Circular No. 18/2021/TT-NHNN on the activities of rediscounting transferable instruments among credit institutions and foreign bank branches

CIRCULAR

Regarding the activities of rediscounting negotiable instruments between credit institutions and foreign bank branches

credit institutions and foreign bank branches

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010, and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Law on Negotiable Instruments dated November 29, 2005;

Pursuant to Government Decree No. 16/2017/NĐ-CP dated February 17, 2017 on the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Article 1.

The Governor of the State Bank of Vietnam issues this Circular stipulating the activities of rediscounting negotiable instruments between credit institutions and foreign bank branches.

Article 1. Scope of Regulation

This Circular stipulates the activities of rediscounting negotiable instruments between credit institutions and foreign bank branches.

Article 2. Applicability

This Circular applies to credit institutions and foreign bank branches acting as rediscounters (hereinafter referred to as the rediscounter) and those receiving rediscounted negotiable instruments (hereinafter referred to as the recipient of rediscount), including commercial banks, cooperative banks, foreign bank branches, and finance companies.

Article 3. Principles of Rediscounting Negotiable Instruments

1. Credit institutions and foreign bank branches may conduct the rediscounting of negotiable instruments when such activity is included in their license issued by the State Bank of Vietnam (hereinafter referred to as the State Bank).

2. Credit institutions and foreign bank branches shall conduct the rediscounting of negotiable instruments in accordance with this Circular, consistent with the provisions of the Law on Credit Institutions, the Law on Negotiable Instruments, and relevant laws. In cases involving the rediscounting of negotiable instruments with foreign elements, the parties shall comply with the provisions of this Circular, the Law on Credit Institutions, the provisions on the application of international treaties, and international trade customs in the relationship of negotiable instruments with foreign elements under the Law on Negotiable Instruments, and the provisions of the law on civil relations with foreign elements.

3. Credit institutions and foreign bank branches shall conduct the rediscounting of negotiable instruments in foreign currency in accordance with the scope of permitted foreign exchange operations for each credit institution and foreign bank branch.

Article 4. Re-discountable Instruments

1. Re-discountable instruments shall be re-discounted when:

a) They have been discounted by the entity seeking re-discount for customers in accordance with the State Bank's regulations on the discounting activities of credit institutions and foreign bank branches for customers;

b) They are legally owned by the entity seeking re-discount, permitted to trade under the law, without disputes, and not being used to secure other obligations;

c) They have not yet reached their maturity date;

d) They are intact, without erasures or alterations.

2. The entity providing re-discount has the right to request the entity seeking re-discount to provide information and documents to prove that the re-discountable instrument meets the requirements stipulated in Clause 1 of this Article. The entity seeking re-discount is responsible for providing information and documents about the re-discountable instrument as requested by the entity providing re-discount and bears responsibility for the accuracy and completeness of such information and documents.

Article 5. Methods of Re-discount

Credit institutions and foreign bank branches agree and select one of the following methods of re-discount:

1. Purchasing with a term re-discountable instrument involves the entity providing re-discount purchasing and transferring the ownership of a re-discountable instrument that has not yet reached its maturity date from the entity seeking re-discount, while the entity seeking re-discount commits to repurchasing the re-discountable instrument after a period agreed upon in the re-discount agreement.

2. Purchasing with recourse re-discountable instrument involves the entity providing re-discount purchasing and transferring the ownership of a re-discountable instrument that has not yet reached its maturity date from the entity seeking re-discount; the entity seeking re-discount must be responsible for paying the entity providing re-discount the outstanding amount according to the agreement if the entity providing re-discount does not receive the full payment from the party obligated to pay the re-discountable instrument.

Article 6. Currency of Re-discount

1. For re-discountable instruments payable in Vietnamese dong, credit institutions and foreign bank branches shall re-discount in Vietnamese dong.

2. For re-discountable instruments payable in foreign currency:

a) Credit institutions and foreign bank branches may re-discount in the foreign currency specified on the re-discountable instrument or in Vietnamese dong as agreed. In the case of re-discount in Vietnamese dong, the parties shall agree on an exchange rate applicable in compliance with the State Bank's regulations on exchange rates;

b) In the case of re-discounting re-discountable instruments through the method of purchasing with a term, credit institutions and foreign bank branches shall repurchase the re-discountable instrument in the currency in which it was sold.

Article 7. Term of Re-discount

1. The term of re-discounting a re-discountable instrument is the period determined from the date the entity providing re-discount receives the re-discountable instrument until the date the entity seeking re-discount must fulfill its commitment to repurchase or until the maturity date of the total amount payable on the re-discountable instrument, including holidays and public holidays.

2. The entity providing re-discount and the entity seeking re-discount shall agree on the term of re-discounting a re-discountable instrument to ensure it is less than 12 months and does not exceed the date the entity seeking re-discount must resell the re-discountable instrument to the customer (in the case where the entity seeking re-discount discounts the re-discountable instrument from the customer through the method of purchasing with a term) or the maturity date of the total amount payable on the re-discountable instrument (in the case where the entity seeking re-discount discounts the re-discountable instrument from the customer through the method of purchasing with recourse).

Article 8. Rediscount price, repurchase price of transferable instruments, rediscount interest rate

1. The rediscount price of transferable instruments is the amount that the rediscounting party must pay to the party being rediscounted when performing the rediscounting of transferable instruments.

2. The repurchase price of transferable instruments is the amount that the party being rediscounted must pay to the rediscounting party when repurchasing the transferable instruments in the case of rediscounting transferable instruments under the term purchase method.

3. Credit institutions and foreign bank branches shall agree on the rediscount price of transferable instruments, the repurchase price of transferable instruments, the rediscount interest rate of transferable instruments, the interest rate applicable to overdue rediscount amounts, and other lawful costs related to the rediscounting activity of transferable instruments in accordance with the provisions of the law.

Article 9. Rediscount agreement

1. The rediscount agreement for transferable instruments between credit institutions and foreign bank branches must be in a form consistent with the provisions of the law and include at least the following contents:

a) Information about the rediscounting party and the party being rediscounted;

b) Information about the transferable instrument subject to rediscounting;

c) Method of rediscounting;

d) Rediscount currency;

đ) Rediscount price of transferable instruments, payment date, payment method;

e) Rediscount period;

g) Rediscount interest rate;

h) Rights and obligations of the parties;

i) Handling of violations;

2. In the case of rediscounting transferable instruments under the term purchase method, in addition to the contents prescribed in Clause 1 of this Article, the rediscount agreement for transferable instruments must include the content regarding the commitment to repurchase the transferable instruments and the repurchase price of transferable instruments.

3. In the case of rediscounting transferable instruments under the purchase with recourse method, in addition to the contents prescribed in Clause 1 of this Article, the rediscount agreement for transferable instruments must include the content regarding the responsibility of the party being rediscounted to settle the outstanding amount to the rediscounting party according to the agreement in the event that the rediscounting party does not receive the full amount from the responsible party for paying the transferable instruments.

4. In addition to the contents prescribed in Clauses 1, 2, and 3 of this Article, credit institutions and foreign bank branches may agree on other contents in accordance with the provisions of this Circular and the relevant laws.

Article 10. Transfer of transferable instruments

1. When the rediscounting party agrees to rediscount the transferable instruments, the party being rediscounted shall carry out the procedures for transferring the transferable instruments to the rediscounting party in accordance with the provisions of the law.

2. In the case of rediscounting under the term purchase method, when the party being rediscounted fulfills its obligation to repurchase the transferable instruments, the rediscounting party shall carry out the procedures for transferring the transferable instruments to the party being rediscounted in accordance with the provisions of the law.

Article 11. Internal regulations on the operation of rediscounting transferable instruments

1. Based on the provisions of this Circular, the Law on Credit Institutions, the Law on Transferable Instruments, and the relevant laws, credit institutions and foreign bank branches shall issue internal regulations on the operation of rediscounting transferable instruments in accordance with their management model, characteristics, business conditions, and ensuring safe operations for credit institutions and foreign bank branches.

2. Internal regulations must clearly define the responsibilities of each department and individual involved in the implementation of the rediscounting operation of transferable instruments.

3. Minimum internal regulations must include the content on the operational procedures for rediscounting transferable instruments, risk management for the rediscounting operation of transferable instruments, and the assessment of the party being rediscounted and the transferable instruments subject to rediscounting.

Article 12. Accounting entries and statistical reports

Credit organizations and foreign bank branches shall carry out accounting entries and statistical reports for the re-discounting of transferable instruments in accordance with current laws on accounting systems and statistical reporting regulations of the State Bank.

Article 13. Responsibilities of Units

1. Monetary Policy Department

The responsible unit shall coordinate with relevant units to address any issues arising in connection with the provisions of this Circular.

2. Financial and Accounting Department

The responsible unit shall coordinate with relevant units to resolve any issues arising in connection with accounting entries when implementing this Circular.

3. Trading Department

Monitor and compile information on the implementation of re-discounting activities of transferable instruments among credit organizations and foreign bank branches in accordance with the State Bank's statistical reporting regulations.

4. Banking Inspection and Supervision Authority, State Bank branch in provinces and centrally governed cities

Inspect and supervise the implementation of the provisions of this Circular and handle violations within their authority.

Article 14. Implementation Organization

1. This Circular takes effect from January 7, 2022.

2. Director of the Office, Heads of the Monetary Policy Department and Heads of units under the State Bank of Vietnam; credit organizations and foreign bank branches are responsible for organizing the implementation of this Circular./.