Circular No. 21/2012/TT-NHNN on lending, borrowing; buying, selling securities with terms between credit institutions and foreign bank branches

 CIRCULAR

Regulations on lending and borrowing activities; buying and selling of securities with maturity periods between credit institutions and foreign bank branches

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;

Considering the proposal of the Director of the Credit Department;

The Governor of the State Bank of Vietnam issues this Circular to regulate lending and borrowing activities; buying and selling of securities with maturity periods between credit institutions and foreign bank branches operating in Vietnam.

PART I
GENERAL PROVISIONS

This Circular regulates lending and borrowing activities; buying and selling of securities with maturity periods between credit institutions and foreign bank branches operating in Vietnam on the interbank market.

1. The objects eligible for lending and borrowing include: commercial banks, finance companies, financial leasing companies, cooperative banks, people's credit funds, microfinance organizations; foreign bank branches operating in Vietnam in accordance with the Law on Credit Institutions.

2. The objects eligible for buying and selling of securities with maturity periods include: commercial banks, finance companies, financial leasing companies, cooperative banks; foreign bank branches operating in Vietnam in accordance with the Law on Credit Institutions.

Article 3. Explanation of Terms

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

2. Forward Purchase and Sale Transaction is a transaction where a credit institution or a foreign bank branch buys and takes ownership of securities that have not yet reached their maturity date (the buyer) from another credit institution or a foreign bank branch (the seller), while the seller commits to repurchase those securities after a certain period of time.

3. Loan term is the period calculated from the day following the borrowing date to the due date of the loan.

4. Term of buying and selling securities with maturity period is the period calculated from the day following the purchase date to the repurchase date, including holidays and public holidays, and is counted in days (hereinafter referred to as the purchase and sale term).

5. Remaining term of securities is the period from the date of purchase and sale of securities to the due date for full payment of the principal of those securities.

6. Interest Rate for Loans is the actual lending rate applied to lending and borrowing transactions, expressed as a percentage per annum.

7. Purchase rate is the rate used to calculate the price difference between the purchase price and the repurchase price when buying and selling securities with maturity periods, expressed as a percentage per annum.

8. Borrowing date is the date on which the lender must fulfill the obligation to transfer funds to the borrower.

9. Due date is the date on which the borrower must repay the entire principal, interest, and any fees (if applicable) of the loan to the lender. If the due date falls on a holiday or public holiday, it shall be considered as the next working day.

10. Purchase date is the date on which the securities are transferred from the seller to the buyer and the buyer completes the payment for purchasing the securities from the seller.

11. Repurchase date is the date on which the buyer transfers back the ownership of the purchased securities to the seller and the seller completes the payment for repurchasing the securities from the buyer. If the repurchase date falls on a holiday or public holiday, it shall be considered as the next working day.

12. Purchase price is the amount that the buyer must pay to the seller when purchasing securities on the purchase date. The purchase price is agreed upon by both parties and serves as the basis for determining the repurchase price.

13. Repurchase price is the amount that the repurchaser (seller) must pay to the buyer when repurchasing securities on the repurchase date.

14. Transaction limit is the maximum balance maintained within a specified period (not exceeding one year) between credit institutions and foreign bank branches on the interbank market.

1. Credit institutions and foreign bank branches may conduct transactions if they meet the following conditions:

a) Having technical infrastructure (machines, equipment, software programs, etc.) that meets the requirements for conducting transactions on the money market, ensuring full, accurate, and timely updates of transaction data for each transaction between credit institutions, foreign bank branches, and customers;

b) Having staff with sufficient qualifications and professional capabilities to carry out transactions;

c) Having internal regulations regarding business procedures, risk management procedures for lending and borrowing activities (including provisions on customer credit assessment, procedures for determining loan limits, procedures for implementing lending and borrowing transactions applicable to specific transaction forms), and buying and selling negotiable instruments with terms among credit institutions and foreign bank branches in accordance with this Circular;

Credit institutions and foreign bank branches shall submit their internal regulations on business procedures and risk management procedures to the State Bank (Credit Department) immediately upon issuance;

d) Not being subject to measures restricting, suspending, or temporarily suspending lending and borrowing activities; buying and selling negotiable instruments with terms on the interbank market at the time of conducting transactions by the State Bank;

Article 5. Forms of Transaction Implementation and Settlement

1. Credit institutions and foreign bank branches shall conduct transactions through the following forms: via the electronic transaction network of the State Bank or service providers authorized by competent authorities, or via telephone (with recording) or other forms;

2. The selection of transaction implementation forms shall be agreed upon by the parties in accordance with the conditions of each credit institution and foreign bank branch and must ensure safe, effective transactions while complying with legal regulations;

Article 6. Transaction Information

1. All transactions must be updated and recorded fully in the information database of credit institutions and foreign bank branches. Basic information includes:

- Names of the parties involved in the transaction;

- Date of transaction;

- Content of the transaction;

- Value of the transaction;

- Interest rate of the transaction;

- Term of the transaction;

- Settlement date;

- Security measures (if any);

3. In cases where confirmation is made in writing, the transaction confirmation letter can be printed from the electronic transaction network or sent via fax or other methods. The confirmation letter must bear the signature (handwritten or electronic signature) or transaction code of the transaction staff of the parties involved in the transaction;

4. Transaction confirmation includes the following main contents:

- Names of the parties involved in the transaction;

- Date of transaction;

- Content of the transaction;

- Value of the transaction;

- Interest rate of the transaction;

- Term of the transaction;

- Form of transaction guarantee (if any);

- Method of payment.

Article 7. Provision for risk on transactions

Credit institutions and foreign bank branches shall classify, provision, and utilize provisions to address risks associated with loans and term purchases of securities from other credit institutions and foreign bank branches in accordance with the regulations of the Governor of the State Bank of Vietnam.

Chapter II
SPECIFIC PROVISIONS

Section 1
LOAN AND BORROWING TRANSACTIONS

Article 8. Principles for lending and borrowing

When conducting loan and borrowing transactions, credit institutions and foreign bank branches must ensure the following principles:

4. The borrower must repay the entire principal, interest, and fees (if any) to the lender in full and on time.

1. Credit institutions and foreign bank branches may lend and borrow from each other to temporarily cover reserve requirements, liquidity, and short-term capital imbalances.

2. Credit institutions and foreign bank branches must use interbank market funds flexibly, effectively, in line with the business orientation of the credit institution or foreign bank branch, and maintain safety ratios as prescribed by the Governor of the State Bank of Vietnam.

The maximum term for lending between credit institutions and foreign bank branches is under one year.

Article 11. Interest Rate on Loans

2. In cases where banking operations exhibit unusual developments, the State Bank of Vietnam will set the interest rate on loans that credit institutions and foreign bank branches must follow.

Article 12. Security for Loans

1. The parties agree on the application or non-application of security forms for each specific loan. The application of security forms and the handling of secured assets are carried out according to the current laws governing secured transactions.

2. The lender must have clear rules regarding the conditions and principles for considering whether to allow or not to allow the application of security forms for loans, ensuring safe, effective lending activities, and compliance with current relevant laws.

The deposit agreement for collateral purposes securing loans is agreed upon by the parties with the deposit organization, consistent with reality and legal regulations.

Article 13. Methods of Lending and Borrowing

The parties independently examine and agree on the application of lending and borrowing methods on a case-by-case basis, within limits, or through other methods, ensuring safe and efficient transactions, and compliance with current relevant laws.

Article 14. Currency for Loans and Borrowings

Credit institutions and foreign bank branches shall implement loans and borrowings in Vietnamese dong and freely convertible foreign currencies. Loan and borrowing transactions in foreign currency must be conducted within the scope of foreign exchange operations permitted by the State Bank of Vietnam for each credit institution and foreign bank branch.

Article 15. Loan Agreements

1. All loan and borrowing transactions must be formalized through loan agreements. The lender and borrower may sign loan agreements for individual transactions or a general agreement applicable to all loan and borrowing transactions between the two parties, based on principles consistent with international practices and not contrary to Vietnamese law.

2. Loan agreements can be printed from electronic transaction networks, drafted on paper, sent via fax, or other means. Loan agreements must bear seals (except when established through an electronic transaction system) and signatures (handwritten or electronic signature) or transaction codes of the parties involved in the transaction.

- The lender;

- Borrower;

- The date of the agreement;

- The content of the agreement;

- The method of implementing the agreement;

- The value of the loan;

- The interest rate on the loan;

- The term of the loan;

- The form of security for the loan (if any);

- The payment method;

- Rights and obligations of the parties;

- Provisions for amending the content of the agreement during implementation;

- Provisions for dispute resolution, late payment penalties, collateral asset handling, and extension of the agreement term;

- Other related agreements concerning the loan of the parties.

Article 16. Rights and Obligations of the Lender

1. The lender has the right:

a) To request the borrower to provide necessary information and documents related to the borrower upon receiving a loan request or credit limit request; to reject the borrower's loan request if the borrower does not meet the loan conditions;

b) To require the borrower to provide security for the loan;

d) To request the borrower to repay the loan ahead of schedule if the parties have agreed on early repayment or if the borrower breaches the loan agreement;

e) To handle collateral assets or initiate legal proceedings according to the law if the borrower fails to fulfill their obligations at the due date, unless otherwise agreed by the relevant parties.

2. The lender has the obligation:

a) To establish specific regulations on interbank lending activities consistent with its characteristics and organizational model;

b) At least once every year, the lender reviews and reassesses customers to determine appropriate credit limits for each customer. Credit limits must be approved by the lender's authorized person;

c) To comply with the agreements in the loan agreement;

Article 17. Rights and Obligations of the Borrower

1. The borrower has the right:

a) To repay the loan ahead of schedule if the parties have agreed or if the lender consents;

b) To initiate legal action against the lender according to the law if the lender breaches the commitments agreed upon in the loan agreement;

2. The borrower has the obligation:

a) To establish specific regulations on interbank borrowing activities consistent with its characteristics and organizational model;

b) To fully and timely repay the principal, interest, and any fees (if any) as agreed in the loan agreement;

c) To truthfully and accurately provide relevant information and documents and be responsible for providing information to the lender regarding liquidity status, financial reports, overdue debt status at other credit institutions and foreign bank branches, and other necessary information required by the lender for customer evaluation and determination of appropriate transaction limits;

e) To fully and properly fulfill the obligations agreed with the lender.

Section 2
EXCHANGE OF SECURITIES WITH MATURITY TERMS

Article 18. Principles of Purchase and Sale Transactions

When conducting purchase and sale transactions with term securities, credit institutions and foreign bank branches must ensure the following principles:

2. Bear full responsibility under the law for their decisions to conduct term purchase and sale transactions with term securities; carry out term purchase and sale transactions with other credit institutions and foreign bank branches according to agreements that comply with this Circular, current relevant laws, and international practices.

3. Recover fully and on time the principal and interest amount when conducting term purchase and sale transactions with other credit institutions and foreign bank branches.

4. Repurchase the securities sold when the term expires as agreed with the buyer.

5. All rights arising during the period of conducting term purchase and sale transactions with securities shall be agreed upon in writing by credit institutions and foreign bank branches, in compliance with current laws.

Article 19. Types of Securities

a) State Bank Treasury Bills;

b) Government Bonds;

c) Government-guaranteed bonds;

d) Local government bonds;

d) Securities issued by credit institutions and foreign bank branches (including those issued by the credit institution or foreign bank branch itself) in accordance with the regulations of the State Bank of Vietnam;

e) Various types of promissory notes, bills of exchange, and bonds issued by other organizations.

2. Financial leasing companies may conduct term purchases and sales of the types of securities specified in point a and b of Clause 1 of this Article.

Article 20. Conditions for Securities

The securities traded must meet the following conditions:

1. They must be legally issued securities in accordance with Vietnamese law and permitted for transfer.

2. They must be issued in Vietnamese dong or freely convertible foreign currency.

3. They must be legally owned by the seller.

4. The remaining term of the securities must exceed the term of the purchase and sale transaction.

Article 21. Currency for Purchase and Sale

1. For securities issued in Vietnamese dong, credit institutions and foreign bank branches must conduct purchase and sale transactions in Vietnamese dong.

2. For securities issued in foreign currency, credit institutions and foreign bank branches must conduct purchase and sale transactions in the type of foreign currency of the securities. In cases where transactions are conducted in Vietnamese dong, the parties shall agree on the applicable exchange rate based on compliance with the State Bank of Vietnam's regulations on foreign currency exchange rates.

3. Credit institutions and foreign bank branches may only conduct transactions in foreign currency within the scope of foreign exchange operations permitted by the State Bank of Vietnam for each credit institution and foreign bank branch.

The minimum term for term purchase and sale transactions with securities between credit institutions and foreign bank branches is one day and the maximum is less than one year.

Article 23. Purchase Interest Rate and Method of Determining Purchase Price and Repurchase Price

1. The purchase interest rate applied in term purchase and sale transactions with securities between credit institutions and foreign bank branches shall be determined through mutual agreement based on compliance with the current regulations of the State Bank of Vietnam on interest rates.

The repurchase price is calculated using the following formula:

Repurchase Price = Purchase Price x (1 + Purchase Interest Rate x Term of Purchase and Sale/365).

Article 24. Repurchase Agreement for Securities

1. Transactions involving the purchase and sale of securities with a term on the interbank market must be established in a repurchase agreement. The buyer and seller may sign a repurchase agreement for each transaction individually or sign a general repurchase agreement applicable to all transactions involving the purchase and sale of securities with a term. The repurchase agreement shall be established based on the mutual agreement of the parties or based on the standard repurchase agreement issued by the State Bank or associations (such as the Bond Dealers Association, the Banking Association, etc.) in accordance with international practices, without contravening this Circular and other relevant laws of Vietnam.

2. A repurchase agreement may be established in writing through an electronic trading system, on paper, via fax, or by other means. The repurchase agreement must contain the signatures (manual or electronic) and seals of both parties.

3. A repurchase agreement shall include the following main contents:

a) Seller;

b) Buyer;

c) Securities being purchased and sold: form (certificate, book-entry), serial number, face value or maturity value (the total amount payable upon maturity of the security), issuing organization, maturity date;

d) Purchase date;

đ) Purchase price;

e) Purchase interest rate;

g) Purchase period;

h) Repurchase price;

i) Repurchase date;

k) Payment method and transfer of securities;

l) Dispute resolution and breach handling;

m) Rights and obligations of the parties;

n) Effective date of the agreement;

o) Other related contents.

Article 25. Purchase and Sale Process

1. When there is a need to purchase or sell securities with a term, credit institutions and foreign bank branches shall offer to buy or sell securities with other credit institutions and foreign bank branches on the interbank market. The seller shall bear legal responsibility for the legality and validity of the securities offered for sale.

2. The buyer shall verify the information about the securities.

3. The transfer of securities between the seller and the buyer shall be carried out as follows:

3.1. In cases where the securities are listed: follow the regulations of the exchange where the securities are listed.

3.2. In cases where the securities are not listed, the process shall be carried out according to the business procedures and agreements of the two parties in compliance with specific legal provisions as follows:

a) For unregistered certificates: the parties directly hand over the securities to each other;

b) For registered certificates: the seller transfers the securities to the buyer simultaneously with the procedure to transfer ownership to the buyer in accordance with relevant laws and the issuer;

c) For book-entry securities: the seller transfers the certificate of ownership of the securities to the buyer simultaneously with the procedure to transfer ownership of the securities to the buyer in accordance with relevant laws and the issuer;

d) In cases where the securities are held in custody, the seller may authorize the custodian to carry out the procedures for transferring the securities and transferring ownership of the securities from the seller to the buyer.

4. The seller of the securities shall be responsible for fulfilling the commitment to repurchase the securities as agreed. The transfer of funds for repurchase from the seller and the transfer of the securities and ownership of the securities back to the buyer shall be carried out according to the procedures specified in Clause 3 of this Article.

5. If one party wishes to repurchase or resell the securities before the repurchase date, that party shall submit a written request to the counterparty for consideration. The receiving party has the right to approve or reject the early resale or repurchase of the securities with quantities and repurchase prices agreed upon by the parties.

Chapter III
IMPLEMENTATION

Article 26. Information Reporting System

Credit institutions and foreign bank branches shall report on their lending and borrowing activities; buying and selling of securities with maturity periods according to the reporting and statistical system regulations of the State Bank of Vietnam and the provisions of this Circular.

1. Responsibilities of the Credit Department:

a) Serve as the focal point for monitoring and consolidating the implementation of lending and borrowing activities; buying and selling of securities with maturity periods among credit institutions and foreign bank branches; receiving documents detailing business procedures and risk management processes from credit institutions and foreign bank branches;

b) Lead and coordinate with the Banking Inspection and Supervision Authority, Monetary Policy Department, Monetary Forecasting and Statistics Department, Banking Information Technology Bureau, Payment Department, and Office to:

- Monitor and survey the implementation and compliance with the provisions of this Circular by credit institutions and foreign bank branches participating in the market.

- Consolidate the implementation of the provisions set out in Point d, Clause 2, Article 16, and Article 26 of this Circular by credit institutions and foreign bank branches, and submit measures for handling each specific case to the Governor.

- Publish on the State Bank of Vietnam's website information about interest rates for lending and purchasing securities among credit institutions and foreign bank branches.

- Address any issues arising during the implementation of this Circular.

c) Lead and coordinate with relevant units to draft directives and operational guidelines for the interbank market when there are unusual developments in the money market, and submit them to the Governor for issuance.

2. Responsibilities of the Banking Inspection and Supervision Authority:

a) Guide credit institutions and foreign bank branches in classifying debts, setting aside risk reserves, and maintaining safety ratios in their lending and buying and selling of securities with maturity periods as stipulated in this Circular.

b) Conduct regular or spot inspections and serve as the focal point for proposing measures to address violations by credit institutions and foreign bank branches in complying with the provisions of this Circular according to their functions and duties and legal regulations.

c) Provide the Credit Department and related units with information about credit institutions and foreign bank branches subject to restrictions, suspension, or temporary suspension of lending and borrowing activities; buying and selling of securities with maturity periods on the interbank market immediately upon receipt of decisions.

3. Responsibilities of the Finance and Accounting Department:

Guide accounting entries for transactions involving lending and borrowing; buying and selling of securities with maturity periods between credit institutions and foreign bank branches as prescribed in this Circular.

4. Responsibilities of the Monetary Forecasting and Statistics Department:

a) Coordinate with the Credit Department to improve the reporting and statistical system related to the activities specified in this Circular.

b) Lead and coordinate with the Credit Department, Banking Inspection and Supervision Authority, and Monetary Policy Department to establish mechanisms for providing and exchanging information among these departments to support the management and operation of the business activities specified in this Circular.

5. Responsibilities of the State Bank branch at provincial and centrally-administered city level:

a) Supervise, inspect, and audit credit institutions and foreign bank branches in their compliance with this Circular according to their functions and duties; report to the Governor of the State Bank of Vietnam on cases of violation and handle such violations within their authority.

b) Monitor and consolidate the lending and borrowing activities; buying and selling of securities with maturity periods between credit institutions and foreign bank branches within their jurisdiction and promptly reflect any abnormal situations. Monthly reports must be submitted to the Credit Department before the 15th day of the following month.

Article 28. Effective Date

a) Decision No. 1310/2001/QĐ-NHNN dated October 15, 2001, of the Governor of the State Bank of Vietnam on the issuance of the Inter-Credit Institution Lending Regulations.

b) Provisions regarding the buying and selling of securities with maturity periods between commercial banks, finance companies, financial leasing companies, and central people's credit funds; foreign bank branches as stipulated in Decision No. 1325/2004/QĐ-NHNN dated October 15, 2004, of the Governor of the State Bank of Vietnam on the issuance of the Discount and Re-discount Regulations of Credit Institutions for Customers; Decision No. 17/2006/QĐ-NHNN dated April 20, 2006, of the Governor of the State Bank of Vietnam amending and supplementing Articles 10 and 12 of the Discount and Re-discount Regulations of Credit Institutions for Customers issued together with Decision No. 1325/2004/QĐ-NHNN dated October 15, 2004, of the Governor of the State Bank of Vietnam.

c) Document No. 9756/NHNN-CSTT of the State Bank of Vietnam dated December 10, 2009, on interbank market interest rates; Document No. 7585/NHNN-CSTT of the State Bank of Vietnam dated August 19, 2008, on applying interest rates for loans in Vietnamese dong between credit institutions in the interbank market.

d) Other provisions concerning lending and borrowing activities; buying and selling of securities with maturity periods between credit institutions and foreign bank branches that conflict with the provisions of this Circular.

2. During the period when the Central People's Credit Fund has not been converted into a cooperative bank, its transactions involving lending and borrowing; buying and selling of securities with maturity periods with other credit institutions and foreign bank branches shall be carried out according to the provisions applicable to cooperative banks in this Circular.

5. The Director of the Office, Heads of the Credit Department, Heads of relevant units under the State Bank of Vietnam, Governors of the State Bank of Vietnam branch in provinces and centrally governed cities, Chairmen of the Board of Directors, Chairmen of the Board of Members, and General Directors (Directors) of credit institutions and foreign bank branches are responsible for implementing this Circular./.