Directive No. 06/NH7-CT on Strengthening the Management of Foreign Borrowing and Debt Repayment

DIRECTIVE

OF THE HEAD OF THE STATE BANK

Regarding Strengthening the Management of Foreign Borrowing and Repayment

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In implementing the foreign borrowing and repayment regulations issued together with Decree 58/CP dated August 30, 1993 of the Government, the management of foreign borrowing and repayment by enterprises has achieved certain results: old debts have been resolved, and Vietnam's reputation on the international financial credit market has gradually been restored; commercial banks have raised a significant amount of medium- and long-term foreign capital for domestic medium- and long-term projects, while also guaranteeing foreign loans for enterprises, thereby helping enterprises to mobilize and utilize considerable amounts of foreign capital under favorable conditions to develop production and contribute to stabilizing domestic monetary policy.

However, foreign borrowing and repayment by enterprises, including commercial banks, still have some shortcomings: many enterprises do not strictly implement the government's regulations and the State Bank's guidance documents on foreign borrowing and repayment; there are cases where enterprises borrow foreign funds without the State Bank's approval of borrowing conditions; commercial banks' guarantees, especially deferred payment letters of credit (L/C), are not strict and violate principles, causing losses to their own banks and reducing their reputation abroad.

To gradually address and rectify these issues, bringing the foreign borrowing and repayment activities of enterprises into order in the future, the Governor of the State Bank instructs:

1. Resolute and proactive measures must be taken to require enterprises with debts to the International Investment Bank (MIB) to fulfill their foreign debt obligations according to their commitments signed with foreign parties.

2. Based on the total limit of foreign borrowing and repayment approved by the Government for the five-year period and annually, the State Bank will consider and approve the borrowing and repayment conditions for enterprises (including commercial banks). The process of consideration and approval must be carried out strictly and seriously in accordance with the provisions of the Government's Decree 58/CP and Circular 07/TT-NH7 and other related documents of the State Bank Governor.

3. Enterprises and commercial banks that need to borrow foreign funds, including cases of signing framework agreements in the form of foreign loan agreements, must obtain permission and be approved by the Governor of the State Bank.

Violations will result in suspension from withdrawing funds, and the State Bank will not allow enterprises to purchase or transfer foreign currency abroad to repay debts.

4. Only commercial banks permitted to operate internationally may participate in guaranteeing and re-guaranteeing foreign loans for enterprises. Guarantees for foreign loans must be implemented strictly in accordance with Decision 23/NH14 on guaranteeing and re-guaranteeing foreign loans and other regulations of the State Bank Governor.

Commercial banks must establish a guarantee fund and re-guarantee fund and implement the guarantee level for one enterprise or ten enterprises within the scope specified in Decision 263/QĐ-NH14 dated September 19, 1995 of the State Bank Governor. The guarantee fund must be recorded in a separate account and can only be used to pay the lender when the borrower fails to repay the debt on time.

5. During the process of considering and deciding on guarantees and re-guarantees, commercial banks have the responsibility to review the entire content of the loan, economic justifications or business plans, assess the ability of the enterprise to repay foreign debts, and bear the responsibility to repay on behalf of the enterprise if the guaranteed enterprise cannot repay the debt. Commercial banks report to the State Bank about the results of the review to guarantee the enterprise as the basis for presenting to the Governor for consideration and approval of the borrowing and repayment conditions.

6. Commercial banks are allowed to open immediate payment letters of credit (L/C) at the request of customers.

For deferred payment L/Cs, they must be strictly and carefully implemented in accordance with international practices (UCP 500) and the regulations of the State Bank. Limit the issuance of deferred payment L/Cs for unnecessary consumer goods imports for economic and social life.

7. Commercial banks must issue specific documents detailing the conditions and procedures for opening deferred payment L/Cs by their bank.

The balance of the above L/Cs must remain within the foreign borrowing limit approved by the State Bank Governor.

8. For deferred payment L/Cs under one year and cases of issuing deferred payment L/Cs for importing consumer goods, in addition to meeting the conditions stipulated in Point 7, the following conditions must also be met:

- They must be within the foreign borrowing limit of the credit institution issuing the L/C.

- Ensure a minimum mandatory deposit rate of 80% of the value of the L/C to be opened.

9. The Department of International Relations of the State Bank shall take the lead in coordinating with relevant Departments and Bureaus to unify with the Ministry of Finance to supplement and amend Joint Circular 09/TC-NH of the Ministry of Finance and the State Bank to suit actual conditions.

10. To coordinate well in managing foreign borrowing and repayment, the Departments and Bureaus of the State Bank must perform their tasks in accordance with the regulations of the State Bank Governor.

Credit institutions and enterprises must report to the State Bank quarterly, semi-annually, and annually on their foreign borrowing and repayment, guarantees, and issuance of deferred payment L/Cs for enterprises.

Reports from commercial banks and enterprises must be prepared according to the forms prescribed by the State Bank Governor. The Department of Foreign Exchange Management and the Department of Credit are responsible for developing and guiding the content of the forms.

13. Commercial banks and enterprises with foreign loans shall base their actions on relevant documents, Decree No. 58/CP dated August 30, 1993 of the Government, guiding documents from the State Bank, the Ministry of Finance, and the provisions in this Directive to effectively manage foreign borrowing and repayment, while regularly conducting inspections of enterprises with foreign loans to guide them in complying with state regulations.

14. The Department of Foreign Exchange Management shall be responsible for monitoring, summarizing, and reporting the situation of foreign borrowing and repayment by credit institutions and enterprises; proposing policies, measures, and initiatives to improve and strengthen the management of foreign borrowing and repayment.