.

Article 10. Conditions for Credit Organizations and Foreign Bank Branches to Accept Entrustment for Lending

Credit organizations and foreign bank branches may accept entrustment for lending when they meet the following conditions:

1. The License for establishment and operation issued by the State Bank of Vietnam includes the content of accepting entrusted lending activities.

2. They issue procedures for accepting entrusted lending in compliance with the provisions of this Circular, laws on lending activities, and relevant laws.

3. They ensure the safety ratios in the operations of credit organizations and foreign bank branches as prescribed by the State Bank of Vietnam.

4. They have headquarters, networks, and personnel to implement lending according to the entrusted lending agreement, ensuring safe and effective lending operations.

Article 11. Conditions for the Entrusting Party in Loan Agency

The entrusting party may entrust a credit institution or foreign bank branch to provide loans when meeting all the following conditions:

1. For credit institutions and foreign bank branches:

a) The content of loan agency activities is recorded in the License for Establishment and Operation issued by the State Bank of Vietnam.

b) Establish procedures for loan agency activities that comply with this Circular, laws on lending activities, and related laws.

c) Ensure safety ratios in the operation of credit institutions and foreign bank branches according to the regulations of the State Bank of Vietnam.

2. For other domestic organizations:

a) Be a legal entity with civil capacity under the provisions of civil law.

b) Be allowed to entrust credit institutions and foreign bank branches to provide loans according to relevant laws.

c) At the time of entrusting loans, there should be no outstanding credit balance at domestic credit institutions or foreign bank branches.

3. For foreign organizations:

a) Be a legal entity with civil capacity under the provisions of the Civil Code regarding the civil capacity of foreign legal entities.

b) Comply with Vietnamese laws on foreign exchange management and related laws.

Article 12. Currency for Entrusted Receipts and Loan Agency

The currency for entrusted receipts and loan agency includes Vietnamese dong and foreign currencies.

Article 13. Loan Agency Contract

A loan agency contract shall include the agreed contents between the entrusting party and the credit institution receiving the agency: name and address of the entrusting party, the credit institution receiving the loan agency; amount of entrusted loan; borrower customer category; loan capital needs; loan currency; term of loan agency; loan term for customers; loan interest rate; restructuring of debt repayment terms; collateral measures for loan; agency fee; party responsible for loan assessment and monitoring of loan usage; liability for handling risks by the entrusting party; rights and obligations of the parties; waiver or reduction of loan interest; cases of terminating the loan agency contract before the due date; handling of contract violations; other contents agreed upon by the parties in accordance with relevant laws.

Article 14. Rights and Obligations of the Receiving Party in Loan Agency

1. The receiving party in loan agency has the right:

a) To refuse requests from the entrusting party that are contrary to the agreements and commitments recorded in the loan agency contract.

b) To request the entrusting party to provide necessary information, documents, and means to implement the loan according to the loan agency contract.

c) To receive the loan agency fee.

d) To handle or initiate legal proceedings against the entrusting party for violation of the loan agency contract.

đ) The rights of the lender towards borrowers as stipulated by laws on lending activities.

2. The receiving party in loan agency has the obligation:

a) To provide loans to customers in accordance with the laws on lending activities of credit institutions and foreign bank branches towards customers, the loan agency contract, and related laws.

b) To notify the entrusting party about the implementation of the loan according to the loan agency contract, providing financial capability information, customer categories, disbursement status, debt recovery ability, loan classification, and other necessary information related to the loan according to the loan agency contract; bear responsibility for the accuracy of the provided information and documents to the entrusting party.

c) To return the entrusted capital and interest earned from the loan activity to the entrusting party according to the loan agency contract.

d) To classify debts from the loan according to the loan agency contract to accurately assess the financial situation and debt repayment ability of the customer for credit risk management purposes.

đ) To monitor the borrowing process, loan usage, and debt repayment of the customer according to the agreement with the entrusting party in the loan agency contract.

e) To retain loan agency files in accordance with the laws on retaining credit files.

3. To perform other rights and obligations according to the content of the loan agency contract in compliance with relevant laws or upon request of authorized state agencies.

Article 15. Rights and Obligations of the Entrusting Party for Loan Disbursement

1. The entrusting party for loan disbursement has the following rights:

a) To decide on selecting the entrusted party for loan disbursement to ensure the safe and effective use of entrusted capital in accordance with relevant laws.

b) To request financial institutions and foreign bank branches accepting the entrustment to notify the implementation of loan disbursement according to the entrustment loan agreement; provide documents proving the customer's financial capacity, disbursement situation, debt recovery capability, and other necessary information related to the borrower and loan disbursement, debt recovery under entrustment.

c) To refuse requests from financial institutions and foreign bank branches accepting the entrustment that contravene the terms of the entrustment loan agreement.

d) To reclaim the entrusted capital and interest on loans from financial institutions and foreign bank branches accepting the entrustment according to the entrustment loan agreement.

đ) To handle according to authority or initiate legal proceedings against financial institutions and foreign bank branches accepting the entrustment for violations of the entrustment loan agreement.

2. The entrusting party for loan disbursement has the following obligations:

a) To carry out the transfer of entrusted capital and pay entrustment fees to the entrusted party and comply with the agreements stipulated in the entrustment loan agreement.

b) To be responsible for the legality of the source of entrusted capital.

c) To classify debts, establish provisions, and manage risks associated with entrusted loan receivables in accordance with the law.

d) To retain entrustment loan files in compliance with the law.

3. To perform other rights and obligations as specified in the entrustment loan agreement, in accordance with relevant laws or upon request of competent state authorities.

Section 4

IMPLEMENTATION

Article 16. Implementation Organization

1. This Circular takes effect from May 2, 2012, replacing Decision No. 742/2002/QĐ-NHNN dated July 17, 2002 of the Governor of the State Bank of Vietnam on the issuance of regulations on entrustment and acceptance of entrustment for loan disbursement by financial institutions.

2. For entrustment loan agreements signed by financial institutions and foreign bank branches before this Circular takes effect, the entrusting party and financial institutions and foreign bank branches accepting the entrustment shall continue to implement the contents recorded in the signed entrustment loan agreement in accordance with the laws in force at the time of signing the agreement or amend and supplement the entrustment loan agreement in accordance with this Circular.

3. The Director of the Office, Heads of the 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; Chairmen of Management Boards, Chairmen of Board Members and General Directors (Directors) of financial institutions and foreign bank branches, other organizations and individuals concerned are responsible for implementing this Circular./.