Circular No. 7/TT-NH7 guiding the management of foreign borrowing and repayment for enterprises

CIRCULAR

OF THE HEAD OF THE STATE BANK

Guidelines for managing foreign borrowing and debt repayment by enterprises

Pursuant to Article 2 of the Regulation on Managing Foreign Borrowing and Debt Repayment issued together with Decree No. 58-CP dated August 30, 1993 of the Government, the State Bank guides the management of foreign borrowing and debt repayment by enterprises as follows.

I. GENERAL PROVISIONS

1. The State Bank is the state management agency for foreign borrowing and debt repayment by enterprises of all economic sectors established and operating under current Vietnamese laws, including foreign borrowing by enterprises established and operating under the Law on Foreign Investment in Vietnam.

2. Enterprises may directly borrow from abroad or borrow again from the government's foreign debt or the State Bank's foreign borrowing through self-borrowing and self-responsibility for debt repayment.

Direct borrowing: Enterprises directly borrow and repay foreign debts.

Re-lending: Enterprises borrow from domestic banks from the government's funds or the State Bank's foreign borrowing.

3. The State Bank manages foreign borrowing and debt repayment through annual and five-year total credit limit plans for foreign borrowing and debt repayment approved by the Prime Minister.

4. The State Bank compiles and establishes the total credit limit for foreign borrowing and debt repayment based on:

The capital needs and debt repayment capacity of the State budget related to trade borrowing and debt repayment;

The borrowing needs and debt repayment capacity of enterprises;

The balance of payments situation;

The monetary policy of the State during each period.

The planning of foreign borrowing and debt repayment by enterprises shall be carried out in accordance with the regulations of the Governor of the State Bank.

5. Foreign borrowing and debt repayment by enterprises can only be conducted through banks permitted to engage in foreign operations (except commercial banks and development banks that have been permitted to operate internationally, which can directly borrow and repay foreign debts). Enterprises borrowing again from the government's or the State Bank's foreign borrowing must be conducted through designated commercial banks and development banks by the State Bank and the Ministry of Finance, hereinafter referred to as lending banks.

6. Foreign borrowing includes:

Foreign borrowing by the government (including loans in goods or currency);

Foreign borrowing by enterprises (including financial institutions), in goods or currency according to the self-borrowing and self-repayment model;

Foreign borrowing by the State Bank.

II. FOREIGN BORROWING AND DEBT REPAYMENT BY ENTERPRISES FROM THE GOVERNMENT'S FOREIGN LOANS

OR FOREIGN LOANS OF THE STATE BANK

1. Enterprises may re-borrow from the government's foreign loans to implement projects requiring repayment (including infrastructure investment projects) agreed upon by the Government of Vietnam and the foreign party. The conditions for re-borrowing are specifically agreed upon by the Ministry of Finance, the State Bank, and the lending bank.

In cases where the foreign loan does not require interest payment, the Ministry of Finance and the State Bank will agree on specific interest rates.

2. For funds borrowed by the State Bank of Vietnam from abroad, the State Bank selects the lending bank. Based on the terms and conditions signed with foreign parties, the State Bank agrees with the lending bank on the conditions for enterprises to re-borrow. In principle, the re-lending conditions such as term, interest rate, and fees should not be more favorable than the conditions the State Bank borrows from abroad and should not be higher than domestic borrowing conditions.

3. Conditions for enterprises to re-borrow (including government funds and State Bank's foreign loans):

a) Belong to investment projects: Construction works, construction projects, new constructions, renovations, expansions, technological upgrades in production, business, and service sectors.

b) Projects capable of generating sufficient revenue to repay the debt (both principal and interest) within the specified period.

c) The enterprise's financial status is sound: no tax arrears with the budget, no overdue debts with domestic and foreign entities.

d) The enterprise must use the funds for the intended purpose and plan approved and be subject to supervision by the lending bank.

The lending bank specifies and guides the re-lending matters mentioned in this Article.

4. If borrowed in a particular foreign currency, it must be repaid in the same currency. If repayment is made in another foreign currency or in Vietnamese dong, it must be agreed upon in the Credit Agreement, including the exchange rate and other relevant conditions.

5. The lending bank has the final decision on whether to allow enterprises to re-borrow based on the conditions for re-borrowing set forth in Point 3, Part II of this Circular. Within thirty days from receiving the enterprise's application, the lending bank must inform the enterprise of its decision. Upon review, if the enterprise does not meet the requirements stipulated in Point 3, Part II of this Circular, the lending bank must report to the Governor of the State Bank and the Minister of Finance (if the funds are from the government's borrowing) while also informing the enterprise's supervisory authority for joint consideration and resolution. For State Bank's re-lending funds, the lending bank only reports to the Governor of the State Bank for consideration and decision.

6. Based on the repayment schedule of the Loan Agreement between Vietnam and the foreign party, the lending bank agrees with the enterprise to specify the exact repayment period, taking into account the time required for domestic and international fund transfers to ensure timely repayment to the foreign party.

7. The lending bank is responsible for recovering the funds to repay the State budget and the State Bank fully and on time as prescribed.

a) During the process of monitoring the use of borrowed funds, if the enterprise encounters difficulties in repaying the debt, the lending bank will work with the enterprise to find solutions. If necessary, they must report to the State Bank, the Ministry of Finance, and the superior state management agencies of the enterprise for coordinated resolution.

b) In case the enterprise cannot repay the debt as stipulated in the Loan Contract, the lending bank must use its own capital to repay the debt to the State Budget and the State Bank. However, for loans from the Government to projects designated by the Government with high interest rates close to market rates but with low repayment capacity, such loans shall be implemented according to the guidelines of the Ministry of Finance.

8. By no later than the 10th day of each month, project owners who have borrowed funds through any lending bank must report on the withdrawal of funds and repayment of the previous month's debt according to the instructions of that lending bank.

9. Quarterly and annually, the lending banks must compile reports to send to their superior lending banks, while also sending them to the Branch Governor of the State Bank in the province or city where the enterprise is located for knowledge and monitoring purposes.

10. Quarterly and annually, the General Directors of Commercial Banks and Investment and Development Banks are responsible for compiling reports to the Governor of the State Bank on the results of implementation, actual amounts borrowed and repaid by each enterprise. The deadlines for submitting reports are as follows:

Quarterly Report: No later than within the first 10 days of the first month of the quarter following the reporting period;

Annual Report: No later than January 15 of the following year.

III. ENTERPRISES BORROWING ABROAD DIRECTLY

1. The implementation of foreign loans under the self-borrowing and self-repayment method by state-owned enterprises for basic construction investment must meet the following conditions:

a) The loan amount must fall within the approved total limit for foreign borrowing.

b) Economic and technical justification or economic and technical report, budget estimate approved by the competent authority. The procedures for preparing and reviewing economic and technical justifications must comply with the regulations of the Basic Construction Management Charter.

c) Approval document from the State Bank and the Ministry of Finance regarding the loan and repayment conditions.

d) Approval document from the Guarantee Bank (if required by the lender).

2. For foreign loans under the self-borrowing and self-repayment method by state-owned enterprises for business operations, the following conditions must be met:

a) The loan amount must fall within the approved total limit for foreign borrowing.

b) Business operation plan approved by the superior management agency of the enterprise. The review of these plans shall be carried out according to the guidance of the enterprise’s principal management body.

c) The enterprise must not owe taxes to the State Budget and must not be overdue in payments to domestic and foreign entities. Borrowing foreign funds must be for the purpose of fulfilling the enterprise's functions and tasks.

d) The business operation plan must be able to balance foreign currency to repay debts.

đ) Principle approval of the Guarantee Bank's guarantee if the lender requires it.

3. State-owned enterprises may only sign foreign loans for basic construction investment projects (as stipulated in Point 1, Part III of this Circular) after the loan application has been approved in writing by the State Bank and the Ministry of Finance regarding the loan and repayment conditions. For loans for business operations as stipulated in Point 2, Part III of this Circular, the loan application must be approved in writing by the State Bank.

4. The application for foreign borrowing by state-owned enterprises for basic construction investment and business operations includes:

Application for foreign borrowing sent to the bank;

Business operation plan and repayment plan of the enterprise already approved by the principal management body;

Acceptance of the Guarantee Bank's guarantee if required by the lender;

Final agreement with the foreign lender regarding conditions such as interest rates, accompanying fees, loan and repayment terms, grace periods, guarantee conditions, conditions for withdrawing funds and repaying debts, and other conditions related to the Loan Contract to be signed;

For state-owned enterprises borrowing for basic construction investment projects, the economic and technical justification must be reviewed by the competent authority;

Investment permit issued by the competent authority (for enterprises with foreign direct investment).

5. Credit institutions permitted to operate internationally may directly borrow abroad within the approved foreign borrowing and repayment limits determined by the Governor of the State Bank.

6. Guarantees for enterprises borrowing abroad shall be applied according to the Guarantee and Re-guarantee Regulations for Foreign Borrowing issued by the Governor of the State Bank.

7. Non-state-owned enterprises may directly borrow abroad under the self-borrowing and self-repayment method provided that the loan amount falls within the approved total borrowing and repayment limit. For loans for basic construction investment projects, the foreign borrowing conditions must be approved by the State Bank.

8. Within 30 days from the date of signing the borrowing document, the enterprise must provide copies of all signed documents with the foreign party to the State Bank, the Ministry of Finance, and the Guarantee Bank.

9. An enterprise may only transfer money to repay foreign debts if such transfers comply with the Foreign Exchange Management Regulations and the loan has been confirmed by the bank when applying for foreign borrowing. All withdrawals and repayments of foreign funds must be processed through banks permitted to operate internationally.

10. The enterprise's principal management agency is responsible before the Prime Minister, the Governor of the State Bank, and the Minister of Finance for:

The economic efficiency of the enterprise's business operation plan, directing and creating conditions for the enterprise to implement the approved plan to ensure full and timely repayment of foreign debts, both principal and interest, as stipulated.

Compiling quarterly and annual reports on the implementation of foreign borrowing and repayment by the enterprise. The deadlines for submitting reports are as follows:

Quarterly Report: No later than within the first 10 days of the first month of the quarter following the reporting period.

Annual Report: No later than January 15 of the following year.

Reports must be submitted to the Central State Bank and the Ministry of Finance.

IV. FOREIGN LOANS AND REPAYMENTS OF ENTERPRISES WITH FOREIGN INVESTMENT CAPITAL

1. Enterprises with foreign investment capital (including Joint Ventures) established under the Law on Foreign Investment in Vietnam are eligible to apply for foreign loans.

2. Enterprises with foreign investment capital can borrow abroad like other Vietnamese enterprises in two forms:

a) Borrowing from commercial banks, Vietnam Investment and Development Bank from foreign sources borrowed by the State Bank;

b) Directly borrowing from abroad (self-borrowing, self-responsible for repayment).

3. Foreign-invested enterprises are allowed to directly borrow from abroad as provided in the Points of Chapter III of this Circular with the following conditions:

a) In cases where loans increase investment capital or capital for implementing joint venture contracts, approval from the investment licensing authority must be obtained;

b) After repaying all foreign debts (principal and interest), it must ensure that the enterprise's statutory capital is not reduced and follow the priority sequence as prescribed in Decree No. 18-CP dated April 16, 1993 of the Government on detailed regulations for the implementation of the Law on Foreign Investment in Vietnam;

c) In cases where the foreign lending party requires the loan amount to be transferred to an account opened at a foreign bank, approval from the Governor of the State Bank must be obtained.

4. In special cases, the Government will designate guarantees for foreign loans of foreign-invested enterprises.

V. INSPECTION, AUDIT AND DISPOSITION WORK

1. Periodically or when necessary, branches of the State Bank in provinces and cities and lending banks shall conduct inspection and audit work on the borrowing and repayment of foreign debts of enterprises whose loan applications they have reviewed. The results of inspections, audits, dispositions, and recommendations shall be immediately reported to the Central State Bank. In cases where enterprises misuse borrowed funds (for refinanced projects), the lending bank has the right to suspend fund withdrawals and report to the State Bank, Ministry of Finance, and the competent management authority of the enterprise to discuss measures for resolution.

2. Any violation of this Circular, depending on the level of violation, will be handled according to current laws.

VI. IMPLEMENTATION PROVISIONS

1. This Circular takes effect from the date of signature. All previous provisions contrary to this Circular are abolished.

2. Heads of Departments, Bureaus, Director of the Office, Chief Inspector of the Central State Bank, Governors of the State Bank in provinces and cities, General Directors of commercial banks, and Investment and Development Banks within their functional scope are responsible for organizing guidance, implementation, and enforcement of this Circular.

3. Ministries, sectors, government agencies, People's Committees of provinces and cities, within their functions and tasks, shall coordinate to implement the directives of this Circular./.