State Bank of Vietnam sets out conditions for enterprises to borrow foreign loans

8 September 2023

The State Bank of Vietnam recently issued Circular No. 08/2023/TT-NHNN (“Circular”) setting out conditions to be met for foreign loans which are not guaranteed by the Vietnam Government. The Circular replaced Circular No. 12/2014/TT-NHNN and came into effect on 15 August 2023.

This article sets out some key highlights of the Circular.

Regulated entities

The Circular applies to:

• enterprises, cooperatives, cooperative unions, credit institutions and foreign bank branches (“FBBs”) duly established and operating in Vietnam and applying for foreign loans (“borrowers”); and
• credit institutions or FBBs in Vietnam where borrowers’ accounts are opened to serve their foreign borrowing and repayment of foreign loans.

Borrowers of foreign loans in the form of international bond issuance must, in addition to meeting the conditions set out in the Circular, comply with the provisions of law on the offering of corporate bonds to the international market and other relevant laws and regulations.

Borrowers of foreign loans granted in the form of import of goods with deferred payment are not required to meet the eligibility requirements for foreign loans laid down in this Circular but must continue to comply with regulations and guidelines on management of foreign exchange in foreign borrowing and foreign debt repayment by enterprises, regulations of law on foreign trade management and other relevant law provisions.

Purposes of foreign loans

Borrowers who are credit institutions and FBBs can apply for short, medium and long-term foreign loans to serve the following purposes:

• To supplement capital sources for credit granting activities according to the credit growth of the borrower.
• To restructure the borrower’s foreign debt.

From 1 January 2024, the limitation on short-term loans is the maximum ratio of the total principal balance of short-term loans based on separated equity capital of the borrower, being:

• 30% for commercial banks; and
• 150% for FBBs or other credit institutions.

Credit institutions and FBBs must meet the above limitation as of 31 December of the year preceding the year when the short-term foreign loan arises.

Borrowers who are not credit institutions and FBBs can apply for a short-term foreign loan for the following purposes:

• To restructure foreign debts and pay short-term debts payable in cash (excluding principals of domestic loans) of the borrower. The short-term debts payable are debts which have been incurred during the implementation of investment projects, production and business plans or other projects of the borrower and determined in accordance with current laws guiding the enterprise accounting regime.
• To serve the borrower’s professional activities in a period not exceeding 12 months from the date of withdrawal of the foreign loan, where the borrower is subject to the requirements on financial safety criteria according to specialised laws.

Borrowers who are not credit institutions and FBBs may borrow medium and long-term foreign loans for the following purposes:

• To implement investment projects of the borrower.

If utilised for this purpose, the principal balance of domestic and foreign medium and long-term loans of the borrower (including short-term loans extended and short-term overdue into medium and long-term) serving the investment project must not exceed the borrowing limit of the investment project. The loan limit for the investment project is the difference between the total investment capital of the investment project and the contributed capital of the investor recorded in the investment certificate, investment registration certificate, written approval of investment policies.

• To implement production, business plans and other projects of the borrower.

The balance of domestic and foreign medium and long-term loans of the borrower (including short-term loans extended and short-term overdue into medium and long-term) for this purpose shall not exceed the total loan amount that the borrower expected to borrow as stated in the foreign loan use plan approved by a competent authority in accordance with the law.

• To restructure the borrower’s foreign debt.

The maximum amount of foreign loans for this purpose shall not exceed the total value of the principal balance, the amount of interest, and the outstanding fees of the existing foreign debt and the fees of the new loan determined at the time of restructuring.

Where a new foreign loan is a medium or long-term loan the borrower must repay the existing foreign loan within five working days of disbursement of the new loan.

Submission of plan for using foreign loans

The Circular notes that borrowers must have a plan for the use of foreign loan capital and obtain approval by a competent authority in accordance with provisions of the Investment Law, the Law on Enterprises, the Law on Credit Institutions, the Law on Cooperatives, the borrower’s charter and other relevant law provisions.

Foreign loan currency

Foreign loans shall be denominated in foreign currencies and can only be denominated in Vietnamese dong where:

• the borrower is a microfinance institution;
• the borrower is a foreign direct investment enterprise that borrows from profits from direct investment activities in the territories of Vietnam of the lender being a foreign investor contributing capital to the borrower; or
• the borrower withdraws the capital and repays the debt in foreign currency and the debt obligations of the loan are determined in Vietnamese dong.

Cost of foreign loans

The borrower and related parties are solely responsible for complying with the provisions of current laws related to foreign loan interest rates and other costs related to foreign loans when agreeing on foreign loan costs.

In order to administer the limit of self-borrowing and self-payment of foreign loans, when necessary, the Governor of the State Bank of Vietnam shall decide on the application of conditions on foreign loan costs and decide and announce the ceiling on foreign borrowing costs in each period.

Unused amounts

The Circular provides that a borrower may deposit a foreign loan, which has been withdrawn but as yet used, into a bank account opened at credit institutions, FBBs operating in Vietnam. The term of each deposit must not exceed one month.