On June 30, 2023, the State Bank of Vietnam issued Circular 08/2023/TT-NHNN ("Circular 08") replacing Circular No. 12/2014/TT-NHNN dated March 31, 2014 ("Circular 14") stipulating conditions for foreign loans of enterprises not guaranteed by the Government. According to ATA Legal Services, Circular 08 includes many important regulations, directly affecting the borrowing of enterprises/credit institutions in Vietnam, and the foreign loan conditions in Circular 08 are more detailed and specific than Circular 14, As follows:
1. International bond issuance is considered a case of foreign borrowing
Circular 14 previously did not regulate borrowing in the form of international bond issuance by enterprises not guaranteed by the Government. However, Circular 08 clearly stipulates: Foreign borrowers in the form of issuing foreign international bonds must satisfy the loan conditions in this Circular at the same time as complying with the provisions of the law on offering corporate bonds to the international market and other relevant provisions of law.
2. Allow enterprises to temporarily use the idle capital from the loan to deposit
Circular 08 allows enterprises that have withdrawn part or all of their loans but are "temporarily unused for approved loan purposes" can use this money to deposit money at credit institutions and branches of foreign banks operating in Vietnam. The term of each deposit must not exceed 01 month. Circular 08 allows enterprises that have withdrawn part or all of their loans but are "temporarily unused for approved loan purposes" can use this money to deposit money at credit institutions and branches of foreign banks operating in Vietnam. The term of each deposit must not exceed 01 month.
3. Detailed guidance on the formulation and implementation of loan plans
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Criteria |
Circular 14 |
Circular 08 |
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Plan on use of foreign loans and plans for restructuring foreign debts |
There are no specific regulations on the required contents, order and conditions for adoption |
Clearly and specifically stipulate necessary contents and conditions and order of approval of the plan on use of foreign loans and the plan on restructuring foreign debts |
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Form of Foreign Loan Agreement |
Not stipulating the principles and forms of electronic data of foreign loan agreements |
Stipulates that foreign loan agreements must be concluded on the basis of the principle of repayment of principal and interest; at the same time, foreign loan agreements are allowed to be made in the form of electronic data messages; |
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Time to sign the Loan Agreement |
The foreign loan agreement must be concluded before the date of withdrawal |
The foreign loan agreement must be concluded before or on the date of withdrawal of the foreign loan. However, the conclusion of a foreign loan agreement on the date of withdrawal of a foreign loan shall only be carried out in the following cases: + Foreign short-term loans; + Foreign loans arising from the transfer of investment preparation amounts of projects that have been granted investment registration certificates into foreign loans. |
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Disbursement currency |
Only use Vietnamese dong in some cases. |
Additional cases of using Vietnamese dong: When the borrower withdraws capital, repay the debt in foreign currency, and the debt obligation of the loan is determined in Vietnamese dong. |
4. Separate conditions for borrowers being credit institutions and branches of foreign banks
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Criteria |
Circular 14 |
Circular 08 |
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Loan purpose |
Limit the purpose of borrowing to short-term loans to supplement short-term credit sources.
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In addition to replenishing credit capital, there is also the purpose of restructuring foreign debt. Accordingly, loans can meet 2 purposes: + Supplementing capital sources for credit granting activities according to the credit growth of the borrower; + Restructuring the borrower's foreign debt. |
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Minimum safety rate compliance period |
Only require borrowers to meet the prescribed safety ratios. |
Require borrowers to ensure safety ratios in the last 3 months before the date of signing the foreign loan agreement/ before submitting the application for registration of the issuance (for bonds). |
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Foreign short-term loan limits |
No regulations |
Foreign short-term loan limit (the maximum ratio of the total principal balance of foreign short-term loans calculated on individual own capital): + 30% for commercial banks; + 150% for branches of foreign banks, and other credit institutions. |
5. Separate conditions for borrowers being enterprises other than credit institutions or branches of foreign banks
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Criteria |
Circular 14 |
Circular 08 |
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Purpose of short-term loans |
- Do not borrow short-term loans for medium- and long-term capital use purposes;
- Medium and long-term loans: serving projects that have been granted investment certificates or serving production and business plans, investment projects approved by competent authorities. |
- Purpose of short-term foreign loans: + Restructuring foreign debts and paying short-term debts payable in cash (excluding principal debts of domestic loans) of borrowers incurred during the implementation of investment projects, production and business plans, and other projects of the borrower; + Serving professional activities of borrowers with a capital use term not exceeding 12 months from the time of withdrawal of foreign loans. - Purpose of medium- and long-term foreign loans: + Implementation of investment projects; + Implementing production, business, and other projects; + Restructuring foreign debts. |
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Foreign loan limits |
No regulations |
+ In case of foreign loans for the implementation of investment projects: principal balance of domestic and foreign medium and long-term loans of the borrower .... the maximum must not exceed the borrowing limit of the investment project. + In case of foreign loans for the implementation of production, business plans, or other projects of the borrower: the balance of domestic and foreign medium- and long-term loans of the borrower... not exceeding the total loan demand in the foreign loan use plan approved by a competent authority in accordance with the law. + In case of a foreign loan to restructure the borrower's foreign debt: the amount of the foreign loan ... The maximum must not exceed the total value of the principal balance, the amount of interest, outstanding fees of the existing foreign debt, and the fees of the new loan determined at the time of restructuring. |
For foreign loan agreements concluded before August 15, 2023, and in accordance with the provisions of law at the time of signing, borrowers may continue to comply with the signed agreements. The amendment and supplementation of the aforementioned agreements shall only be made if the amended and supplemented contents comply with the provisions of this Circular and relevant provisions of law.
Circular 08 takes effect from August 15, 2023. Particularly, regulations on foreign short-term borrowing limits of borrowers being credit institutions and branches of foreign banks take effect from January 1, 2024.
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