Vietnam: New circular on foreign exchange transactions

In brief

On 31 March 2021, the State Bank of Vietnam (SBV) issued Circular No. 02/2021/TT-NHNN ("Circular 02") guiding the implementation of foreign currency (FX) transactions on the FX market of credit institutions authorized to engage in FX activities ("authorised credit institutions").

Circular 02 takes effect from 17 May 2021 and replaces Circular No. 15/2015/TT-NHNN of the SBV ("Circular 15"). Parties can continue implementing FX transaction agreements that were established and became effective before 17 May 2021. Such agreements can only be amended or supplemented if the amendment or supplement is consistent with Circular 02. The key highlights of Circular 02 are as follows:


Contents

In more detail

1. Circular 02 does not apply to FX transactions on the international market

Circular 02 expressly provides that it does not apply to FX transactions on the international market. Accordingly, authorized credit institutions permitted to conduct FX activities can conduct such FX transactions in accordance with the scope of the license/approval issued by the government, the prime minister and the SBV.

2. Authorized credit institutions can sell FX forward to foreign investors holding government bonds denominated in VND and issued in Vietnam

Circular 15 allows authorized credit institutions to engage in only FX spot with FX non-residents. Circular 02 retains and further introduces a new exception to this restriction. Specifically, authorized credit institutions can now sell foreign currencies in an FX forward with FX non-residents being foreign investors holding government bond denominated in VND issued in Vietnam. Such FX forward can be entered into to hedge the exchange rate risk for such investor's bond.

When conducting such FX forward, the foreign investor must present supporting documents evidencing its ownership over the government bonds, ensuring that the value and tenor of the FX forward does not exceed the purchase price and the remaining term of such government bond. For the FX forward to become effective, the foreign investor must further provide evidence within seven business days from the trade date of the FX forward that such Government bond has been blocked at the Vietnam Securities Depository and Clearing Corporation.

3. FX swaps between VND and foreign currencies no longer need to have a tenor of at least three business days

Circular 02 retains the following provisions under Circular 15:

  • An FX spot must have a tenor of at most two business days.
  • An FX forward must have a tenor of at least three business days.
  • An FX swap can comprise: (i) two FX spots; (ii) two FX forwards; or (iii) one FX spot and one FX forward.

However, Circular 02 no longer requires an FX swap between VND and a foreign currency to have at least one FX forward. Accordingly, it is understood that an FX swap between VND and a foreign currency can comprise two FX spots. In such a case, the FX swap can have a tenor of less than three business days.

4. Sale of foreign currencies for obligations that are not yet due

Circular 02 slightly relaxes the requirements with respect to authorized credit institutions' sale of foreign currencies for their clients' obligations that are not yet due, as follows:

  • For purposes other than those discussed below, similar to Circular 15, Circular 02 permits authorized credit institutions to only sell foreign currencies in an FX forward. However, Circular 02 now allows for the settlement date of such FX forward to be no more than five business days before the due date of the client's underlying obligations. The timeline under Circular 15 was two business days.
  • Circular 02 still provides for a foreign investor's right to purchase foreign currencies to remit abroad their legitimate income from direct investment activities as an exception.
  • Further, Circular 02 now expressly allows authorized credit institutions to sell foreign currencies to clients to satisfy their obligations becoming due within more than three business days if the clients are Vietnamese individuals buying foreign currencies, and such foreign currencies are used to satisfy their demand related to studying, receiving medical treatment, business trip, travelling and visiting abroad.

5. Using FX swap to amend the tenor of an executed FX forward

If the client's foreign currency settlement schedule changes due to objective reasons agreed between the authorized credit institution and the client, the client sends the authorized credit institution a written request for an amendment to the tenor of the executed FX forward, together with supporting documents evidencing the reason such amendment is necessary. Upon receipt of the client's written request, the authorized credit institution and the client can execute an FX swap to amend the tenor of the executed FX forward. The aggregated tenor of the executed FX forward and of such amending FX swap(s) cannot exceed 365 days from the trade date.

6. Using FX swap to extend the tenor of an executed FX forward

The authorized credit institution and the client can execute an FX swap to extend the tenor of an executed FX forward under the following circumstances:

  • For offshore loans in foreign currencies having an initial or remaining term of more than 365 days, the client can use VND to buy FX forward with a tenor of 365 days from an authorized credit institution to hedge exchange rate risk. Upon receipt of the client's written request, the authorized credit institution and the client can execute an FX swap to extend the tenor of the executed FX forward. The tenor of the FX forward in such FX swap is 365 days or, if the remaining term of the offshore loan is less than 365 days, equals the remaining term of the offshore loan.
  • If a foreign investor holding government bond in VND issued in Vietnam has executed an FX forward with an authorized credit institution to hedge exchange rate risk, within two business days before the settlement date of such FX forward, if the foreign investor still needs to hedge exchange rate risks for the bond, the authorized credit institution and the client can execute an FX swap to extend the tenor of the executed FX forward. The authorized credit institution must ensure that the tenor of such FX swap and any subsequent FX swap(s) do not exceed the remaining term of the blocked government bond. The aggregated tenor of the executed FX forward and FX swap must not exceed the term of the blocked government bond.

7. Enhancing the use of electronic methods for FX transactions

Circular 02 allows FX transactions to be conducted directly, or via transaction methods, including telephone and electronic methods, and removes the requirement under Circular 15 that the agreement for an FX transaction must be made in writing. The parties will be responsible for and must ensure safety, security, data message protection and confidentiality if the FX transaction is conducted via electronic methods. A data message will have the same validity as a written document if it meets the requirement under Article 12 of the Law on e-transactions.

For transactions between authorized credit institutions, the parties must create and send each other a trade confirmation on the trade date or, if the trade is executed after business hours, the next business day if an agreement is made via electronic methods or telephone. For transactions between an authorized credit institution and its non-credit institution counterparty, the parties must create and send each other a trade confirmation by no later than the business day following the trade date.

Moreover, Circular 02 now expressly recognizes the use of SWIFT in confirming FX transactions. Specifically, Circular 02 provides that if an FX transaction confirmation is sent via SWIFT, the authorized credit institution must establish a procedure to create, send and receive the confirmation, ensuring safety and avoiding risks. A confirmation is no longer required to have a signature, but must have the approval of the person authorized to confirm transactions.

If a trade confirmation is sent via fax or attached to an email, the parties must send each other the original hard copy within 10 business days. The previous timeline provided under Circular 15 was five business days.

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