Circular No. 07/2003/TT-NHNN guiding the implementation of certain provisions on collateral for loans of credit institutions

CIRCULAR

Guidelines for Implementing Certain Provisions on Loan Guarantees of Credit Institutions

Pursuant to Decree No. 178/1999/ND-CP dated December 29, 1999 of the Government on loan guarantees of credit institutions,

Pursuant to Decree No. 85/2002/ND-CP dated October 25, 2002 of the Government amending and supplementing Decree No. 178/1999/ND-CP dated December 29, 1999 on loan guarantees of credit institutions,

The State Bank of Vietnam guides certain provisions on loan guarantees in the above-mentioned documents for credit institutions to implement when lending according to the Loan Regulations of the State Bank of Vietnam as follows:

I. LOAN GUARANTEES BY COLLATERAL OF THE BORROWER'S ASSETS AND GUARANTEES BY THIRD PARTY ASSETS

1. Credit institutions have the right to choose assets meeting the conditions to be loan guarantees, and to select third parties to guarantee with their assets.

2. Assets of borrowers and third parties may be used to secure loans.

2.1. Collateralized assets.

a) Machinery, equipment, means of transportation, raw materials, fuel, materials, consumer goods, precious metals, gemstones, and other valuable items;

b) Cash foreign currency, balances on deposit accounts in domestic and foreign currencies at service providers;

c) Bonds, stocks, bills, certificates of deposit, savings books, promissory notes, and other negotiable instruments valued in money. However, borrowers may not pledge shares issued by credit institutions at the same institution;

d) Property rights arising from copyright, industrial property rights, claims, insurance proceeds, and other property rights derived from contracts or other legal bases;

đ) Rights to equity interests in enterprises, including those in foreign-invested enterprises;

e) Rights to exploit natural resources as prescribed by law;

g) Ships under the provisions of the Vietnamese Maritime Code, aircraft under the provisions of the Civil Aviation Law if they are pledged;

h) Future assets that are movable property formed after the date of the collateral agreement and will belong to the pledgor such as profits, revenues, assets formed from borrowed funds, and other movable properties that the pledgor has the right to receive;

i) Other assets as prescribed by law

Profits and rights arising from collateralized assets also become part of the collateral if agreed upon by the parties or prescribed by law; if the collateralized asset is insured, the insurance proceeds also become part of the collateral.

For property rights specified in points d, đ, and e, credit institutions accept them as collateral after determining their specific value through agreements between the parties or by hiring consulting or specialized organizations to determine it.

2.2. Mortgaged assets:

a) Residential buildings, construction works attached to land, including assets attached to residential buildings, construction works, and other assets attached to land;

b) Value of land use rights that can be mortgaged as prescribed by the Land Law;

c) Ships under the provisions of the Vietnamese Maritime Code, aircraft under the provisions of the Civil Aviation Law if they are mortgaged;

d) Future assets that are immovable property formed after the date of the mortgage agreement and will belong to the mortgagor such as profits, revenues, assets formed from borrowed funds, construction works, and other immovable properties that the mortgagor has the right to receive;

đ) Other assets as prescribed by law

In cases where all assets with accessories are mortgaged, the accessories are also included in the mortgaged assets.

In cases where only part of immovable assets with accessories are mortgaged, the accessories are included in the mortgaged assets only if the parties agree.

Profits, revenues, and rights arising from mortgaged assets also become part of the mortgaged assets if agreed upon by the parties or prescribed by law; if the mortgaged asset is insured, the insurance proceeds also become part of the mortgaged assets.

2.3. Guaranteed assets:

Third-party assets used to guarantee loan obligations include assets as stipulated in points 2.1 and 2.2 of this Section.

3. Assets used by borrowers and guarantors to pledge, mortgage, or guarantee loans at credit institutions must meet the following conditions:

3.1. Assets must be owned or managed and used by the borrower or guarantor as follows:

a) For land use rights, they must be owned by the borrower or guarantor and can be mortgaged or guaranteed according to the Land Law;

b) For state-owned enterprise assets, they must be assets managed and used by the enterprise and allowed to be used as loan guarantees according to the Law on State-Owned Enterprises;

c) For other assets, they must be owned by the borrower or guarantor: If the law requires registration of ownership, the borrower or guarantor must have a certificate of ownership of the asset.

3.2. Assets must be permitted for transactions, meaning that the law allows or does not prohibit buying, selling, giving as gifts, exchanging, transferring, pledging, mortgaging, guaranteeing, and other transactions.

3.3. Assets must not be in dispute, meaning that there must be no disputes over ownership or management and use of the assets by the borrower or guarantor at the time of signing the guarantee contract.

In separate documents or pledge, mortgage, or guarantee contracts, the borrower and guarantor must commit to the credit institution that the pledged, mortgaged, or guaranteed assets are not in dispute and must bear responsibility for their commitment.

3.4. If the law requires the purchase of insurance, the borrower and guarantor must purchase insurance for the asset during the loan guarantee period.

4. Credit institutions select guarantors who meet the following conditions:

4.1. Possess civil legal capacity and civil conduct capacity in accordance with Vietnamese law for Vietnamese legal entities and individuals acting as guarantors. For foreign legal entities and individuals acting as guarantors, they must possess civil legal capacity and civil conduct capacity in accordance with the laws of the country where the foreign legal entity has its nationality or the foreign individual is a citizen, provided that such foreign laws are recognized or applied under the Civil Code of the Socialist Republic of Vietnam, other Vietnamese legal documents, or international treaties to which the Socialist Republic of Vietnam is a party; if a foreign legal entity or individual establishes or performs a guarantee in Vietnam, they must possess civil legal capacity and civil conduct capacity in accordance with Vietnamese law.

4.2. Have assets meeting the conditions stipulated in Point 2.3 Clause 2 Section of this Article to fulfill the guarantee obligation, except when the guarantor is a credit organization or a state budget management agency, in which case the guarantee shall be carried out in accordance with the laws on bank guarantees and state budget guarantees.

5. The act of the guarantor pledging or mortgaging assets, or not pledging or mortgaging assets to fulfill the guarantee obligation, is determined by agreement between the credit organization and the guarantor.

II. GUARANTEE CONTRACTS AND PROCEDURES FOR PLEDGE, MORTGAGE, AND GUARANTEE

1. Guarantee contracts for pledge, mortgage, and guarantee (collectively referred to as security contracts) must be established in writing; security contracts may be established as separate documents or recorded in credit contracts.

1.1. A pledge or mortgage contract shall include the following main contents:

a) Names and addresses of the parties; date, month, year;

b) Obligations being secured;

c) Description of pledged or mortgaged property; value of pledged or mortgaged property; for future property, a general description of the property may be provided;

d) Custodian of the pledged or mortgaged property and related documents;

đ) Rights and obligations of the parties;

e) Agreements on the handling and disposal methods of pledged or mortgaged property;

g) Other agreements.

1.2. A guarantee contract shall include the following main contents:

a) Names and addresses of the parties; date, month, year;

b) The guarantor's commitment to perform the obligations on behalf of the guaranteed party;

c) Guaranteed obligations, scope of guarantee, and the guaranteed party;

d) Secured property and its value, except when the guarantor is a credit organization or a state budget management agency; for future property, a general description of the property may be provided;

đ) Rights and obligations of the guarantor, the beneficiary of the guarantee, and the guaranteed party;

e) Agreements on the handling and disposal methods of the secured property;

g) Other agreements.

2. In cases where a secured transaction for a loan is partially or entirely voided, it does not affect the validity of the credit contract to which the secured transaction is a condition. Borrowers and guarantors must continue to fulfill their debt repayment obligations and guarantee obligations, and supplement security as previously committed.

3. Notarization or certification of pledge, mortgage, and guarantee contracts by a state notary office or People's Committee at the appropriate level is subject to agreement among the parties; if the law requires notarization or certification of pledge, mortgage, and guarantee contracts, the parties must comply. People's Committees at levels authorized by the Government and guidelines from the Ministry of Justice regarding notarization and certification shall certify these contracts.

4. Registration and cancellation of pledge, mortgage, and guarantee registrations using assets shall be conducted in accordance with Decree No. 08/2000/NĐ-CP dated August 10, 2000, of the Government on registration of secured transactions and guidance documents issued by the Ministry of Justice, Ministry of Finance, Ministry of Natural Resources and Environment, and other relevant ministries and sectors.

Registration and cancellation of mortgage and guarantee registrations involving land use rights or immovable property attached to land shall be implemented upon issuance of specific guidance documents by relevant ministries and sectors concerning procedures, formalities, and fees for registering secured transactions, and by the Land Administration Department or Land Administration - Real Estate Department, People's Committee of communes, wards, or towns conducting the registration of secured transactions.

5. Custody of secured assets and related documents.

5.1. When pledging movable assets or providing guarantees, borrowers and guarantors have the obligation to hand over the pledged assets to the credit organization for custody. The parties may agree that the borrower, guarantor, or a third party may keep the pledged assets in the following circumstances:

a) The pledged asset is registered for ownership, but the credit organization must hold the original certificate of ownership of the asset;

b) The pledged asset is not required to be registered for ownership, but the pledge must be registered with the secured transaction registration authority.

5.2. When mortgaging immovable assets or providing guarantees, the mortgaged or guaranteed assets shall be kept by the borrower or guarantor, except when the parties agree to transfer them to the credit organization or a third party. If the mortgaged or guaranteed asset is registered for ownership or land use rights, the credit organization must hold the original certificate of ownership of the asset or the original certificate of land use rights.

5.3. For collateralized assets that are transportation means or fishing and aquaculture vessels with registration certificates as prescribed by law (referred to as registration certificates), credit institutions must keep the original registration certificate; borrowers and guarantors may use certified copies of the registration certificate by a notary public and confirmed by the credit institution (the place where the pledge or mortgage is accepted) for circulation of the means during the pledge or mortgage period. The credit institution confirms on the certified copy of the registration certificate after obtaining certification from a notary public. The confirmation content of the credit institution on the certified copy of the registration certificate is: "the original is being kept at ...from the date of ...month...year...to the date of ...month...year..." and the signature of the General Director (Director) or Deputy General Director (Deputy Director) and the stamp of the credit institution; or the signature of the Director (Deputy Director) and the stamp of the authorized unit of the credit institution to make lending decisions. In case of debt extension, the credit institution confirms the extension of the circulation period of the certified copy of the registration certificate in accordance with the debt extension period.

The certified copy of the registration certificate with certification from a notary public and confirmation from the credit institution only has value for circulating the means during the pledge or mortgage period, including the extended debt period (if any). When the certified copy of the registration certificate expires, the borrower and guarantor must return it to the credit institution.

5.4. For collateralized, guaranteed assets that are international route ships or aircrafts, credit institutions hold certified copies of the registration certificate with certification from a notary public, while the owner holds the original registration certificate for circulation of the means.

6. For collateralized, guaranteed assets that are materials and goods circulating in the production and business process, the borrower and guarantor can only sell or convert them upon written approval from the credit institution holding the pledge. For mortgaged, guaranteed assets that are residential buildings or construction projects intended for sale or lease, the borrower and guarantor can only sell or lease them upon written approval from the credit institution accepting the mortgage.

7. In cases of pledging, guaranteeing property rights arising from copyright, industrial property rights, claims, insurance money rights, rights to contributed capital in enterprises, natural resource exploitation rights..., the borrower and guarantor must hand over to the credit institution the original documents proving the property rights and jointly carry out legal procedures with the credit institution to ensure its lawful ownership of the pledged, guaranteed property rights when the borrower fails to fulfill their debt obligations.

8. In a pledge, mortgage, or guarantee contract using future assets, a general description of the asset may be provided; when the future asset is put into use and the pledgor, mortgagor, guarantor has ownership of the asset, all parties must establish a supplementary contract, detailing the asset, determining its value, and implementing asset and document retention according to Clause 5 of this Section. Relevant parties shall perform registration and cancellation of security transactions according to Clause 4 of this Section.

9. State-owned enterprises are allowed to pledge or mortgage assets entrusted by the State for management and use to borrow funds from credit institutions. State-owned corporations are allowed to pledge, mortgage, or guarantee assets entrusted by the State for management and use, after deducting the value of assets transferred to independent accounting member enterprises.

When state-owned enterprises pledge or mortgage assets consisting of the entire main production technology chain as defined by economic and technical management agencies, they must obtain written consent from the agency deciding the establishment of the enterprise.

Pledging or mortgaging assets that are not the main production technology chain shall be agreed upon between state-owned enterprises and credit institutions.

For state-owned enterprises for which competent authorities have decided to operate on a contractual basis or lease, pledging or mortgaging assets to borrow funds from credit institutions must be approved in writing by the competent authority.

For state-owned enterprises for which competent authorities have decided to transfer to a labor collective within the enterprise, sell the enterprise, or convert it into a single-member limited liability company, the contract and procedures for pledging or mortgaging assets shall be carried out as prescribed by law for non-state-owned enterprise borrowers.

10. For assets of foreign legal entities or individuals located in Vietnam, contracts and procedures for pledging, mortgaging, or guaranteeing assets shall be implemented according to Vietnamese law; if the assets are located abroad, relevant parties shall agree on the contract and procedures for pledging, mortgaging, or guaranteeing assets according to Vietnamese law or foreign law and international practice but not contrary to Vietnamese law.

III. SCOPE OF GUARANTEE FOR DEBT PERFORMANCE AND THE AMOUNT OF GUARANTEED LOANS BY ASSETS

1. The scope of guarantee for debt performance is the debt repayment obligation of the borrower to the credit institution. The debt repayment obligation of the borrower to the credit institution includes the loan amount (principal), interest on the loan, overdue interest, and fees (if any) recorded in the credit contract that the borrower must pay according to the law, except in cases where the parties agree that interest on the loan, overdue interest, and fees (if any) are not within the scope of guarantee for debt performance.

2. Where multiple parties jointly guarantee a borrower's obligation, the guarantors must jointly fulfill the guarantee obligations, except where there is an agreement or the law stipulates independent guarantees; the credit institution accepting the guarantee may require any one of the guarantors to perform the entire guarantee obligation. If the credit institution accepting the guarantee can offset its obligation with the guaranteed borrower, the guarantor is not required to perform the guaranteed obligation.

3. The value of the collateral is determined at the time of signing the collateral contract through mutual agreement among the relevant parties, except for the value of state-leased land use rights which shall be implemented according to point b, Clause 11, Article 1 of Decree No. 85/2002/NĐ-CP dated October 25, 2002.

The value of the collateral must exceed the value of the secured obligation, except when the credit institution and the borrower agree to secure the loan with collateral as a supplementary measure for a loan that the borrower already meets the conditions for obtaining without collateral according to Clause 18, Article 1 of Decree No. 85/2002/NĐ-CP dated October 25, 2002.

4. The repayment obligation recorded in the credit contract may be secured by one or more assets, by one or more collateral measures, provided that the provisions of Clause 3 of this Section are fulfilled.

5. During the guarantee period, the parties may agree to reduce, supplement, or replace the collateral subject to fulfilling the provisions of Clause 3 of this Section. In case the borrower has partially fulfilled the secured repayment obligation, upon request, the credit institution may allow the reduction of collateral corresponding to the amount of obligation fulfilled, and such reduction shall not affect the remaining secured repayment obligation and subsequent collateral disposal.

6. The scope of securing loans with assets is carried out according to Clause 13, Article 1 of Decree No. 85/2002/NĐ-CP dated October 25, 2002. In cases where the parties agree to use one asset to secure multiple repayment obligations, the borrower and guarantor must notify the subsequent credit institution receiving the guarantee about previous guarantees; if not notified, they must compensate for any damage suffered by the affected party.

Each pledge, mortgage, or guarantee using one collateral asset to secure multiple repayment obligations must be documented in writing and registered with the competent authority for collateral transactions.

The priority order for payment among credit institutions secured by the same asset is determined based on the registration order of collateral transactions.

In cases where credit institutions receiving the guarantee agree to change the priority order for payment, such changes must be registered with the competent authority for collateral transactions.

IV. SECURING LOANS WITH ASSETS FORMED FROM LOAN FUNDS

1. The borrower's conditions regarding the level of own capital participating in investment projects or production, business, service, and living plans, and the value of collateral securing loans by pledge or mortgage according to subpoint c, point 1, Clause 17, Article 1 of Decree No. 85/2002/NĐ-CP dated October 25, 2002, must meet one of the following three situations:

1.1. Having own capital participating in investment projects or production, business, service, and living plans of at least 15% of the total investment capital.

1.2. Having own capital participating in investment projects or production, business, service, and living plans plus the value of collateral securing loans by pledge or mortgage of at least 15% of the total investment capital.

1.3. Having the value of collateral securing loans by one or more pledge or mortgage measures of at least 15% of the total investment capital of the project or production, business, service, and living plan.

2. Procedures and pledge, mortgage contracts using assets formed from loan funds are carried out according to the laws on securing loans and the guidelines of this Circular on pledging and mortgaging future assets.

V. MORTGAGE AND GUARANTEE BY THE VALUE OF LEASED LAND USE RIGHTS WHERE THE REMAINING LEASE PERIOD IS LESS THAN 05 YEARS

1. Borrowers and guarantors may mortgage or guarantee by the value of leased land use rights where the remaining lease period paid for is less than 05 years but must be over 01 year; the loan term must match the remaining lease period. Credit institutions consider and decide on accepting such mortgages or guarantees and bear responsibility for their decisions.

2. Determining the value of leased land use rights where the remaining lease period paid for is less than 05 years is carried out according to point b, Clause 11, Article 1 of Decree No. 85/2002/NĐ-CP dated October 25, 2002.

3. The procedures, formalities, and contracts for mortgaging this type of land are carried out according to the laws on land, government regulations on securing loans, and this Circular.

VI. TERMINATION OF SECURING LOANS WITH ASSETS

1. Securing loan measures by borrower's pledged or mortgaged assets, third-party guarantees by assets are terminated in the following cases:

1.1. The borrower fulfills the repayment obligation or the guarantor fulfills the guarantee obligation to the credit institution;

1.2. The collateral securing the loan has been processed according to the law to recover the debt;

1.3. The parties agree to replace it with another securing measure;

1.4. Other cases prescribed by law or decided by the competent state authority.

2. When terminating securing loan measures by borrower's pledged or mortgaged assets, third-party guarantees, the guarantee contract is settled according to the law.

VII. UNSECURED LOANS

1. Credit institutions select eligible borrowers to lend unsecured loans in accordance with the provisions of Decree No. 85/2002/NĐ-CP dated October 25, 2002, and Decree No. 178/1999/NĐ-CP dated December 29, 1999. In cases where borrowers meet the conditions for unsecured loans, credit institutions may agree with the borrower on a third party with good reputation and financial capability to commit to repay the debt in writing if the borrower fails to repay the debt.

Credit institutions issue regulations on unsecured lending and the amount of unsecured loans applicable within their systems.

2. A borrower who repays the principal and interest of the loan on time is a borrower who, at the time of signing the credit contract, does not have overdue principal or delayed interest payments to the lending credit institution or other credit institutions; overdue principal and delayed interest payments do not include written-off debts, deferred debts, debts awaiting resolution as prescribed by the Government, and delayed interest payments arising from these debts.

3. Where the Government or the Prime Minister has regulations on unsecured lending to borrowers and specific borrowing needs, credit institutions shall implement such regulations of the Government or the Prime Minister and the guidance of the State Bank of Vietnam.

VIII. IMPLEMENTATION

1. This Circular shall take effect fifteen days from the date of publication in the Official Gazette.

2. This Circular replaces Circular No. 06/2000/TT-NHNN1 dated April 4, 2000, issued by the Governor of the State Bank of Vietnam guiding Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government on collateral for loans of credit institutions, and Circular No. 10/2000/TT-NHNN1 dated August 31, 2000, issued by the Governor of the State Bank of Vietnam guiding the implementation of measures on collateral for loans of credit institutions according to Resolution No. 11/2000/NQ-CP of the Government dated July 31, 2000.

3. Credit contracts, pledge contracts, mortgage contracts, and guarantee contracts established before the date of Decree No. 85/2002/NĐ-CP dated October 25, 2002, of the Government amending and supplementing Decree No. 178/1999/NĐ-CP dated December 29, 1999 on collateral for loans of credit institutions remain valid and shall continue to be implemented in accordance with the terms agreed upon by the parties until the borrower fully repays the debt to the lending credit institution.

4. Heads of units under the State Bank, Governors of Provincial Branches of the State Bank, Chairmen of Management Boards, General Directors (Directors) of credit institutions are responsible for implementing this Circular./.