On June 28, 2024, the Governor of the State Bank of Vietnam issued Circular 19/2024/TT-NHNN ("Circular 19") amending Circular 08/2023/TT-NHNN ("Circular 08") on conditions for foreign loans without government guarantees. Circular 19 has introduced several new types of foreign loans and regulations related to these loans, specifically as follows:
1. Foreign loans arising from the issuance of Letters of Credit
Foreign loans arising from the issuance of Letters of Credit are loans formed from the issuance of deferred payment letters of credit with immediate or pre-due date payment terms as stipulated. In this scenario, the issuing bank (the borrower) receives credit from the reimbursing bank (the lender) who is a non-resident when the reimbursing bank pays the beneficiary with its own funds before the due date of the letter of credit as agreed in the letter of credit.
Foreign loans arising from the issuance of Letters of Credit will not be subject to the regulation on "Short-term foreign loan limit" (30% for commercial banks and 150% for foreign bank branches and other credit institutions).
Accordingly, the borrower will not need to prove the purpose when using the loan to pay off loans arising from the issuance of Letters of Credit.
2. Foreign loans for paying import contracts of borrowers who are not credit institutions
When taking out a foreign loan to pay for deferred payment import contracts to serve the implementation of investment projects or production and business plans, or other projects of the borrower:
- The purpose of the foreign loan is determined to be for the implementation of investment projects or production and business plans or other projects of the borrower as stipulated;
- The borrower is excluded from the medium and long-term foreign loan balance arising from deferred payment import contracts when calculating the foreign loan limit as stipulated.
- The borrower can take out a foreign loan to pay for import contracts (including mandatory repayment to the issuing bank) according to letters of credit issued by the issuing bank.
This Circular takes effect from July 1, 2024.
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