Circular No. 17/2011/TT-NHNN on the provision of secured loans through pledge of negotiable instruments by the State Bank of Vietnam to credit institutions

CIRCULAR

Regulations on secured lending through pledge of negotiable instruments

of The State Bank of Vietnam for credit institutions

 __________________________

Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam stipulates the regulations on secured lending through pledge of negotiable instruments of the State Bank of Vietnam for credit institutions as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular stipulates the short-term lending in Vietnamese Dong (VND) of the State Bank of Vietnam to credit institutions in the form of secured lending through pledge of negotiable instruments to provide short-term capital and payment means for credit institutions.

Article 2. Interpretation of Terms

In this Circular, the following terms are understood as follows:

1. Secured lending through pledge of negotiable instruments (hereinafter referred to as pledge lending) is a form of lending by the State Bank of Vietnam (hereinafter referred to as the State Bank) to credit institutions based on the pledge of negotiable instruments owned by credit institutions to ensure the obligation to repay debt.

2. Pledge of negotiable instruments is the act of the State Bank holding the original negotiable instrument or requiring credit institutions to transfer the negotiable instrument into an account opened by the State Bank at the Vietnam Securities Depository to ensure the fulfillment of the obligation to repay debt for one or more pledge loans of credit institutions at the State Bank.

3. Interest rate for pledge lending is the rediscount rate applied by the State Bank when implementing pledge lending to credit institutions and announced by the State Bank during each period.

4. Remaining term of the negotiable instrument is the time from the date the State Bank disburses the pledge loan to the credit institution to the due date of that negotiable instrument.

Article 3. Borrowers eligible for pledge lending at the State Bank

Credit institutions established and operating under the Law on Credit Institutions, including banks, non-bank credit institutions, Central People's Credit Funds, and foreign bank branches (hereinafter referred to as credit institutions).

Article 4. Purpose of pledge lending

The State Bank provides pledge lending to credit institutions to supply short-term capital and payment means for credit institutions.

Article 5. Principles of pledge lending

The State Bank's pledge lending to credit institutions shall be carried out according to the following principles:

1. The pledge loan is guaranteed by negotiable instruments meeting the criteria specified in Article 8 of this Circular;

2. Credit institutions receiving pledge loans must use the borrowed funds for their intended purpose, fully and timely repay the principal and interest of the State Bank's loan.

Article 6. Methods of implementing pledge lending

1. Direct method: Credit institutions transact directly with the State Bank.

2. Indirect method: Credit institutions transact through the interbank market transaction system network according to the guidance of the State Bank.

Article 7. Issuance of code numbers, keys, and electronic signatures

Credit institutions are issued code numbers, keys, and electronic signatures by the State Bank for representatives of credit institutions to conduct transactions through the interbank market transaction system network of the State Bank in pledge lending transactions to ensure safety and confidentiality.

Article 8. Valuable papers subject to pledge

1. Criteria for valuable papers subject to pledge:

a) Permitted to be transferred;

b) Legally owned by the credit institution requesting the loan;

c) Have a remaining term at least equal to the borrowing period;

d) Not issued by the credit institution requesting the loan.

2. The list, priority order of valuable papers used for pledge loans, and the ratio between the value of the valuable papers and the amount of pledged loan shall be specified by the Governor of the State Bank of Vietnam during each period.

Article 9. Value of valuable papers used as collateral for pledge loans

1. The value of valuable papers used as collateral for pledge loans is the total issuance value of the valuable papers calculated based on their face value.

2. The guarantee ratio of the value of valuable papers compared to the amount of pledged loan shall be specified by the Governor of the State Bank of Vietnam during each period.

Chapter II

SPECIFIC PROVISIONS

Article 10. Conditions for pledge loans

Based on the orientation of monetary policy management and the supply of money during each period, the State Bank of Vietnam decides to implement pledge loans for credit institutions when they meet the following conditions:

1. They are credit institutions as defined in Article 3 of this Circular and are not placed under special control measures;

2. They have valuable papers meeting the criteria and included in the list of valuable papers allowed for pledge loans at the State Bank of Vietnam as stipulated in Article 8 of this Circular;

3. Their purpose of borrowing aligns with the objectives of monetary policy management by the State Bank of Vietnam during each period;

4. They submit a pledge loan application to the State Bank of Vietnam in accordance with the provisions of Article 15 of this Circular;

5. They have no overdue debts at the State Bank of Vietnam at the time of applying for the loan;

6. They commit to using the borrowed funds for the intended purpose, repaying the principal and interest to the State Bank of Vietnam within the prescribed timeframe.

Article 11. Term of pledge loans

1. The term of pledge loans is less than 12 months and does not exceed the remaining term of the pledged valuable papers. The term of pledge loans includes holidays and public holidays. If the repayment date falls on a holiday or public holiday, the loan term will be extended until the next working day.

2. Based on the purpose of borrowing by credit institutions, the State Bank of Vietnam determines the loan term and repayment periods for each specific case.

When there is a need to request an extension of the pledge loan at the State Bank of Vietnam, the credit institution submits one request for extension of the pledge loan (detailing the reasons for the extension) directly or through postal service to the State Bank of Vietnam. Within a maximum of two working days from receiving the request for extension of the pledge loan, the State Bank of Vietnam will notify the credit institution requesting the extension in writing about the approval or rejection of the extension and send it to relevant units.

Article 12. Interest rate for pledge loans

1. The interest rate for pledge loans for credit institutions is the rediscount rate applied by the State Bank of Vietnam when granting pledge loans to credit institutions at the time of disbursing the loan and maintained throughout the loan term.

2. If the outstanding balance of the pledge loan becomes overdue, the credit institution must bear an overdue interest rate of 150% of the interest rate stated in the credit agreement.

Article 13. Maximum Loan Amount for Collateralized Loans

1. Based on the monetary policy objectives during each period, the demand for loans, the value of securities used as collateral, and the outstanding balance of other loans of credit institutions at the State Bank, the State Bank shall decide the maximum loan amount for collateralized loans for credit institutions requesting such loans.

2. The maximum loan amount shall not exceed the converted value of the securities used as collateral according to the regulations of the State Bank.

Article 14. Authority to Participate in Collateralized Loan Transactions

1. The person authorized to sign documents participating in collateralized loan transactions with the State Bank on behalf of credit institutions is one of the following:

a) Chairman of the Board of Directors or Chairman of the Board of Members of the credit institution;

b) General Director (Director) of the credit institution.

2. The person authorized under Clause 1 of this Article may delegate authority to the Deputy General Director (Deputy Director) or Branch Director to sign documents participating in collateralized loan transactions with the State Bank in accordance with the provisions of the law and bear responsibility for such delegation. The delegated person may not further delegate authority to a third party.

Article 15. Documents for Requesting Collateralized Loans

When there is a need to request collateralized loans from the State Bank, credit institutions shall submit one set of documents directly or through postal service to the State Bank. The documents for requesting collateralized loans include:

1. A loan application form in the format of a collateralized loan using securities as collateral (according to Model 01/NHNN-CC);

2. An inventory list of securities proposed to be pledged for borrowing at the State Bank of Vietnam, confirmed by the issuing organization, issuing agent, or custodian organization (according to Model 02a/NHNN-CC);

3. Certain indicators regarding sources and use of Vietnamese Dong funds according to Model 03/NHNN-CC; Credit institution's transaction situation with the State Bank of Vietnam according to Model 04/NHNN-CC; A calculation table of the need for VND loans from the State Bank of Vietnam according to Model 05/NHNN-CC;

4. The credit institution's balance sheet at the most recent time point (original copy).

Article 16. Approval and Rejection of Collateralized Loan Requests by Credit Institutions

1. Based on the documents submitted by credit institutions for collateralized loan requests, the State Bank will review the loan requests of credit institutions and within a maximum of two working days from the date of receiving complete and valid collateralized loan request documents as stipulated in Article 15 of this Circular, the State Bank will notify credit institutions requesting loans in writing about approval (according to Model 06a/NHNN-CC) or non-approval for collateralized loans (according to Model 06b/NHNN-CC) and send it to relevant units.

2. The State Bank will not consider collateralized loan requests from credit institutions if they do not meet all conditions specified in Article 10 of this Circular.

Article 17. Delivery and Return of Securities Used as Collateral

1. After receiving notification of approval for collateralized loans from the State Bank, the requesting credit institution must proceed to transfer the securities to be used as collateral to the State Bank.

2. The State Bank will implement the pledge of securities strictly according to the approved list of securities.

3. During the loan period, if the credit institution needs to exchange the securities currently held in pledge at the State Bank for other qualified securities within the list of securities allowed for collateralized loans at the State Bank, the credit institution shall submit one set of documents directly or through postal service to the State Bank. The documents include:

a) A written explanation of the reasons for exchanging the securities currently held in pledge at the State Bank for other securities;

b) An inventory list of replacement securities for collateralized loans at the State Bank of Vietnam, confirmed by the issuing organization, issuing agent, or custodian organization (according to Model 02b/NHNN-CC);

Within a maximum of two working days from the date of receiving complete documents from the credit institution requesting to exchange securities held in pledge at the State Bank, the State Bank will notify the credit institution in writing about approval or non-approval for exchanging the securities currently held in pledge and send it to relevant units.

4. After the credit institution has fully repaid the principal and interest of the loan, the State Bank will return the securities used as collateral to the credit institution.

Article 18. Implementation of pledge loans

1. Pledge loan transactions for credit institutions shall be conducted at the State Bank of Vietnam's Trading Department.

The State Bank of Vietnam's Trading Department, based on the approved loan pledge application which has been approved by the Governor of the State Bank of Vietnam, will proceed to process the acceptance of pledged assets, sign a credit agreement with the credit institution, and transfer the loan amount into the credit institution’s deposit account at the State Bank of Vietnam.

2. In necessary cases, the Governor of the State Bank of Vietnam may authorize the Governor of the State Bank of Vietnam's provincial branch to implement pledge loans for credit institutions whose main office is located within their jurisdiction. The procedures for implementing pledge loans at the State Bank of Vietnam's provincial branch shall be carried out similarly to those at the State Bank of Vietnam's Trading Department.

Article 19. Repayment of pledge loans

1. Upon maturity of the repayment period, credit institutions shall settle the principal and interest of the pledge loan to the State Bank of Vietnam and reclaim the securities.

2. In case the credit institution fails to repay the principal and interest upon maturity and does not obtain an extension from the State Bank of Vietnam, the State Bank of Vietnam will take compulsory measures to recover the principal and interest, including:

a) Deducting funds from the credit institution's deposit account at the State Bank of Vietnam to recover the debt;

b) Recovering the principal and interest from other sources (if available) of the credit institution;

3. If after deducting funds from the deposit account and recovering the debt from other sources of the credit institution, the full recovery of the debt is still insufficient, the State Bank of Vietnam will transfer the remaining debt to overdue debt and apply the overdue interest rate. The State Bank of Vietnam will continue to deduct funds from the deposit account to recover the debt or may sell or settle with the issuer of the pledged securities on the money market to recover the overdue principal and interest of the borrowing credit institution.

Chapter III

IMPLEMENTATION

Article 20. Responsibilities of credit institutions requesting pledge loans

1. Provide complete and timely documents and materials as prescribed in this Circular and bear legal responsibility for the accuracy and legality of the data and materials provided to the State Bank.

2. Fulfill all commitments made with the State Bank of Vietnam regarding the proper use of borrowed funds, timely and fully repaying the loan principal and interest.

3. Transfer all securities used as collateral and reclaim all pledged assets after fully repaying the loan principal and interest to the State Bank of Vietnam.

Article 21. Responsibilities of Units under the State Bank

a) Take the lead and coordinate with relevant units to determine the level of funding supply for quarterly and annual refinancing purposes, including the form of refinancing through securities pledge, to be submitted for approval by the Governor of the State Bank of Vietnam and notified to relevant units.

b) Advise the Governor of the State Bank of Vietnam to determine and announce the refinancing interest rate to serve as a basis for applying to the pledge securities business.

c) Coordinate with relevant units to resolve difficulties and issues arising during the implementation of pledge loan transactions.

a) Receive and review applications for pledge loans from credit institutions;

b) Submit to the Governor of the State Bank of Vietnam for approval of credit institutions' requests for pledge loan securities and authorize the State Bank of Vietnam's provincial branch to implement (if applicable), and notify the requesting credit institution about the approval or rejection of the pledge loan request;

c) Forward the approved application to the State Bank of Vietnam's Trading Department for the implementation of pledge loans;

d) Lead and coordinate with relevant units to resolve difficulties and issues arising during the implementation of pledge loan transactions;

đ) Submit to the Governor of the State Bank of Vietnam for consideration and decision on credit institutions' requests to change the securities currently pledged at the State Bank of Vietnam;

e) Compile the situation of pledge loan implementation from the State Bank of Vietnam's Trading Department and provincial branches according to monthly, quarterly, and annual periods to report to the Governor of the State Bank of Vietnam;

g) Submit to the Governor of the State Bank of Vietnam for approval of the list and priority order of securities used in pledge loan transactions and the ratio between the value of the securities and the loan amount in each period.

3. State Bank of Vietnam's Trading Department

a) Based on the approved pledge loan application by the Governor of the State Bank of Vietnam, carry out pledge loans and securities pledges, recover principal and interest according to the provisions of this Circular;

b) Organize the receipt, storage, preservation of pledged assets, documentation, return of securities, and accounting for pledge loans according to regulations;

c) Coordinate with relevant units to resolve difficulties and issues arising during the implementation of pledge loan transactions;

đ) Implement the registration of securities used for pledge loans at the State Bank of Vietnam according to regulations, confirm the registration of securities of the requesting credit institution in cases where the requesting credit institution is registering securities for pledge loans at the State Bank of Vietnam;

e) Guide the procedures for implementing pledge loan transactions of the State Bank of Vietnam for credit institutions.

4. Financial Accounting Department: Guide the accounting procedures related to pledge loan transactions.

5. Information Technology Bureau

a) Install software programs and ensure stable, secure, and confidential communication infrastructure for pledge loan transactions;

b) Define identification numbers, passwords, and electronic signatures for participants in the State Bank of Vietnam's pledge business and credit institutions.

a) Inspect, audit, and supervise the use of pledge loans by credit institutions during the borrowing period; handle according to authority and recommend the Governor of the State Bank of Vietnam to handle violations of this Circular and related regulations;

b) Coordinate with relevant units to resolve difficulties and issues arising during the implementation of pledge loan transactions.

a) Carry out pledge loans for credit institutions with their main offices within its jurisdiction upon authorization by the Governor of the State Bank;

b) Organize the receipt, storage, preservation of pledged assets, documentation, return of securities, and accounting for pledge loans according to regulations;

c) Monthly, quarterly, and annually, compile information and data on pledge loans occurring at the branch, promptly identify difficulties and issues during implementation, and submit them to the Credit Department for consolidation and reporting to the Governor of the State Bank.

Article 22. Effectiveness

1. This Circular takes effect from October 1, 2011, and replaces Circular No. 03/2009/TT-NHNN dated March 2, 2009, issued by the Governor of the State Bank regarding pledge loan guarantees by the State Bank for banks, and Circular No. 11/2009/TT-NHNN dated May 27, 2009, amending Clause 1 of Article 7 of Circular No. 03/2009/TT-NHNN dated March 2, 2009, concerning pledge loan guarantees by the State Bank for banks.

2. Pledge loans with outstanding balances as of the date this Circular takes effect shall continue to be implemented according to the signed credit contracts until the State Bank recovers all principal and interest.

3. The Heads of the Office, the Credit Department, and the Heads of units under the State Bank, the Governors of the State Bank branches in provinces and centrally governed cities; Chairmen of the Board of Directors, Chairmen of the Board of Members, General Managers (Directors) of credit institutions, Central People's Credit Funds, and Branches of foreign banks are responsible for implementing this Circular./.