Decree No. 85/2002/ND-CP Amending and Supplementing Decree No. 178/1999/ND-CP on Guarantees for Loans of Credit Institutions

DECREE

Regarding the amendment and supplementation of Decree No. 178/1999/NĐ-CP dated December 29, 1999

on guaranteeing loans for credit institutions

________________

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

On the basis of the Law on the State Bank of Vietnam and the Law on Credit Institutions dated December 12, 1997;

At the proposal of the Governor of the State Bank of Vietnam,

DECREE:

Article 1. Amending and supplementing some articles of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government on guaranteeing loans for credit institutions as follows:

1. Supplement Clause 3 of Article 1 as follows:

"The provision of credit by the Development Support Fund and other state financial organizations, if the law provides for security measures, shall also apply the provisions of this Decree."

2. Amending and supplementing Clause 3, Article 2 as follows:

"Secured assets for loans are assets of the borrower and guarantor to ensure the fulfillment of the obligation to repay, including: assets under ownership, land use value of the borrower and guarantor; assets under management and use of the borrower and guarantor who are state-owned enterprises; assets formed from borrowed funds."

3. Amend and supplement Clause 6 of Article 2 as follows:

"Guarantee by third-party assets (referred to as the guarantor) is the guarantor's commitment to the credit institution to use assets under their ownership, land use value, for state-owned enterprises it is assets under management and use, to fulfill the obligation to repay on behalf of the borrower, if at maturity of repayment the borrower fails to fulfill the repayment obligation."

4. Amend and supplement Clause 9 of Article 2 as follows:

"Borrowers are individuals, households, cooperatives, private businesses, partnerships, Vietnamese legal entities, and foreign individuals and legal entities meeting the conditions for borrowing from credit institutions as stipulated by the State Bank of Vietnam."

5. Amend and supplement Clause 3 of Article 6 as follows:

"Credit institutions have the right to decide on selecting assets that meet the conditions to serve as loan guarantees; deciding on selecting third-party guarantors by assets for borrowers. In cases where credit institutions decide to select third-party guarantors by assets for borrowers being foreign individuals or legal entities, the implementation of guarantees must comply with the provisions of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government, this Decree, and other relevant regulatory legal documents, except where international treaties to which the Socialist Republic of Vietnam has signed or acceded provide otherwise."

6. Amend and supplement Clause 4 of Article 6 as follows:

"The guarantor may only guarantee with assets under their ownership; assets are land use value; assets under management and use for guarantors who are state-owned enterprises. The credit institution and the guarantor agree on the application or non-application of pledge or mortgage of the guarantor's assets to secure the performance of the guarantee obligation. If the guarantor is a credit institution, they shall implement the guarantee according to the Law on Credit Institutions and the regulations of the State Bank of Vietnam."

7. Amend Clause 5 of Article 6 as follows:

"If the land use value and attached assets are eligible to serve as loan guarantees according to the law, then the simultaneous mortgage or guarantee of both the land use value and attached assets or their separation is determined by mutual agreement between the parties. In cases where the parties agree to separate mortgage or guarantee between attached assets and land use value, the credit institution receiving the mortgage or guarantee must be capable of managing the asset during the lending period and disposing of the asset to recover the debt if the borrower cannot repay the debt."

8. Supplement Clause 6 of Article 6 as follows:

"In cases where the secured transaction is deemed void in part or entirely, it does not affect the validity of the credit contract of which the secured transaction is a condition."

9. Amend and supplement Article 7 as follows:

"Article 7. Conditions and procedures for implementing loan guarantees by collateral and pledge of assets from borrowers and third-party asset surety

1. Assets, conditions for accepting collateral and pledge, surety, procedures for signing and implementing guarantee documents, pledge and surety contracts (hereinafter referred to collectively as guarantee documents) and registration of guarantee transactions shall be carried out in accordance with the provisions of the Law on Guarantee Transactions and guidelines of the State Bank of Vietnam. Guarantee documents must be certified by Notary Public or authenticated by the competent People's Committee if the parties agree, except where otherwise provided by law.

2. Borrowers and guarantors may use the value of land use rights, including leased land with remaining lease payment period less than five years, as collateral and surety according to the provisions of the Land Law and guidelines of the State Bank of Vietnam.

3. Credit institutions shall examine the conditions of loan security assets. Borrowers and guarantors shall be responsible for the legality of loan security assets.

10. Amend Clause 1 of Article 8 as follows:

"The value of the security asset must be determined at the time of signing the guarantee contract; this valuation serves only as the basis for determining the lending amount by credit institutions and is not applied when processing the security asset to recover debts. The determination of the value of the security asset must be documented separately or recorded in the credit contract."

11. Amend and supplement Clause 3 of Article 8 as follows:

"The value of land use rights used as collateral and surety shall be determined as follows:

a) For land granted by the State to households and individuals for agricultural and forestry production; residential land; land transferred legally to households and individuals; land granted by the State with payment for economic organizations; land transferred legally to economic organizations, the value of the land use rights used as collateral and surety shall be agreed upon between the credit institution and the borrower or guarantor based on the actual transfer price in that locality at the time of collateral. The credit institution shall consider and decide on the lending amount and bear responsibility for the risk of the loan.

b) For land leased by the State to households, individuals, and economic organizations where the lease payment has been made for the entire lease period or for several years, the value of the land use rights used as collateral and surety includes compensation for damage and clearance costs when the land is leased by the State (if applicable), and the lease payment already made to the State minus the lease payment for the period already used.

c) In cases where the value of land use rights is pledged and guaranteed while the lessee is exempted or reduced from lease payments according to the law, the value of the land use rights used as collateral and surety shall be calculated based on the lease value before the exemption or reduction."

12. Delete Clause 4 of Article 8

13. Amend and supplement Article 11 as follows:

"Article 11. Scope of Loan Security

A security asset can be used to secure multiple debt obligations at one or more credit institutions. If the asset is used to secure debt obligations at multiple credit institutions, the following conditions must be met:

1. All guarantee transactions related to this asset have been registered with the agency responsible for registering guarantee transactions.

2. Credit institutions receiving the same security asset must agree in writing on the appointment of representatives to hold the original documents related to the security asset and on the handling of the security asset to recover debts if the borrower fails to repay the debt.

3. The value of the security asset determined at the time of signing the guarantee contract must exceed the total value of the secured debt obligations, except where otherwise provided by law."

14. Amend and supplement Clause 2 of Article 12 as follows:

"For movable property, fishing vessels, and marine product catching ships with registration certificates used as collateral or pledge, the credit institution retains the original registration certificate, and the borrower uses a certified copy by Notary Public and confirmed by the credit institution where the collateral or pledge is received to operate the vehicle during the pledge period. The credit institution will only confirm one copy of the registration certificate after certification by Notary Public. If the collateral or pledge is an aircraft or ship participating in international routes, the credit institution retains a certified copy of the registration certificate by Notary Public."

15. Amend Clause 4 of Article 12 as follows:

"In the case of pledging assets for joint loans, participating credit institutions shall have a written agreement appointing representatives to manage the assets and documents of the loan security assets."

16. Amend Clause 1 of Article 14 as follows:

"Credit institutions shall examine and decide on securing loans with assets formed from borrowed funds if the borrower and the assets formed from borrowed funds meet all the conditions stipulated in Clause 17 of this Article."

17. Amend and supplement Article 15 as follows:

"Article 15. Conditions for borrowers and assets formed from borrowed capital

1. For borrowers:

a) Having financial capacity to fulfill debt repayment obligations;

b) Having investment projects, production plans, business, service schemes that are feasible and effective; or having investment projects, life service schemes that are feasible and comply with legal regulations;

c) Having a minimum equity participation in the investment project or production, business, service, life scheme and collateral asset value through pledge or mortgage methods equal to at least 15% of the investment capital of the project or scheme.

2. For assets:

a) Collateral assets formed from borrowed capital must be identifiable in terms of ownership or management rights; their value and quantity must be determinable and they must be tradable. For collateral assets formed from borrowed capital that are materials or goods, in addition to meeting these conditions, credit institutions must have the ability to manage and monitor such collateral assets.

b) For assets where the law requires insurance, the borrower must commit to purchasing insurance throughout the borrowing period once the asset has been formed and put into use."

18. Amend Article 20 as follows:

"Article 20. Borrowers without asset collateral must meet the following conditions:

1. Using borrowed capital effectively and repaying principal and interest on time in the lending relationship with the lending credit institution or other credit institutions.

2. Having investment projects, production, business, service schemes that are feasible and effective; or having investment projects, life service schemes that are feasible and comply with legal regulations.

3. Having financial capacity to fulfill debt repayment obligations.

4. Committing to implement asset collateral measures as required by the credit institution if the borrowed capital is not used as committed in the credit contract; committing to repay early if unable to implement the asset collateral measures specified herein."

19. Delete Clause 2 and Clause 3 of Article 21.

Article 2. Implementation Provisions

1. This Decree takes effect 15 days from the date of signature.

2. The provisions on loan collateral at Point d, đ Clause 6 Section III Decision No. 11/2000/NQ-CP dated July 31, 2000 of the Government on certain measures to manage the economic and social development plan for the last six months of 2000 cease to be enforceable.

3. The State Bank of Vietnam shall be responsible for guiding the implementation of this Decree.

4. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of People's Committees of provinces and centrally governed cities shall be responsible for implementing this Decree./.