CIRCULAR

Guidelines on Certain Aspects of Financial Lease Operations and Entrusted Financial Lease Services as Provided for in Decrees

Nos. 16/2001/NĐ-CP dated May 2, 2001 and No. 65/2005/NĐ-CP dated May 19, 2005 of the Government

Pursuant to Article 42 of Decree No. 16/2001/NĐ-CP dated May 2, 2001 of the Government on the organization and operation of financial lease companies, and Article 3 of Decree No. 65/2005/NĐ-CP dated May 19, 2005 of the Government amending and supplementing certain articles of Decree No. 16/2001/NĐ-CP dated May 2, 2001; the State Bank of Vietnam issues guidelines on certain aspects of financial lease operations and entrusted financial lease services as provided for in these decrees as follows:

I. FINANCIAL LEASE OPERATIONS

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Financial lease companies shall carry out financial leasing with lessees being organizations and individuals operating in Vietnam (hereinafter referred to as the lessee) who have a need to lease assets such as machinery, equipment, transportation means, and other chattels to implement investment projects for production, business, services, or domestic living service projects.

This Circular does not provide guidance on financial lease companies carrying out financial leasing activities abroad.

12. Conditions for Financial Leasing

2.1. Financial lease companies must be established and operate financial leasing in accordance with the provisions of the Law on Credit Institutions.

2.2. The lessee must meet the following conditions:

a) Having civil legal capacity and civil conduct capacity as prescribed by law:

- For Vietnamese organizations and individuals: Organizations must have civil legal capacity; individuals, private enterprise owners, representatives of family households, and representatives of cooperatives must have both civil legal capacity and civil conduct capacity.

- For foreign organizations and individuals: Organizations must have civil legal capacity as prescribed by the laws of the Socialist Republic of Vietnam; individuals must have both civil legal capacity and civil conduct capacity as prescribed by the laws of the Socialist Republic of Vietnam, except where otherwise provided by the laws of the Socialist Republic of Vietnam. The basis for applying the law to these organizations and individuals shall be implemented in accordance with the provisions of the law on civil relations involving foreign elements.

b) Having feasible, effective investment projects for production, business, services, or domestic living service projects that comply with the law and using leased assets to implement those projects.

c) Having sufficient financial capability to ensure payment of lease rent within the agreed lease period.

2.3. Financial lease transactions must satisfy the conditions stipulated in Clause 1, Article 1 of Decree No. 65/2005/NĐ-CP dated May 19, 2005 of the Government and related legal documents.

3. Currency Used in Financial Lease Transactions

Financial lease companies shall conduct financial lease transactions in Vietnamese dong. In cases where financial lease transactions are conducted in foreign currency, the financial lease company and the lessee shall comply with the relevant laws on foreign exchange and the guidelines set forth in this Circular.

4. Financial Lease Transactions Conducted in Foreign Currency

4.1. Financial lease transactions conducted in foreign currency involve the financial lease company leasing machinery, equipment, transportation means, and other chattels imported by the financial lease company under a financial lease contract with the lessee; the lessee acknowledges the debt and pays the financial lease rent in foreign currency.

4.2. In addition to the conditions specified in Clause 2 of this Circular, financial lease transactions conducted in foreign currency must also meet the following conditions:

a) For financial lease companies: Having registered to conduct financial leasing in foreign currency with the State Bank of Vietnam in accordance with the laws on foreign exchange.

b) For lessees:

- Using leased assets for production, business, and service purposes;

- Having legitimate sources of foreign currency income or being able to purchase foreign currency from credit institutions authorized to engage in foreign exchange transactions to pay the financial lease rent.

5. Lease Rent and Other Costs Related to Financial Lease Operations

5.1. Lease rent includes:

a) Principal debt determined based on the purchase price of leased assets and reasonable costs associated with purchasing those assets;

b) Interest debt determined based on the outstanding principal balance, interest rate, and lease term.

5.2. Other costs related to financial lease operations that the lessee must pay to the financial lease company shall be agreed upon between the financial lease company and the lessee in compliance with the law.

6. Financial Lease Interest Rate

6.1. The level of financial lease interest rate shall be agreed upon between the financial lease company and the lessee in the financial lease contract.

6.2. The interest rate applicable to overdue principal lease payments shall be agreed upon between the financial lease company and the lessee in the financial lease contract, but shall not exceed 150% of the financial lease interest rate applied during the lease term as stipulated in the financial lease contract or any subsequent adjustment thereto.

7. Lease Term and Period

7.1. The lease term is the period from the date the lessee acknowledges the lease rent until all lease rent has been fully paid as agreed in the financial lease contract. The acknowledgment date of the lease rent shall be agreed upon between the financial lease company and the lessee.

The financial lease company and the lessee shall base their agreement on the production and business cycle, the capital recovery period of the investment project, and the lessee's ability to pay the lease rent to determine the lease term. For Vietnamese and foreign organizations, the lease term shall not exceed the remaining operational period as decided in the establishment decision or business license in Vietnam; for foreign individuals, the lease term shall not exceed the permitted period of residence and work in Vietnam.

7.1. The financial lease term is the period from the date the lessee acknowledges the financial lease payment debt until the full repayment of the agreed-upon financial lease debt recorded in the financial lease contract. The date of acknowledging the financial lease payment is agreed upon by the financial leasing company and the lessee.

The financial leasing company and the lessee base their agreement on the production and business cycle, the capital recovery period of the investment project, and the lessee's ability to pay the lease payments to determine the financial lease term. For domestic and foreign organizations, the financial lease term shall not exceed the remaining operational period as determined by the establishment decision or operating permit in Vietnam; for foreign individuals, the financial lease term shall not exceed the permitted period of residence and work in Vietnam.

7.2. The lease term for financial leasing refers to the periods within the agreed leasing period in the financial leasing contract during which the lessee must pay a portion or the entire amount of the financial lease payment to the financial leasing company at the end of each period.

7.3. The financial leasing company and the lessee agree on the repayment of principal and interest on the lease payments as follows:

a) The repayment terms for the principal;

b) The repayment terms for interest together with the principal repayment terms or according to separate terms.

8. Evaluation and decision on financial leasing

8.1. The financial leasing company considers and decides on financial leasing for the lessee based on evaluating the feasibility and effectiveness of investment production, business, service projects or investment projects serving life, leasing conditions, and the lessee's ability to repay debts.

8.2. The financial leasing company establishes an evaluation and approval process for financial leasing according to the principle of clearly defining responsibilities between the evaluation stage and the decision-making stage for financial leasing, as well as the responsibilities of related individuals.

9. Financial Leasing Documents

9.1. The lessee's application for financial leasing, specifying the leased asset name along with documents proving compliance with leasing conditions.

9.2. The financial leasing company guides the types of documents that the lessee needs to submit to the financial leasing company in accordance with the provisions of the law on financial leasing activities and the characteristics of the financial leasing company's operations.

9.3. The lessee shall be responsible under the law for the accuracy and legality of the documents submitted to the financial leasing company.

10. Financial Leasing Contract

10.1. The financial leasing contract is an agreement between the financial leasing company and the lessee regarding financial leasing in accordance with the provisions of the law on financial leasing activities, this Circular, and other relevant laws.

10.2. The financial leasing contract must be documented in writing in accordance with the provisions of the Civil Code on contracts and must include the following main contents: Name and address of the financial leasing company and the lessee; leasing conditions; name, type, and quality of the leased asset; purpose of using the leased asset; principal and interest rate of the lease payment, other costs; time of debt acceptance and leasing period; repayment terms and period for lease payment; rights and obligations of the parties, handling cases where the financial leasing contract terminates prematurely. Other contents of the financial leasing contract are agreed upon by the financial leasing company and the lessee.

11. Restructuring of Repayment Periods, Transfer of Overdue Debts

11.1. The financial leasing company implements restructuring of the repayment period for lease payments to the lessee through one of the following two methods:

a) Adjusting the repayment period involves the financial leasing company agreeing to change the repayment period for lease payments but not exceeding the previously agreed leasing period in the financial leasing contract.

b) Extending the debt involves the financial leasing company agreeing to extend the repayment period for lease payments beyond the previously agreed leasing period in the financial leasing contract.

11.2. The financial leasing company implements restructuring of the repayment period for lease payments to the lessee as follows:

a) The financial leasing company decides to restructure the repayment period for lease payments based on the lessee's proposal and its own financial capability, and the assessment of the lessee's ability to repay debts for the following cases:

- If the lessee is unable to repay the principal and/or interest on the lease payments within the agreed leasing period 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 period for the principal and/or interest on the lease payments.

- If the lessee is unable to fully repay the principal and/or interest on the lease payments within the agreed leasing period 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 leasing period, then the financial leasing company may consider extending the leasing period in line with the lessee's repayment capacity.

b) The financial leasing company issues a procedure for restructuring the repayment period for lease payments in accordance with the guidance of this Circular and relevant laws governing financial leasing activities, and sends it to the State Bank of Vietnam Inspectorate no later than five days from the date of issuance.

11.3. The financial leasing company implements the transfer of overdue lease payments to the lessee as follows:

If the lessee is unable to fully repay the principal and/or interest on the lease payments within the agreed leasing period in the financial leasing contract and is assessed by the financial leasing company as lacking the ability to repay within a certain period after the leasing period, and does not accept restructuring of the repayment period for lease payments, then the remaining balance of the principal of that financial leasing contract becomes an overdue debt.

12. Reduction of Interest on Lease Payments

12.1. The financial leasing company may consider and decide to reduce the interest on lease payments for the lessee according to the following principles:

a) The lessee suffers losses due to asset damage leading to financial difficulties and inability to pay interest on lease payments.

b) The level of reduction in interest on lease payments should be appropriate to the financial capability of the financial leasing company.

c) The interest on lease payments cannot be reduced for lessees who are specified in Clause 1 of Article 78 of the Law on Credit Institutions.

12.2. The financial leasing company must issue a Regulation on reducing interest on lease finance for the lessee. The Regulation on reducing interest on lease finance shall be approved by the Board of Directors of the company in accordance with the principles set forth in Point 12.1 of this Clause; for a financial leasing company affiliated with a credit institution, it shall be approved by the Board of Directors of that credit institution. The reduction of interest on lease finance for the lessee may only be implemented after the Regulation on reducing interest on lease finance has been issued.

13. Inspection and supervision of financial leasing activities

13.1. The financial leasing company has the responsibility and right to inspect and supervise the process of using leased assets and paying lease finance debts by the lessee.

13.2. The financial leasing company establishes procedures and implements inspections and supervision of the leasing process, the use of leased assets, and payment of debts by the lessee in accordance with the characteristics of its operations.

14The financial leasing company carries out classification, provision, and utilization of provisions to handle credit risks related to lease finance amounts in accordance with the regulations of the State Bank of Vietnam on loan classification, provision establishment, and utilization of provisions to handle credit risks in banking activities of credit institutions.

15The financial leasing company reports statistical data on financial leasing activities in accordance with the regulations of the State Bank of Vietnam on reporting systems applicable to credit institutions.

II. TRUSTED LEASE FINANCE SERVICES

16Trusted lease finance services refer to the financial leasing company conducting lease finance activities based on the entrustment of the entrusting party.

17. Entrusting Party and Entrusted Party in Lease Finance Entrustment

17.1. The entrusting party in lease finance entrustment includes:

a) Financial leasing companies;

b) Vietnamese organizations and individuals;

c) Foreign organizations and individuals.

17.2. The entrusted party in lease finance entrustment is a financial leasing company permitted to be established and operate lease finance activities in Vietnam in accordance with the Law on Credit Institutions.

18. Methods of Lease Finance Entrustment

The entrusted party shall carry out trusted lease finance services according to one of the following two methods:

18.1. Accepting entrustment by the entrusting party's assets to conduct lease finance for the lessee.

18.2. Accepting entrustment by the entrusting party's funds to purchase machinery, equipment, and other chattels for lease finance to the lessee.

18.3. Other trusted services related to lease finance activities: The entrusted party performs one or more business operations of lease finance activities in accordance with agreements with the entrusting party.

19. Principles of Entrustment and Acceptance of Entrustment

19.1. The entrustment and acceptance of entrustment in lease finance shall be carried out in accordance with the agreement between the entrusting party and the entrusted party in the lease finance entrustment contract.

19.2. Conditions for leasing, lease payments, lease interest rates, restructuring of lease repayment terms, risk handling, and other business operations related to lease finance activities shall be agreed upon by the entrusting party and the entrusted party in compliance with the Circular and relevant laws.

19.3. Lease finance activities must be conducted through financial leasing companies in accordance with the law on lease finance activities and the provisions of Section I of this Circular.

20. Entrustment Fees and Benefits Arising from the Entrustment Contract

The entrusted party enjoys entrustment fees and other benefits arising from the entrustment contract in accordance with the agreement with the entrusting party.

21. Entrustment Contract

The entrustment contract for lease finance contains the following main contents: Name and address of the entrusting party and the entrusted party, entrusted assets for lease finance, lease finance amount and term for the lessee, rights and obligations of the entrusting party and the entrusted party. Other contents of the entrustment contract for lease finance shall be agreed upon by the entrusting party and the entrusted party in compliance with the law.

22. Handling Risks of Entrustment and Acceptance of Entrustment

22.1. The entrusted party is responsible for handling risks arising from violations of the law on lease finance activities and agreements with the entrusting party recorded in the entrustment contract. For risks arising from causes other than these, the entrusting party shall be responsible for handling them.

22.2. The entrusting party and the entrusted party shall handle risks in accordance with current laws.

23. Rights and Obligations of the Entrusted Party

23.1. The entrusted party has the following rights:

a) To refuse requests from the entrusting party that are contrary to the agreements recorded in the entrustment contract for lease finance.

b) To initiate legal proceedings against the entrusting party for breach of the entrustment contract for lease finance in accordance with the law.

23.2. The entrusted party has the following obligations:

a) To provide the entrusting party with full and truthful information related to the lessee and leased assets, financial capacity and ability to repay debt of the lessee, and other information and documents related to entrustment lease finance services; to bear responsibility for the accuracy of the provided information and documents.

b) To use assets for lease finance to the lessee in accordance with the contents agreed upon in the entrustment contract and relevant laws.

c) To fully and timely return both principal and interest on lease finance to the entrusting party in accordance with the agreement recorded in the entrustment contract.

24. Rights and Obligations of the Entrusting Party

24.1. The entrusting party has the following rights:

a) To request the entrusted party to provide information related to the lessee and leased assets, financial capacity and ability to repay debt of the lessee, and other information and documents related to entrustment lease finance services.

b) To refuse requests from the entrusted party that are not in compliance with the law or contrary to the agreements recorded in the entrustment contract for lease finance.

c) To inspect and supervise the lease finance operation process of the entrusted party towards the lessee and the fulfillment of the commitment to repay lease finance debt by the entrusted party to the entrusting party.

d) To initiate legal proceedings against the entrusted party for breach of the entrustment contract for lease finance in accordance with the law.

24.2. The entrusting party has the following obligations:

a) Perform in accordance with the agreement recorded in the financial lease agency contract.

b) Transfer the leased asset or funds to purchase the leased asset in accordance with the agreed time frame set forth in the financial lease agency contract.

c) Pay the full agency fee in accordance with the agreed time frame with the agency recipient.

d) Cooperate with the agency recipient in classifying debts, setting aside and utilizing provisions for handling risks related to the amount of financial leasing under the agency contract.

III. IMPLEMENTATION

25This Circular shall take effect fifteen days from the date of publication in the Official Gazette. The following documents shall be repealed: Circular No. 03/2005/TT-NHNN dated May 25, 2005 guiding financial leasing companies on restructuring repayment terms and transferring overdue debts in financial leasing activities; Circular No. 1358/NHNN-CSTT dated November 25, 2004 regarding reduction of financial lease interest rates; and Circular No. 18/NHNN-CSTT dated January 7, 2003 regarding guidance on foreign currency transactions in financial leasing.

26Financial leasing companies shall base themselves on this Circular and relevant legal documents to issue specific operational guidelines consistent with their conditions, characteristics, and charters.

27The Director of the Office, the Head of the Monetary Policy Department, the Heads of units under the State Bank, the Governors of the State Bank branches in provinces and centrally-administered cities, the Chairmen of the Management Boards, and the General Directors (Directors) of financial leasing companies are responsible for implementing this Circular./.

SIGNATURE OF THE GOVERNOR
DEPUTY DIRECTOR
 

(Signed)

Nguyen Dong Tien