DECISION OF THE GOVERNOR OF THE STATE BANK OF VIETNAM

Regarding the issuance of the Discount and Rediscount Rules for Valuable Securities of Credit Institutions for Customers

of credit organizations towards customers

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GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on the State Bank of Vietnam No. 10/2003/QH11  dated June 17, 2003; No. 10/2003/QH11 June 17, 2003;

Pursuant to the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Articles of the Law on Credit Institutions No. 20/2004/QH11 dated June 15, 2004;

Pursuant to Decree No. 86/2002/NĐ-CP dated November 5, 2002 of the Government stipulating the functions, tasks, powers, and organizational structure of ministries and ministerial-level agencies;

Pursuant to the proposal of the Director of the Monetary Policy Department,

 

DECISION:

Article 1. The Discount and Rediscount Rules for Valuable Securities of Credit Institutions for Customers are hereby issued together with this Decision.

Article 2. This Decision shall take effect fifteen days from the date of publication in the Official Gazette.

Article 3. Heads of units under the State Bank of Vietnam, Directors of State Bank of Vietnam branches in provinces and centrally governed cities, Chairmen of Management Boards and General Directors (Directors) of credit institutions shall be responsible for implementing this Decision./.

 

REGULATIONS

DISCOUNT AND REDISCOUNT OF VALUABLE SECURITIES

OF CREDIT ORGANIZATIONS TOWARDS CUSTOMERS

ISSUED TOGETHER WITH DECISION No. 1325/2004/QD-NHNN

dated 15/10/2004 of the Governor of the State Bank of Vietnam

Article 1. Scope of Regulation

This Regulation stipulates the discount of valuable securities of credit institutions for customers and the rediscount of valuable securities among credit institutions.

This Regulation does not regulate the discount and rediscount of commercial bills.

Article 2. Applicability

1. Credit institutions established, operating, and conducting discount and rediscount business of valuable securities in accordance with the Law on Credit Institutions shall be permitted to conduct such activities. In cases where discount and rediscount of valuable securities are conducted in foreign currency, credit institutions must have permission to operate in foreign exchange.

2. Customers discounting valuable securities at credit institutions are the owners of the valuable securities, including: Vietnamese organizations and individuals; foreign organizations and individuals residing and legally operating in Vietnam; credit institutions.

3. Customers rediscounting valuable securities at credit institutions are credit institutions owning those valuable securities.

Article 3. Explanation of Terms

In this Regulation, the following terms shall be understood as follows:

1. Discount is the act of a credit institution purchasing valuable securities that have not yet reached their maturity date from customers.

2. Rediscount is the act of a credit institution repurchasing valuable securities that have not yet reached their maturity date and which have already been discounted through outright purchase.

3. Remaining term of valuable securities is the period from the date when the credit institution accepts the discount or rediscount of the valuable securities until the maturity date of those valuable securities.

4. Discount and rediscount term is the period from the date when the credit institution accepts the discount or rediscount of the valuable securities until the customer's obligation to fulfill the commitment to repurchase those valuable securities.

5. Discount and rediscount price is the amount of money that the credit institution pays to the customer when performing the discount or rediscount.

Article 4. Principles of Discount and Rediscount

The discount and rediscount of valuable securities by credit institutions for customers must ensure the following principles:

1. Implementation according to agreements between credit institutions and customers, provided that these agreements comply with the provisions of this Regulation, relevant laws, and international practices;

2. Credit institutions must fully and timely recover the amount of discount and rediscount, interest on discount and rediscount of valuable securities, and comply with the regulations of the State Bank of Vietnam regarding safety ratios;

3. For valuable securities with a face value denominated in foreign currency, the discount and rediscount must comply with the Government's regulations on foreign exchange management and the guidelines of the State Bank of Vietnam.

Article 5. Types of negotiable instruments eligible for discounting and rediscounting

The types of negotiable instruments that credit institutions may choose to discount and rediscount include:

1. Negotiable instruments issued by credit institutions in accordance with the Law on Credit Institutions and guidelines of the State Bank of Vietnam.

2. Central Bank Bills issued in accordance with the regulations of the State Bank of Vietnam.

3. Various types of bonds issued in accordance with government regulations and guidelines of the Ministry of Finance, including: Treasury Bills; Government Bonds; Central Public Works Bonds; Investment Bonds; Foreign Currency Bonds; Patriotic Construction Bonds; Government-Guaranteed Bonds; Local Government Bonds.

4. Promissory notes, bills of exchange, and bonds issued by other organizations and eligible for discounting and rediscounting under the provisions of the law.

Article 6. Conditions for negotiable instruments to be accepted for discounting and rediscounting

Negotiable instruments will be accepted by credit institutions for discounting and rediscounting when they meet the following conditions:

1. They are legally owned by the customer.

2. They have not yet reached their maturity date.

3. They are permitted for trading (purchase, sale, gift, conversion, transfer, pledge, guarantee, and other lawful transactions).

4. They can be paid according to the regulations of the issuing organization.

Article 7. Currency for Discounting and Rediscounting

1. For negotiable instruments denominated in Vietnamese Dong, credit institutions shall discount and rediscount them in Vietnamese Dong.

2. For negotiable instruments denominated in foreign currency, credit institutions shall discount and rediscount them as follows:

a. If the negotiable instrument is denominated in a specific foreign currency, it shall be discounted and rediscounted in that foreign currency.

b. In cases where discounting and rediscounting are conducted in Vietnamese Dong, both parties shall agree in accordance with the foreign exchange rate regulations set by the State Bank of Vietnam for credit institutions authorized to conduct foreign exchange business.

Article 8. Methods of Discounting and Rediscounting

Credit institutions and customers may agree and select the following methods of discounting and rediscounting:

1. Discounting and rediscounting the entire remaining term of the negotiable instrument is a method of purchasing the negotiable instrument outright at the discount or rediscount price, and the customer immediately transfers ownership of the negotiable instrument to the credit institution. When the negotiable instrument reaches its maturity date, the credit institution presents the negotiable instrument for payment to the issuing organization.

2. Time-limited discounting and rediscounting:

a. Credit institutions purchase negotiable instruments over a specified period and at the discount or rediscount price, accompanied by the customer's commitment to repurchase the negotiable instrument on the discount or rediscount maturity date.

b. In cases where the customer does not repurchase the negotiable instrument upon expiration of the discount or rediscount period, the credit institution becomes the legitimate owner and enjoys all rights arising from the negotiable instrument.

Article 9. Terms, Prices, and Interest Rates for Discounting and Rediscounting                                    

1. The term of discounting and rediscounting is agreed between the credit institution and the customer but must not exceed the remaining term of the negotiable instrument.

2. The price of discounting and rediscounting is agreed between the credit institution and the customer but must comply with the principles stipulated in Article 4 of this Regulation. Key factors considered in agreeing on the discount and rediscount prices are the value of the negotiable instrument at maturity, the discount interest rate, the rediscount interest rate, and the remaining term of the negotiable instrument.

3. The discount interest rate and the rediscount interest rate are agreed between the credit institution and the customer.

Article 10. Discount and rediscount rate for a customer

The maximum discount and rediscount rate for a customer shall be 15% of the credit institution's own capital. In the case of foreign bank branches operating in Vietnam, the maximum discount and rediscount rate for a customer shall be 15% of the parent bank's own capital.

Article 11. Procedures for discounting and rediscounting

1. When there is a need to discount or rediscount negotiable instruments, the customer submits a request for discounting or rediscounting and the negotiable instruments to the credit institution. The customer shall bear legal responsibility for the legality and validity of the negotiable instruments being discounted or rediscounted at the credit institution.

2. The credit institution shall assess the conditions of the negotiable instruments eligible for discounting or rediscounting. If necessary, the credit institution may require the customer to submit proof of the discounting or rediscounting conditions as stipulated in Article 6 of this Regulation.

3. When the credit institution accepts discounting or rediscounting, the customer immediately transfers the negotiable instruments and simultaneously completes the procedures to transfer ownership of the negotiable instruments to the credit institution:

a. For negotiable instruments issued in the form of bearer certificates, the customer directly hands over the negotiable instruments to the credit institution accepting the discounting or rediscounting.

b. For negotiable instruments issued in the form of registered certificates, the customer hands over the certificate and simultaneously completes the procedures to transfer ownership of the negotiable instruments to the credit institution accepting the discounting or rediscounting according to the provisions of the law and the issuer.

c. For negotiable instruments issued in the form of book-entry entries, the customer hands over the ownership certificate and simultaneously completes the procedures to transfer ownership of the negotiable instruments to the credit institution accepting the discounting or rediscounting according to the provisions of the law and the issuer.

d. For negotiable instruments deposited with organizations permitted to carry out depositary services under the law, the credit institution and the customer may authorize the depositary organization to complete the procedures to transfer the negotiable instruments and ownership of the negotiable instruments from the customer to the credit institution.

4. Agreements on discounting and rediscounting between the credit institution and the customer must be documented in writing. The agreement on discounting and rediscounting must include contents consistent with the provisions of this Regulation, relevant laws, and model contracts issued by the Vietnam Bank Association.

5. In cases where discounting or rediscounting has a term, when the customer fulfills the commitment to repurchase the negotiable instruments, the credit institution transfers the negotiable instruments and ownership of the negotiable instruments to the customer according to the transfer procedures specified in Clause 3 of this Article.

Article 12. Classification, provision for impairment, and risk management for the amount of discounting and rediscounting

Credit institutions shall implement classification, provision for impairment, and risk management for the amount of discounting and rediscounting in accordance with the State Bank of Vietnam's regulations on asset classification "Assets", provision for impairment, and risk management in banking operations of credit institutions.

Article 13. Handling Violations

Credit institutions and customers shall implement penalties, compensation for damages, rights of recovery, complaints, and lawsuits against the defaulting party if there are agreements or legal provisions.

Article 14. Implementation Organization

1. Credit institutions and customers who wish to discount or rediscount negotiable instruments at credit institutions have the responsibility to implement this Regulation.

2. Based on this Regulation, relevant legal provisions, and international practices, credit institutions shall issue procedures for implementing discounting and rediscounting of negotiable instruments that are suitable to their conditions, characteristics, and bylaws.

3. Amendments and supplements to this Regulation shall be decided by the Governor of the State Bank of Vietnam./.