Circular No. 20/2017/TT-NHNN on the sale of receivables from finance lease contracts

CIRCULAR

Regulations on the sale of receivables from finance lease contracts financial lease contract

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

Pursuant to the Law on Credit Institutions dated June 16, 2010;

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

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

Pursuant to Decree No. 39/2014/NĐ-CP dated May 7, 2014 of the Government on the activities of finance companies and financial leasing companies;

At the proposal of the Inspectorate and Supervision Department;

The Governor of the State Bank of Vietnam issues this Circular to regulate the sale of receivables from finance lease contracts.

Article 1. Scope of Regulation

This Circular regulates the activities of selling receivables from finance lease contracts by financial companies and leasing companies.

Article 2. Applicability

1. Financial companies are allowed to conduct finance lease activities pursuant to the Establishment and Operation License issued by the State Bank of Vietnam.

2. Leasing companies.

3. Organizations and individuals related to the sale of receivables from finance lease contracts of financial companies and leasing companies.

Article 3. Explanation of Terms

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

1. Receivables from finance lease contracts (hereinafter referred to as receivables) are the amounts that the lessee still owes to the lessor under the finance lease contract.

2. Sale of receivables from finance lease contracts (hereinafter referred to as sale of receivables) is a written agreement whereby the seller transfers the right to claim the receivable to the buyer and receives payment from the buyer.

3. Seller of receivables (hereinafter referred to as the seller) is a financial company or leasing company permitted to conduct finance lease activities.

4. Buyer of receivables (hereinafter referred to as the buyer) is a resident or non-resident as defined by foreign exchange laws, including:

a) Resident:

(i) Commercial banks, financial companies, leasing companies (hereinafter referred to as credit institutions) permitted to conduct debt purchase activities pursuant to the Establishment and Operation License issued by the State Bank of Vietnam;

(ii) Branches of foreign banks permitted to conduct debt purchase activities pursuant to the Establishment License issued by the State Bank of Vietnam;

(iii) Other legal entities that are not banks, non-bank credit institutions, microfinance organizations, people's credit funds, branches of foreign banks;

(iv) Individuals;

b) Non-resident individuals are organizations and individuals.

5. Sale price of receivables is the amount that the buyer must pay to the seller according to the receivables sale contract.

6. Book value of receivables is the amount that the lessee still owes to the lessor under the finance lease contract currently recorded in, outside the balance sheet of the lessor.

7. Receivables sale contract is a written agreement between the seller and the buyer to establish, change, or terminate the rights and obligations of the parties regarding the sale of receivables.

8. Right of recourse in the sale of receivables transaction (hereinafter referred to as right of recourse) is the right agreed upon allowing the buyer to request the seller to fulfill the obligation to pay to the buyer in case the lessee fails to fulfill the payment obligation under the finance lease contract.

Article 4. Methods of selling receivables

The seller decides to choose to sell receivables through direct negotiation between the seller and the buyer, indirectly through an intermediary, or auctioning assets in accordance with the law on auctioning assets.

Article 5. Council for Selling Receivables

Financial companies and financial leasing companies must establish a Council for Selling Receivables in accordance with their charter and internal regulations on selling receivables activities. The composition, tasks, and authorities of the Council for Selling Receivables shall be determined by the financial company or financial leasing company.

Article 6. Sale Price of Receivables

1. Determining the sale price of receivables must ensure transparency and fairness in accordance with the provisions of the law; the sale price should be consistent with market principles.

2. The sale price of receivables through negotiation, and the starting price for selling receivables through asset auction shall be based on the book value of the receivable, the assessment of the lessee's debt repayment ability, the value of the leased asset, classification of lease finance debt, and other market factors.

3. The determination of the sale price of receivables through negotiation, and the starting price for selling receivables through asset auction shall be decided by the Council for Selling Receivables, in compliance with the provisions of the law.

Article 7. Principles of Selling Receivables

1. In the transaction of selling receivables, the seller may only transfer the right to claim debts under the financial leasing contract to the buyer, except in cases stipulated in Clause 2 of this Article.

2. If the buyer is a financial company or financial leasing company that has been granted permission to operate financial leasing by the State Bank of Vietnam, the seller may transfer ownership of the leased asset, the right to claim debts, and other rights and obligations under the financial leasing contract to the buyer.

3. If the financial leasing contract includes a guarantee measure, the transfer of the right to claim debts shall include such guarantee measure.

4. The seller shall not repurchase sold receivables.

5. The seller shall not sell receivables in the following cases:

a) The buyer is its subsidiary;

b) The seller and the lessee have agreed in writing not to sell receivables;

c) The receivable is used as collateral to secure civil obligations at the time of selling receivables, unless the collateral recipient agrees in writing to the sale of receivables.

6. In the case of selling part of a receivable or selling a receivable to multiple buyers, the seller and the buyers shall agree among themselves on the participation ratio, implementation method, rights and obligations of each party, and other specific contents in the receivable sale contract, in compliance with the provisions of the law.

7. The buyer being a credit institution or a foreign bank branch must meet the following requirements:

a) Conducting the purchase of debts according to the license for establishment and operation of the credit institution, or the license for establishment of the foreign bank branch;

b) Having a non-performing loan ratio below 3% continuously throughout all quarters of the immediately preceding year and the current year up to the point of purchasing receivables, except when purchasing receivables under a restructuring plan that has been approved;

c) Adhering to the State Bank of Vietnam’s regulations on limits and ratios for ensuring safety in the operations of credit institutions and foreign bank branches throughout all quarters of the immediately preceding year and the current year up to the point of purchasing receivables;

d) Issuing internal regulations on the activity of purchasing receivables before conducting such purchases (which must include provisions on the delegation of authority based on the principle of responsibility division between the appraisal stage and the decision-making stage for purchasing receivables; methods of purchasing receivables; procedures for purchasing receivables; procedures for valuing receivables; risk management procedures for purchasing receivables activities);

đ) Must record and track separately according to the actual purchase price of the purchased receivable, ensuring that purchased receivables can be distinguished from debts formed from the credit institution's own lending activities.

8. In the case of selling receivables with recourse, the seller continues to include the outstanding balance of the lease finance in the total outstanding credit limit for the lessee. In the case of selling non-recourse receivables, the buyer being a credit institution or a foreign bank branch includes the purchase amount of the receivable in the total outstanding credit limit for the lessee.

9. Financial companies and financial leasing companies must issue internal regulations on the activity of selling receivables (which must include provisions on the delegation of authority based on the principle of responsibility division between the appraisal stage and the decision-making stage for selling receivables; methods of selling receivables; procedures for selling receivables; procedures for valuing receivables; procedures for auctioning receivables in self-auction cases) before implementing the sale of receivables.

Article 8. Currency Used in the Sale of Receivables

1. The currency used in the sale of receivables shall be the Vietnamese Dong. The use of foreign currency as the payment currency in the sale of receivables may only be carried out in cases where a finance company or financial leasing company sells foreign currency receivables to a buyer who is a non-resident.

2. The currency for recovering lease payments shall be the currency of the financial lease or another currency agreed upon between the buyer and the financial lessor in accordance with the provisions of the law on restrictions on the use of foreign exchange within the territory of Vietnam.

3. The buyer, seller, financial lessor, and other related parties shall be responsible for complying with the provisions of the law on restrictions on the use of foreign exchange within the territory of Vietnam when conducting the sale of receivables and recovering lease payments.

Article 9. Sale of Receivables from Joint Financial Leasing

1. In the case where a member participating in joint financial leasing sells part or all of its receivables, the selling member and the buyer shall agree on the sale of receivables, ensuring compliance with the provisions of this Circular and relevant laws; simultaneously, the selling member must notify the remaining members in writing about the sale of receivables.

For the sale of receivables from joint financial leasing contracts with a lead payment member, the lead payment member continues to recover lease payments from the lessee and uses the recovered amount to pay the buyer (unless otherwise agreed).

2. In the case of selling all receivables, the joint financial leasing members shall agree uniformly on the sale of receivables, ensuring compliance with the provisions of this Circular and relevant laws.

Article 10. Provision of Information

1. The seller selects receivables from financial leasing contracts for sale and must provide complete information about the receivables being offered to the buyer, including:

a) List of receivables: Name, address of the financial lessee; leased asset and current status of the leased asset; location of the leased asset; lease payment amount and the amount still owed by the financial lessee under the financial leasing contract; price offered for the receivables; other information if requested by the buyer;

b) Copy of the financial leasing contract, insurance contract (if any);

c) Copy of the registration certificate for the financial leasing contract;

d) Other documents agreed upon between the seller and the financial lessee and not contrary to the agreements in the financial leasing contract.

2. The seller shall be responsible for the accuracy and completeness of the documentation, certificates, and other relevant materials concerning the receivables provided to the buyer.

3. The seller must notify the financial lessee and guarantor (if any) under the financial leasing contract in writing about the sale of receivables, except in cases where there is a different agreement. If the seller does not notify about the sale of receivables and incurs costs for the financial lessee, the seller must pay these costs.

Article 11. Contract for the Sale of Receivables

1. The contract for the sale of receivables must include at least the following contents:

a) Name, address, business registration number of the seller; name, address, valid identification number or business registration number of the buyer;

b) Receivable, remaining term of the financial leasing contract, leased asset related to the sold receivable, and name and address of the financial lessee;

c) Price of the sold receivable;

d) Costs related to the implementation of the sale of receivables;

đ) Currency of the sale of receivables; payment method, payment period;

e) Guarantee measures for the performance of obligations under the contract for the sale of receivables (if any);

g) Provisions regarding the transfer of debt collection rights, ownership rights over the leased asset, and other rights and obligations as stipulated in Clause 1 and 2 of Article 7 of this Circular;

h) Provisions regarding the buyer's direct recovery of lease payments; or the seller's recovery of lease payments to pay the buyer or the lead payment member's recovery of lease payments to pay the buyer (in the case of the sale of receivables from joint financial leasing contracts with a lead payment member);

i) Provisions regarding the recovery of receivables (if any);

k) Penalty for breach and compensation for damages;

l) Obligation to notify the financial lessee (if any);

m) Rights and obligations of the seller and buyer;

n) Provisions regarding the handling in the event of early termination of the financial leasing contract;

o) Resolution of disputes arising during the implementation of the contract for the sale of receivables;

p) Effectiveness of the contract for the sale of receivables.

2. In addition to the contents stipulated in Clause 1 of this Article, the seller and buyer may agree on other contents consistent with the provisions of this Circular and relevant laws.

Article 12. Financial treatment, accounting records, and statistical reports

1. Financial companies and financial leasing companies shall conduct accounting records and statistical reports for the business of selling receivables in accordance with the current laws on accounting systems and statistical reports of credit organizations and foreign bank branches.

2. In cases where receivables sold have no right to claim, the seller shall handle the difference between the sale price and the book value of the receivable as follows:

a) If the sale price is higher than the book value recorded in the balance sheet of the receivable, the excess amount shall be recorded as income in the seller's fiscal year;

b) If the sale price is lower than the book value recorded in the balance sheet of the receivable, the shortfall shall be offset from compensation payments from individuals or groups (in cases where losses are determined to be caused by individuals or groups and must be compensated according to regulations), insurance money from insurance organizations, and specific provisions already established in the costs of the receivable; any remaining shortfall shall be recorded as expenses of the seller in the period.

3. In cases where receivables sold have a right to claim, the seller shall handle the difference between the sale price and the book value of the receivable as follows:

a) If the sale price is higher than the book value recorded in the balance sheet of the receivable, the excess amount shall be recorded as income of the seller after the claim period specified in the receivable sale contract has ended;

b) If the sale price of the receivable is lower than the book value recorded in the balance sheet of the receivable, the shortfall shall be offset from compensation payments from individuals or groups (in cases where losses are determined to be caused by individuals or groups and must be compensated according to regulations), insurance money from insurance organizations, and specific provisions already established in the costs of the receivable; any remaining shortfall shall be recorded as expenses of the seller in the period.

Article 13. Transitional Provisions

Receivable sale contracts signed before this Circular takes effect shall continue to be implemented according to the agreements previously concluded. Any amendments or supplements to receivable sale contracts must comply with the provisions of this Circular.

Article 14. Implementation clause

1. This Circular shall take effect from February 12, 2018, replacing Circular No. 09/2006/TT-NHNN dated October 23, 2006, issued by the Governor of the State Bank of Vietnam guiding the operation of selling receivables from financial lease contracts as stipulated in Decree No. 65/2005/NĐ-CP dated May 19, 2005, of the Government amending and supplementing certain articles of Decree No. 16/2001/NĐ-CP dated May 2, 2001, of the Government on the organization and operation of financial leasing companies.

2. The Director of the Office, the Chief Inspector and Supervisor of Banking, Heads of units under the State Bank of Vietnam, Governors of the State Bank of Vietnam branches in provinces and centrally-administered cities, Chairmen of the Board of Directors, Chairmen of the Board of Members, and General Directors (Directors) of credit organizations and foreign bank branches are responsible for implementing this Circular./.