The Most Important Documents Regulating Bank Guarantee

Circular No. 07/2015/TT-NHNN on Bank guarantee

On 25 June 2015, the State Bank of Vietnam issued Circular No. 07/2015/TT-NHNN on bank guarantee which is considered as one of the most important documents regulating bank guarantee applied to domestic credit organizations, branches of foreign banks for foreign customers. The Circular is to replace the previous one, namely Circular No. 28/2012/TT-NHNN on 03 October 2012 issued by the State Bank of Vietnam on bank guarantee.

The Circular No. 07 has formulated a full and basic legal framework on procedures for, and dossiers on activities of bank guarantee of credit organizations and branches of foreign banks.

The Circular is also expected to create a new legal framework to ensure that the international standards on bank guarantee are met as well as to help appropriately synchronize with other relevant laws and to minimize limitations and weaknesses of the current operations on bank guarantee. Furthermore, the Circular is to enhance the effectiveness, safety and smooth operations of bank guarantee activities of credit organizations and branches of foreign banks operating in Vietnam.

The Circular has a number of progressive contents. First of all, it supplements the definition of “symmetry guarantee party” and “guarantee confirming party” in order to specifically regulate those parties, including foreign credit organizations. In addition, the Circular gives the definition of “customer” to determine clearly which party customers are in guarantee relationship. From that, it is easier to calculate guarantee issuing balance, symmetry guarantee, guarantee confirming and as basis for considering conditions and requirements to customers for accepting bank guarantee.

Secondly, the Circular abolishes the provision that required the acceptance by the State Bank of Vietnam in bank guarantee.

Relating to supplying forex services, in order to conform to Circular No. 21/2014/TT-NHNN, Circular No. 07 has amended the relevant content. Accordingly, branches of foreign banks are not allowed to give guarantees in foreign currencies for customers operating overseas, except in case of that customers are guaranteeing party and symmetry guaranteeing party that are overseas credit organizations and guaranteed party doing business in Vietnam.

In real estate business, the Circular has clarified the Law on real estate business and Law on residential housing in terms of bank guarantee that are assigned the authority for detailing to the State Bank. To be more specific, the Circular requires the investor of a real estate project to undertake that the guarantee for selling, leasing future residential houses will be effective at least 30 additional days since the date of the delivery of the houses, basing on the agreement between the investor and customer. However, Mr. Tran Thai Binh, Lawyer of LNT & Partners, on an article published on Vietnamnet Online Newspaper, believes that many questions are not appropriately answered. For instance, such questions are; whether banks pay penalties for customers, if the housing sales and purchase agreement mentions; Or according to the Circular No. 07, guarantee agreement comes into effect to the time of at least ending 30 days since the date of the delivery of housing, but the customer is still awaiting (or not bewaring), leading to that those 30 days are overdue, then, this customer loses his/her rights for claiming guarantee. Many people say that a period of 30 days is short.[1]

In light of this Circular, there are a number of side-effects arising. Therefore, understanding provisions are necessary to avoid unfavorable consequences in doing business in general.

The Circular will come into effect on 09 August 2015 and replaces the Circular No. 28/2012/TT-NHNN granted on 03 October 2012. Hopefully, after its promulgation, the Circular will establish a solid legal framework for all domestic credit organizations, branches of foreign banks and customers in bank guarantee activities.

[1] Real Estate Guarantee: Questions awaiting guidance, http://vietnamnet.vn/vn/bat-dong-san/258241/bao-lanh-bds–ban-khoan-cho-huong-dan.html, retrieved on 25 August 2015.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

New Legal Framework to Streamline Licensing and Set up of Commercial Banks

The Content of the new Framework

On June 30th, 2015 the Government issued Circular No. 08/2015/TT-NHNN (Circular 08) in lieu of Circular No. 40/2011/TT-NHNN (Circular 40) for the issuance of licenses and the organization and operation of commercial banks, foreign bank’s branches, representative offices of foreign credit institutions, other foreign organizations that have banking activities (Commercial Banks)  in Vietnam.

This Circular 08 has formulated a full and basic legal framework on procedures for, and dossiers on amendments, supplementation regarding operation contents of Commercial Banks. Furthermore, the formality of proposal dossiers for operational licensing and new establishment license template of Commercial Banks are also regulated in such a new circular.

Besides the new licensing issuance procedure in Circular 40, Circular 08 is expected to add three more new licensing procedures for Commercial Banks, including license replacement issuance, supplementation issuance of operation content to present license and supplementation issuance of operation content associated with license replacement issuance. With respect to the principle of building licensing dossiers, the non-notarized counterpart of documents are duly accepted, provided that those are obtained along with original copy for reference; while the referring person shall sign for confirmation and shall be responsible for the documents’ accuracy. The new establishment license template has the operation content part specifically noting that all banking functions which Commercial Banks are entitled to conduct are in accordance with Law on Credit Institutions and others activities approved by the State Bank.

Business implications

With respect to changes in the State Bank’s licensing activities applied to Commercial Banks in Vietnam, the impact on business will specifically be in banking sector. Accordingly, all approval for changes in registration for the operation of credit institution shall be noted in the Operation License by license replacement issuance. In the event of an amendment or supplementation in the operational content without need for a replacement license, Commercial Banks shall still conduct the proposal procedure on supplementing operation content via the approval instruments of the State Bank. Approval for non-notarized documents in the application dossier shall benefit from a more prompt and efficiently implemented licensing procedure. The more detailed and obvious the licensing procedures is, the more conveniently credit institutions can implement their business.

Our Recommendation

In light of this, we would recommend that commercial banks, branches and representative offices of foreign banks should update their Operation License by implementing the license replacement issuance procedure. The above-mentioned action shall result in owning a kind of detailed and unique valid instrument as a basis of banking operation. With efforts to comply with such new provisions, Commercial Banks shall benefit from good, efficient performance that will positively develop their business.

The Circular No. 08/2015/TT-NHNN will come into effect on August 13th, 2015.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com