Key takeaways

There are two major amendments to Circular 06, which are (1) tightening the purpose of onshore loans and (2) introducing a concept and legal framework for lending via electronic channels.

1. Lending purposes.
   1. Supplementing four prohibited lending purposes
   2. Loosening restrictions on debt refinancing
2. New framework for lending via electronic channels

Further details regarding these are addressed below, along with other lending-related provisions of Circular 06.

In depth

Lending purposes

a. Additional prohibited lending purposes

In addition to six prohibited lending purposes under Circular 39, lending for the following purposes is prohibited:

1. To deposit money.
2. To contribute, purchase or transfer (as the transferee) one of the following:
   1. Capital contribution in limited liabilities companies or partnerships.
   2. Shares in unlisted joint-stock companies or those that have not been registered for trading on the Upcom.

Together with Article 12 of Circular No. 22/2019/TT-NHNN of the SBV dated 15 November 2019, local banks can now only provide short-term loans (i.e., with a term of up to one year) for the purpose of acquiring listed shares.

3. To contribute capital under capital contribution agreements, investment cooperation agreements or business cooperation contracts to implement investments project that do not satisfy conditions for commercial operation at lending decision date.
4. To make financial reimbursement (bù đắp tài chính in Vietnamese) (Financial reimbursement means lending by a local bank to reimburse the expenses that have been paid by the borrower's own fund or loans granted by individuals or organizations (other than the local bank) to implement a plan or project for business or for living needs).

However, financial reimbursement is allowed where the following conditions are met:

1. The borrower has advanced its own fund to pay project implementation expenses that have been incurred less than 12 months up to the lending decision date.
2. The paid expenses use loans granted by a local bank according to the capital usage plan submitted to the local bank for consideration to be granted medium- and long-term loans to implement the said project.

b. Loosening restrictions on debt refinancing — payment for the deferred payment for imported goods

Under Circular 06, lending for the purpose of refinancing offshore loans in the form of deferred payment for imported goods is now allowed.

Lending via electronic channels

To be in line with Article 97 (electronic banking activities) of the Law on Credit Institutions and the SBV's digital transformation policy for the banking sector until 2025, with a view to 2030 under Decision No. 810/QD-NHNN of the SBV dated 11 May 2021, Circular 06 introduces a legal framework for lending via electronic channels with the following notable points:

a. General principles

1. The information systems must comply with regulations on assurance of information system safety at level three or above.
2. Local banks must, at their discretion, decide measures, forms and technologies for lending via electronic channels, and at least satisfy the following requirements:
   1. Having technical solutions and technologies to ensure accuracy, confidentiality and safety in the process of collecting, using and examining information and data.
   2. Having measures to check, reconcile, update and verify information and data to prevent acts of forging, interfering, editing and falsifying information and data.
   3. Having measures to monitor, identify, measure and control risks, and having plans to address risks.
   4. Assigning specific responsibilities to each relevant individual and department in lending via electronic channels and in risk management and supervision.

b. Electronic know-your-customers (eKYC)

For individual customers whose loans are for living needs establishing a relationship at the local bank for the first time, the local banks must have technical solutions and technologies in place to perform eKYC and at least satisfy the following requirements:

1. Ensuring that customer identification information and biometric data match with one of the following: 
   1. The corresponding information on relevant documents.
   2. Personal identification data authenticated by the competent state authority.
   3. The citizen identity database or national database on population.
   4. The authentication conducted by an organization providing electronic authentication services or by other local banks.
2. Developing processes to manage, control and assess risks, including measures to do the following: 
   1. Prevent acts of impersonation, interference, modification or falsification of customer identification information.
   2. Examine and verify customer identification information to ensure that customers who perform electronic transactions are borrowers.
   3. Confirm that the identified customers agree with loan agreements.
3. Retaining in full customer identification information and customer biometric data; sound, images, video recordings and sound recordings; the phone number of the person who transacts; and the transaction log.

Circular 06 does not provide eKYC regulations applicable to organizational customers.

c. Lending cap

The outstanding loan balance for an individual customer whose loans are for living needs does not exceed VND 100 million (approx. USD 4,348) at a local bank.

d. Lending documents

Local banks must prepare loan documents in the form of data messages (thông điệp dữ liệu in Vietnamese), including the following:

1. Loan agreement made in writing or electronic form.
2. Report on the customer's financial situation.
3. Lending decision with the authorized signatory's electronic signature (in the case of a collective decision, with the meeting minutes).
4. Customer identification information and data (if any), and information and data arising during the course of loan use.

e. Disbursement

Loans must be disbursed via tender/payment means. In the case of individual customers whose loans are for living needs, local banks can disburse loans to the customers' current accounts opened at its bank.

Other lending-related provisions

a. Additional requirement on real estate-related loans

Under Articles 2.6(c) and 7 of Circular 39, customers whose loans are for living needs do not need to prepare a plan to conduct business activities — a document is required for the local banks' consideration to lend. However, under Circular 06, customers whose loans are for living needs must prepare a corresponding plan if their loans are to be used to do one of the following:

1. Purchase residential houses.
2. Build or renovate residential houses.
3. Transfer (as the transferee) land use rights to build residential houses. 

b. Repayment currency

Circular 06 allows repayment currency to be different from lending currency, subject to the agreements between local banks and customers.

c. Repayment order

Per Circular 06, if loans have one or more overdue repayment periods, the following repayment order will apply: overdue principal, accrued interest on overdue principal, due principal, and accrued interest on due principal that remains unpaid.

d. Lending for the purpose of payment to secure the performance of obligations

If local banks provide loans for the purpose of payment to secure the performance of obligations, such loans must be frozen at the lending banks until the termination of the security obligation.

e. Implementation

Local banks and customers will continue to perform loan agreements and facility agreements signed before the effective date of Circular 06. If such agreements are amended, the amendments must conform to Circular 06.

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If you would like to discuss the details of Circular 06 and its impact on your business, please do not hesitate to contact us.