Circular No. 29/2016/TT-NHNN on overdraft and overnight lending in inter-bank electronic payment transactions

CIRCULAR

Regulations on Overdraft and Overnight Loans in Interbank Electronic Payments

inter-bank electronic

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

No. 06/2013/UBTVQH13 dated March 18, 2013;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013, of the Government stipulating 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 regulating overdraft and overnight loans in interbank electronic payments.

Article 1. Scope of Regulation

This Circular regulates overdraft and overnight loans in interbank electronic payments at the State Bank of Vietnam for credit institutions and foreign bank branches.

Article 2. Applicability

Credit institutions and foreign bank branches established and operating under the Law on Credit Institutions are direct participants in the interbank electronic payment system (hereinafter referred to as credit institutions).

Article 3. Explanation of Terms

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

1. Overdraft in interbank electronic payments is when a credit institution is allowed to withdraw more than the positive balance on its VND settlement account opened at the State Bank's Trading Department (hereinafter referred to as the VND settlement account).

2. Overnight loan in interbank electronic payments is when the State Bank lends a credit institution with collateral of securities for the period from the end of the working day before to the next consecutive working day.

3. The remaining term of securities is the period from the date the State Bank determines the value of the securities to the due date for full repayment of the principal of those securities.

Article 4. Principles of Overdraft and Overnight Loans in Interbank Electronic Payments at the State Bank

1. A credit institution may use overdraft to cover shortfalls in interbank electronic payments.

2. A credit institution may be granted an overnight loan by the State Bank to settle the overdraft amount at the end of the working day.

Article 5. Securities Used in Overdraft and Overnight Loan Transactions in Interbank Electronic Payments

Securities used in overdraft and overnight loan transactions in interbank electronic payments must meet the following conditions:

1. Eligible for custody according to regulations on custody and use of custodied securities at the State Bank.

2. Transferable.

3. Issued in Vietnamese Dong.

4. Have a minimum remaining term of 30 days.

5. Included in the list of securities used in overdraft and overnight loan transactions in interbank electronic payments decided by the Governor of the State Bank.

Article 6. Overdraft Limit

The overdraft limit is the maximum amount that a credit institution can withdraw beyond the positive balance on its VND settlement account in interbank electronic payments and is determined as follows:

Overdraft Limit = ∑ (Gi x Ri) - B - C_i x R_i- Gi: Value of type i securities used by the credit institution in overdraft and overnight loan transactions and determined according to the Appendix attached to this Circular.

Where:

- Ri: Percentage of overdraft and overnight loan rate for type i securities decided by the Governor of the State Bank for each period.

- i: Type of securities included in the list of securities used in overdraft and overnight loan transactions in interbank electronic payments decided by the Governor of the State Bank.

- B: Overnight loan outstanding balance (including principal and overnight interest).

- C: Overdue overnight loan outstanding balance (including overdue principal, late interest on overnight loans, overdue interest on principal of overnight loans, interest on late interest on overnight loans).

- C: Overdue overnight loan principal balance (including overdue overnight loan principal balance, late interest on overnight loans, overdue interest on overnight loan principal balance, interest on late interest on overnight loans).

Article 7. Overnight Loan Interest Rate

1. The overnight loan interest rate shall be decided by the Governor of the State Bank for each period.

2. The interest rate applicable to overdue principal overnight loans shall be 150% of the overnight loan interest rate prescribed at the time the loan was incurred; the interest rate applicable to overdue overnight interest payments shall be 10% per annum.

Article 8. Procedures for Overdraft and Overnight Loans in Interbank Electronic Payments

1. Procedures for overdraft and overnight loans in interbank electronic payments:

a) Credit organizations shall deposit securities as collateral to participate in overdrafts and overnight loans;

b) The State Bank shall notify credit organizations of their overdraft limits;

c) Overdrafts and overnight loans shall be provided to credit organizations;

d) Credit organizations shall repay their overnight loan principal;

đ) The State Bank shall recover the outstanding overnight loan principal;

e) The State Bank shall handle cases where credit organizations have overdue overnight loan principal and other issues arising therefrom.

2. The Governor of the State Bank shall issue a Decision detailing the procedures for overdraft and overnight loans in interbank electronic payments as stipulated in Clause 1 of this Article.

Article 9. Implementation of Overdraft and Overnight Loans

1. Implementation of Overdraft

a) At 8:00 AM on each working day, the State Bank (Trading Department) shall determine and notify the overdraft limit for interbank electronic payments for each credit organization. In case the overdraft limit (increase or decrease) is adjusted during the working day due to changes in the value of securities used for overdrafts and overnight loans, outstanding overnight loan principal, and overdue overnight loan principal, the State Bank (Trading Department) shall determine and notify the credit organization. A credit organization may only reduce the value of securities used for overdrafts and overnight loans if the remaining value of securities must ensure that the adjusted overdraft limit is at least equal to the amount of overdraft utilized;

b) When the credit organization's Vietnamese currency payment account does not have sufficient funds to execute payment orders in interbank electronic payments, it will automatically be granted an overdraft up to the maximum amount of the overdraft limit notified by the State Bank (Trading Department) to execute the payment order. When the credit organization's Vietnamese currency payment account is replenished with funds, the payment system will automatically refund the credit organization's daily overdraft amount.

2. Implementation of Overnight Loans

a) By the end of the working day, if a credit organization has an outstanding overdraft amount that has not been settled, the State Bank (Trading Department) shall automatically transfer that outstanding overdraft amount to the overnight loan account and notify the credit organization of the overnight loan principal balance. The credit organization shall bear the overnight loan interest as prescribed in Clause 1 of Article 7 of this Circular;

b) On the next working day following the occurrence of the overnight loan, the credit organization shall repay the principal and interest of the overnight loan to the State Bank. The credit organization shall not use an overdraft to repay the overnight loan principal. If by the end of the next working day following the occurrence of the overnight loan, the credit organization has not fully repaid the overnight loan principal, the State Bank (Trading Department) shall transfer the unpaid overnight loan principal to overdue overnight loan principal, apply the interest rate as prescribed in Clause 2 of Article 7 of this Circular, and notify the credit organization of the overdue overnight loan principal.

Article 10. Handling cases where credit institutions have overdue overnight loans

1. On the next working day following the occurrence of an overdue overnight loan, the State Bank of Vietnam (Trading Department) shall implement measures to recover the overdue overnight loan balance (principal first, interest later) and notify the credit institution concerned. Specifically as follows:

a) Implement the deduction from the credit institution's settlement account in Vietnamese dong at the State Bank of Vietnam to recover the overdue overnight loan balance;

b) In case after deducting from the credit institution's settlement account in Vietnamese dong but still not sufficient to recover the entire overdue overnight loan balance, the State Bank of Vietnam (Trading Department) has the right to request the custodian of securities to transfer ownership of securities from the credit institution to the State Bank of Vietnam for sale of securities before their maturity date or payment to the issuer upon maturity until the overdue overnight loan balance of the credit institution is fully recovered. The priority order for transferring ownership of securities to the State Bank of Vietnam is as follows:

(i) Securities with shorter remaining maturity periods;

(ii) Secured securities with higher value;

In case after the State Bank of Vietnam sells securities before their maturity date or pays to the issuer upon maturity, the amount received exceeds the remaining overdue overnight loan balance, the difference between the amount received (from selling securities or paying securities to the issuer) and the remaining overdue overnight loan balance will be returned to the credit institution;

c) In case after implementing the measures prescribed in points a and b of this clause but still unable to fully recover the overdue overnight loan balance, the State Bank of Vietnam (Trading Department) shall collect from other sources of the credit institution (if any);

2. If a credit institution has three consecutive overdue overnight loans within one month, the State Bank of Vietnam (Trading Department) will suspend overdraft and overnight lending in inter-bank electronic payments for ten working days starting from the day the State Bank of Vietnam (Trading Department) notifies about the suspension of overdraft and overnight lending, except in cases of force majeure and when the credit institution submits a report to the State Bank of Vietnam (Trading Department);

Article 11. Responsibilities of units

1. Responsibilities of units under the State Bank of Vietnam

1.1. Monetary Policy Department

a) Take the lead and advise the Governor of the State Bank of Vietnam to decide and announce the overnight lending interest rate according to Clause 1, Article 7 of this Circular;

b) Take the lead and advise the Governor of the State Bank of Vietnam on the list of securities to be used in overdraft transactions and overnight lending in inter-bank electronic payments according to Clause 5, Article 5 of this Circular and the percentage of overdraft and overnight lending for each type of security according to Article 6 of this Circular;

1.2. Trading Department

a) Take the lead in drafting and submitting to the Governor of the State Bank of Vietnam for issuance of a Decision on the Overdraft and Overnight Lending Procedures in Inter-bank Electronic Payments in accordance with this Circular and related regulations;

b) Determine the overdraft limit, adjust the overdraft limit, and notify credit institutions according to this Circular;

c) Implement overdraft and overnight lending;

d) Notify credit institutions about the overnight loan balance and overdue overnight loan balance;

đ) Implement recovery of the overnight loan balance according to this Circular;

e) Implement recovery of the overdue overnight loan balance according to this Circular;

g) Notify credit institutions about measures to recover the overdue overnight loan balance, notify about the suspension of overdraft and overnight lending according to this Circular;

h) Implement calculation of overnight interest, overdue interest on the principal of overnight loans, and interest on overdue overnight interest according to the regulations of the State Bank of Vietnam;

i) Serve as the focal point for handling difficulties and issues arising during the implementation of overdraft and overnight lending;

1.3. Financial Accounting Department Guide accounting entries for overdraft and overnight lending in inter-bank electronic payments at the State Bank of Vietnam;

1.4. Banking Information Technology Department Responsible for software and related issues to ensure smooth, safe, and effective implementation of overdraft and overnight lending in inter-bank electronic payments;

2. Responsibilities of participating credit institutions in overdraft and overnight lending Comply with and be responsible for implementing the provisions of this Circular;

Article 12. Implementation Organization

1. This Circular takes effect from March 25, 2017, replacing Decision No. 04/2007/QĐ-NHNN dated January 22, 2007 of the Governor of the State Bank of Vietnam on overdraft and overnight lending applied in inter-bank electronic payments;

2. Outstanding overnight loans prior to the effective date of this Circular shall continue to be implemented according to Decision No. 04/2007/QĐ-NHNN dated January 22, 2007 of the Governor of the State Bank of Vietnam on overdraft and overnight lending applied in inter-bank electronic payments;

3. The Director of the Office, Heads of the Monetary Policy Department, 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 Management Boards, Chairmen of Member Councils, and General Directors (Directors) of credit institutions and foreign bank branches are responsible for organizing the implementation of this Circular./.