Directive No. 05/CT-NH14 on commercial banks and investment and development banks providing loans to a single enterprise

DIRECTIVE

ON MULTIPLE COMMERCIAL BANKS AND INVESTMENT AND DEVELOPMENT BANKS LENDING TO A SINGLE ENTERPRISE

In recent times, the Governor of the State Bank of Vietnam has signed Decision No. 04-NH-QD dated January 8, 1991, promulgating the Rules on Short-Term Credit for Economic Organizations, and Decision No. 23-NH-QD dated March 6, 1991, promulgating the Rules on Medium- and Long-Term Credit for Economic Organizations.

To expand the scope of borrowing for enterprises, on December 8, 1992, the Governor of the State Bank issued Decision No. 273-QĐ-NH1 to amend the lending conditions under the two aforementioned rules. Since then, the practice of multiple commercial banks jointly lending to a single enterprise has fostered collaboration and support among banks in the credit investment sector, while also meeting the capital needs for production and business development of enterprises. However, alongside these achievements, there have been difficulties for banks in recovering loans due to insufficient understanding of the financial situation of the enterprises or lack of knowledge about the enterprises' borrowing from other banks; the trend of overdue debts and non-recoverable debts towards these enterprises is increasing; the risk of loan losses has reached alarming levels as some enterprises are showing signs of inability to pay.

To rectify these shortcomings and address the above situation in order to strengthen and enhance the safety of credit operations when multiple banks lend to a single enterprise, the Governor of the State Bank requests that the banks implement the following main points:

1. Commercial Banks, Investment and Development Banks (referred to as Banks) when lending to a single enterprise must fully adhere to current credit principles and systems; and through the risk prevention information organization (TPR) of the State Bank Branch in their area, they must obtain additional information on the financial situation of the entity; only lend to enterprises that meet the borrowing conditions and ensure the certainty of debt repayment; strictly monitor the process of using borrowed funds and recovering loans.

2. When lending, the Banks have the right to request the borrowing enterprise to provide necessary information related to the loan and facilitate the bank's inspection and supervision work.

The borrowing enterprise must inform the lending bank of the total outstanding debt borrowed from other banks and bear responsibility for the accuracy of its information.

When borrowing from banks that do not maintain the primary deposit account, the borrowing enterprise must sign a power of attorney agreement with the bank to allow it to withdraw funds from the enterprise's primary deposit account to repay the loan at the request of the lending bank. The bank maintaining the primary deposit account of the enterprise must fulfill the enterprise's power of attorney commitment; if it retains funds in the account without withdrawing them to repay the loan when it is due, causing damage to the lending bank, it will be held responsible for material and administrative liability depending on the extent of the violation.

3. To prevent and limit risks in credit business, the Banks must attach importance to providing and utilizing information on the operational and financial status of borrowing enterprises through the TPR system of credit organizations and the State Bank. After lending, the Banks must promptly report the results of the loan to the TPR system to update the economic file of the enterprise.

4. In cases where an enterprise has overdue debts to multiple banks simultaneously (on the same day), the banks may recover the debt according to a ratio (the overdue debt of each bank divided by the total overdue debt of the enterprise) of the total balance in the deposit account used for repayment, thereby limiting the concentration of risk on one or several banks, or favoring one bank (especially the bank holding the enterprise's primary deposit account) in the recovery of the loan.

5. The handling and recovery of debts by banks when an enterprise goes bankrupt shall be carried out in accordance with the Enterprise Bankruptcy Law (announced by Presidential Decree No. 30L-CTN dated January 10, 1994).

6. Banks must closely cooperate during the lending process, in the inspection and supervision of the use of borrowed funds by enterprises, and assist each other in providing necessary information related to the safety of the loan, strengthening the close ties between banks, aiming to continuously develop banking credit activities and achieve high efficiency.

7. The State Bank Branch in the province or city where the borrowing enterprise is headquartered is responsible for coordinating the resolution of issues and violations by banks lending to that enterprise.

The General Directors (Directors) of Commercial Banks and Investment and Development Banks are responsible for guiding and organizing the implementation of the above points within their systems. During the implementation process, if there are difficulties or obstacles, the banks need to promptly report to the Central State Bank for resolution.