Circular No. 04/2013/TT-NHNN on the discounting activities of transferable instruments and other securities by credit institutions and foreign bank branches for customers.

 CIRCULAR

Regulations on the discounting activities of transferable instruments and other securities, branches of foreign commercial banks.foreign entities for customers

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;

The Governor of the State Bank of Vietnam issues this Circular amending and supplementing certain provisions of Circular No. 04/2013/TT-NHNN dated March 1, 2013 of the Governor of the State Bank of Vietnam on the activities of discounting negotiable instruments and other securities of credit institutions and foreign bank branches for customers (Circular No. 04/2013/TT-NHNN).

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;

Article 1.

The Governor of the State Bank of Vietnam promulgates this Circular stipulating the discounting activities of transferable instruments and other securities for customers by credit institutions, branches of foreign commercial banks.

Article 1. Scope of Regulation

This Circular stipulates the discounting activities of transferable instruments and other securities for customers by credit institutions, branches of foreign commercial banks.

Article 2. Applicability

1. Credit institutions include:

a) Commercial banks;

b) Finance companies;

c) Leasing companies and cooperative banks upon approval in writing by the State Bank of Vietnam;

2. Branches of foreign banks.

3. Discounting customers of transferable instruments and other securities are the beneficiaries of transferable instruments permitted to trade in Vietnam, holders of securities issued within the territory of Vietnam (hereinafter referred to as customers), including:

a) Domestic organizations (excluding credit institutions, branches of foreign commercial banks) and domestic individuals;

b) Foreign legal entities and individuals operating and residing legally in Vietnam, having civil capacity according to the Civil Code's provisions on the civil capacity of foreign legal entities and individuals.

Article 3. Explanation of Terms

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

1. Discounting agreement of transferable instruments and other securities is the written agreement between credit institutions, branches of foreign commercial banks and customers aimed at establishing, changing, or terminating the rights and obligations of the parties regarding discounting (hereinafter referred to as the discounting agreement).

2. Remaining term of transferable instruments and other securities is the period from the date when the transferable instruments and other securities are accepted for discounting by credit institutions, branches of foreign commercial banks to the due date for full payment of the amount recorded on such instruments and securities.

3. Discounting term of transferable instruments and other securities is the period from the day following the date when credit institutions, branches of foreign commercial banks accept discounting of transferable instruments and other securities to the date when the customer must fulfill the obligation to repurchase or to the due date for full payment of the amount recorded on such instruments and securities, including holidays and public holidays.

4. Discount price of transferable instruments and other securities is the amount that credit institutions, branches of foreign commercial banks pay to the customer when performing the discounting of transferable instruments and other securities.

Article 4. Conditions for credit institutions, branches of foreign commercial banks to carry out discounting activities of transferable instruments and other securities

Credit institutions, branches of foreign commercial banks may carry out discounting activities of transferable instruments and other securities if they meet the following conditions:

1. Belonging to the category specified in Clause 1, Article 2 of this Circular.

2. In the License for Establishment and Operation issued by the State Bank of Vietnam, there is a provision on granting credit in the form of discounting of transferable instruments and other securities.

3. Having internal regulations to conduct discounting activities of transferable instruments and other securities in accordance with this Circular, the Law on Credit Institutions, and related laws.

Article 5. Principles for Discounting Transferable Instruments and Other Valuable Papers

Credit institutions and foreign bank branches conducting discounting activities on transferable instruments and other valuable papers for customers must ensure the following principles:

1. Carry out according to agreements between credit institutions, foreign bank branches and customers, in compliance with the Law on Credit Institutions, the Law on Transferable Instruments, this Circular, relevant legal provisions, and international trade practices issued by the International Chamber of Commerce.

2. Customers must use the discount proceeds to settle transactions not prohibited by law, ensuring financial capability to repurchase transferable instruments and other valuable papers or fully repay the discount amount, discount interest, and other lawful fees to credit institutions, foreign bank branches as stipulated in the discount agreement.

3. Credit institutions, foreign bank branches must implement discount approval according to the principle of responsibility division between the appraisal stage and the decision-making stage for discounting transferable instruments and other valuable papers.

4. Credit institutions, foreign bank branches and customers agree in the discount contract on prepayment of discount proceeds, charging fees or waiving fees when customers prepay the discount proceeds.

5. When credit institutions, foreign bank branches discount transferable instruments and other valuable papers that have not reached their maturity date through a term purchase method, customers must commit to repurchasing such instruments immediately upon expiration of the discount period.

6. When conducting discounting activities on transferable instruments and other valuable papers denominated in foreign currency, credit institutions, foreign bank branches and customers must comply with the provisions of this Circular, foreign exchange management regulations, and related laws.

7. When conducting discounting activities on foreign-related transferable instruments, credit institutions, foreign bank branches and customers must follow the provisions of the Law on Transferable Instruments regarding the application of international treaties, international trade practices in foreign-related transferable instrument relationships, civil law regulations concerning foreign-related civil relations, foreign exchange management regulations, and this Circular.

8. Credit institutions, foreign bank branches consider and decide on discounting transferable instruments and other valuable papers to ensure safety, full and timely recovery of the discount amount, interest, and other lawful fees related to the discounting activity.

Article 6. Types of Transferable Instruments and Other Valuable Papers Eligible for Discounting

1. Credit institutions, foreign bank branches select to discount transferable instruments issued in Vietnam or issued abroad but transferred in Vietnam, including:

a) Demand drafts;

b) Promissory notes;

c) Checks;

d) Other types of transferable instruments eligible for discounting as prescribed by law.

2. Credit institutions, foreign bank branches select to discount other types of valuable papers, including:

a) State Bank Treasury Bills;

b) Government Bonds;

c) Government-guaranteed bonds;

d) Local government bonds;

đ) Certificates of deposit, bills of exchange, promissory notes, bonds issued by credit institutions, foreign bank branches in accordance with the State Bank of Vietnam's regulations;

e) Certificates of deposit, bills of exchange, bonds issued by other entities and eligible for discounting under current legal provisions.

Article 7. Conditions for negotiable instruments and other securities to be eligible for discounting

1. Negotiable instruments shall be eligible for discounting by credit institutions and foreign bank branches when they meet all of the following conditions:

a) Legally issued in accordance with Vietnamese laws, laws of the issuing country, or international trade practices consistent with Vietnamese laws;

b) Legally belong to the customer, without disputes, not used as collateral for other obligations;

c) Do not bear the phrase "Not transferable", "Prohibited from transfer", "Will not pay on order" or similar phrases;

d) Not yet due for payment;

đ) Remain intact, without erasures or alterations.

2. Other securities shall be eligible for discounting by credit institutions and foreign bank branches when they meet all of the following conditions:

a) Legally issued in accordance with Vietnamese laws;

b) Legally owned by the customer, without disputes, not used as collateral for other obligations;

c) Permitted to be traded (purchase, sale, gift, donation, exchange, transfer, pledge, guarantee, and other lawful transactions) in accordance with the law.

d) Not yet due for payment;

đ) Remain intact, without erasures or alterations.

Article 8. Discount Currency

1. For negotiable instruments and other securities payable in Vietnamese Dong, the discount currency is Vietnamese Dong.

2. For negotiable instruments and other securities payable in foreign currency, credit institutions, foreign bank branches, and customers shall proceed as follows:

a) Discount in the foreign currency specified on the negotiable instrument or other security for customers permitted to collect and use foreign currency within Vietnam under foreign exchange management laws or customers using the discount proceeds to conduct transactions where the transaction currency must be foreign currency according to the law.

b) Discount in Vietnamese Dong for customers not permitted to collect and use foreign currency within Vietnam under foreign exchange management laws or customers requiring discount in Vietnamese Dong.

Article 9. Repurchase Currency for Negotiable Instruments and Other Securities at the End of the Discount Period Under the Term Purchase Method

1. For negotiable instruments and other securities discounted in Vietnamese Dong, the repurchase currency is Vietnamese Dong.

2. For negotiable instruments and other securities discounted in foreign currency, the repurchase currency is foreign currency or Vietnamese Dong. Repurchase in foreign currency shall be carried out in accordance with current foreign exchange management laws and related laws.

Article 10. Discount Methods

Credit institutions, foreign bank branches, and customers shall agree and select the following discount methods:

1. Term purchase of negotiable instruments and other securities refers to the credit institution or foreign bank branch purchasing and transferring ownership of negotiable instruments and other securities that have not yet reached their maturity date from the customer, while the customer commits to repurchasing the negotiable instruments and other securities after a period determined in the discount agreement.

2. Purchase with retention of right of recourse for negotiable instruments and other securities refers to the credit institution or foreign bank branch purchasing and transferring ownership of negotiable instruments and other securities that have not yet reached their maturity date from the customer; the customer must be responsible for refunding the discount amount, discount interest, and other lawful costs related to the discount activity if the credit institution or foreign bank branch does not receive full payment from the party responsible for paying the negotiable instrument or the issuer of the other security.

Article 11. Price, Term, Discount Rate, and Related Costs

1. The discount price shall be agreed upon by credit institutions, foreign bank branches, and customers based on the payment value at maturity, the level of risk associated with transferable instruments, the value of other securities, the discount rate, the remaining term of transferable instruments and other securities, and other factors.

2. The discount term shall be agreed upon by credit institutions, foreign bank branches, and customers but shall not exceed the remaining payment term of transferable instruments and other securities; for other securities issued by credit institutions and other foreign bank branches, the maximum discount term shall be less than one year.

3. The discount rate and other lawful costs related to the discounting of transferable instruments and other securities shall be agreed upon by credit institutions, foreign bank branches, and customers in accordance with current legal provisions.

4. The interest rate applicable to overdue discount amounts shall be determined and agreed upon by credit institutions, foreign bank branches, and customers in the discount contract, but shall not exceed 150% of the discount rate applied during the discount period.

Article 12. Discount Contract

A discount contract shall include the following main contents: the name and address of the credit institution or foreign bank branch conducting the discounting activity; the name and address of the customer; the customer's identification number, passport number, or tax code; key information about the transferable instruments and other securities being discounted; the discount price; the purpose of using the discounted funds; the currency of the discount; the discount term; the discount rate and related costs; the rights and obligations of the parties; circumstances for terminating the discount contract prematurely; handling contract violations; other contents agreed upon by the parties in compliance with legal regulations.

Article 13. Maximum Discount Level for One Customer and Related Parties

Credit institutions and foreign bank branches shall consider setting the maximum discount level for one customer and related parties in accordance with current legal provisions.

Article 14. Procedures for Discounting Transferable Instruments and Other Securities

1. Upon receiving a request from a customer for the discounting of transferable instruments and other securities, credit institutions and foreign bank branches shall assess the purpose of using the discounted funds, the customer's financial capability, and the payment capacity of the transferable instruments and other securities to decide whether to accept the discount. Credit institutions and foreign bank branches shall require customers to prove that the transferable instruments and other securities meet the conditions for discounting as stipulated in this Circular.

2. When credit institutions and foreign bank branches agree to discount transferable instruments and other securities for customers, customers shall immediately transfer and complete the procedures for transferring ownership of the transferable instruments and other securities to credit institutions and foreign bank branches in accordance with the law.

3. In cases of discounting through a term purchase method, when customers fulfill their commitment to repurchase transferable instruments and other securities, credit institutions and foreign bank branches shall immediately transfer and complete the procedures for transferring ownership of the transferable instruments and other securities to customers in accordance with the law.

4. The sequence and procedures for discounting transferable instruments and other securities shall be specifically defined in internal regulations concerning discounting activities of credit institutions and foreign bank branches.

Article 15. Rights and Obligations of Customers

1. Customers have the following rights:

a) Decide on selecting a credit organization or foreign bank branch to request discounting of negotiable instruments and other securities.

b) Have the right to refuse requests from credit organizations or foreign bank branches that do not comply with the agreement in the discounting contract and the provisions of the law.

c) Receive back negotiable instruments and other securities from credit organizations or foreign bank branches according to the agreement recorded in the discounting contract.

d) Be entitled to repurchase negotiable instruments and other securities before the discounting period if the credit organization or foreign bank branch agrees.

đ) Other rights as prescribed by law.

2. Customers have the following obligations:

a) Fulfill all contents agreed upon and recorded in the discounting contract.

b) Provide complete documentation proving that negotiable instruments and other securities meet the conditions for discounting as stipulated in this Circular.

c) Commit in writing to use the discount proceeds legally and demonstrate financial capability to repurchase negotiable instruments and other securities as agreed in the discounting contract.

d) Bear legal responsibility for the legality of negotiable instruments and other securities being discounted at credit organizations or foreign bank branches.

Article 16. Rights and Obligations of Credit Organizations and Foreign Bank Branches

1. Credit organizations and foreign bank branches have the following rights:

a) Request customers to provide complete documentation proving that negotiable instruments and other securities meet the conditions for discounting as stipulated in this Circular.

b) Require customers to commit in writing to use the discount proceeds legally and demonstrate financial capability to repurchase negotiable instruments and other securities as agreed in the discounting contract.

c) Refuse customers' discounting requests if negotiable instruments and other securities do not meet the conditions for discounting or the use of discount proceeds does not comply with legal regulations or if the credit organization or foreign bank branch lacks sufficient funds for discounting.

d) Credit organizations and foreign bank branches have the right to terminate discounting, recover discount proceeds before the discounting period if they discover that customers have provided false information or violated the discounting contract.

đ) Credit organizations and foreign bank branches have the right to inspect and supervise the use of discount proceeds by customers in accordance with legal regulations.

e) Other rights as prescribed by law.

2. Credit organizations and foreign bank branches have the following obligations:

a) Fulfill all contents agreed upon and recorded in the discounting contract.

b) Process and implement the transfer of negotiable instruments and the transfer of ownership of other securities to customers in accordance with the Law on Negotiable Instruments and relevant current laws when customers fully pay the discount amount, discount interest, and related costs.

c) Implement the storage and use of negotiable instruments and other securities in accordance with legal regulations.

d) Other obligations as prescribed by relevant laws.

Article 17. Classification of assets held, provisioning levels, methods for establishing risk provisions, and the use of provisions to address risks

When discounting transferable instruments or other securities, credit institutions and foreign bank branches shall classify the assets held, provisioning levels, methods for establishing risk provisions, and the use of provisions to address risks related to the discounted amount in accordance with the regulations of the State Bank of Vietnam on the classification of assets held, provisioning levels, methods for establishing risk provisions, and the use of provisions to address risks in the operations of credit institutions and foreign bank branches.

Article 18. Accounting entries, statistics, and business reports for discounting transferable instruments or other securities of credit institutions and foreign bank branches

Credit institutions and foreign bank branches shall implement accounting entries and statistical reporting for the activity of discounting transferable instruments or other securities in accordance with current laws regarding accounting systems and statistical reporting.

Article 19. Implementation

1. This Circular takes effect from May 1, 2013. The following documents cease to be effective:

a) Decree 1325/2004/QĐ-NHNN dated October 15, 2004, promulgating the Discount and Re-discount Regulations for Securities of Credit Institutions for Customers;

b) Decision 17/2006/QĐ-NHNN dated April 20, 2006, amending and supplementing Articles 10 and 12 of the Discount and Re-discount Regulations for Securities of Credit Institutions for Customers issued under Decree 1325/2004/QĐ-NHNN;

c) Decree 63/2006/QĐ-NHNN dated December 29, 2006, promulgating the Discount and Re-discount Regulations for Transferable Instruments of Credit Institutions for Customers.

2. For discounting contracts for transferable instruments or other securities between credit institutions, foreign bank branches, and customers signed before this Circular takes effect, the customer and the credit institution, foreign bank branch shall continue to perform the contents of the signed discounting contract in accordance with the applicable laws at the time of signing the contract or agree to amend and supplement the discounting contract in compliance with the provisions of 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 governed cities, Chairmen of Management Boards, Chairmen of Member Councils, and General Directors (Directors) of credit institutions and foreign bank branches, other organizations, and individuals concerned are responsible for implementing this Circular./.