New regulations on foreign exchange in respect of foreign loan.

On 30 September 2022, the State Bank of Vietnam (SBV) issued Circular 12/2022/TT-NHNN guiding foreign exchange management for foreign borrowing and repayment by enterprises ("Circular 12"). Circular 12 replaces Circular 03/2016/TT-NHNN ("Circular 03") and took effect on 15 November 2022. Its main changes are as follows.

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1. The exception to loan registration is wider

A short-term loan may have no extension agreement but still have outstanding principal (including interest capitalised into principal) one full year after the first drawdown. In that case, the borrower does not need to register the loan with the SBV if it repays the outstanding principal within a set period.

Circular 12 extends this period from 10 days to 30 working days, which gives the borrower more time to repay the outstanding principal.

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2. Three more cases in which a loan change does not need registration

Circular 12 adds three new cases in which the borrower does not register a change to its foreign loan, but only reports the change on the SBV's web portal:

• a change to the payment schedule for interest and fees that does not change how the loan agreement calculates interest and fees;
• a change (increase or decrease) of up to 100 units of the loan currency in the amount drawn down or in the repayment of principal, interest or fees;
• an actual drawdown or principal repayment in a given period that is smaller than the amount in the drawdown or repayment schedule.

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3. A loan change file may use alternative documents to the bank's confirmation

Circular 03 did not cover two situations: where the account service bank closes or suspends operations before the borrower moves to another bank, and where the drawdown and repayment do not have to go through a foreign loan account. For these situations, Circular 12 allows the borrower to submit other documents for verification, such as:

• a copy of the audited or reviewed financial statements showing that the borrower received the loan and the outstanding debt at the time it asks the SBV to confirm the loan registration;
• a copy in the original language, with a Vietnamese translation, of the written confirmation from the overseas commercial bank where the borrower holds the foreign currency account used for drawdown and repayment;
• a copy in the original language, with a Vietnamese translation, of the confirmation letter from an overseas bank stating the amount that the lender paid directly to a non-resident beneficiary that supplied goods or services to the resident borrower under their contract.

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4. Two grounds for cancelling a loan registration confirmation are removed

Under Circular 03, the SBV could cancel a written confirmation of loan registration or of a loan change on the following two grounds, which Circular 12 removes:

• the application met the procedural requirements, but the information in it was incorrect, so the SBV's confirmation contained errors;
• the confirmation was issued by an authority that had no power to issue it.

As a result, under Circular 12 the SBV may cancel a confirmation of loan registration or of a loan change on one ground only: the application for registration or for a change contains fraudulent information or forged documents.

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5. The direct investment capital account may be used in more cases

Circular 12 gives clearer guidance on using the direct investment capital account (DICA) to borrow and repay foreign loans:

• For medium- and long-term foreign loans, the borrower uses its DICA. If the loan currency differs from the DICA currency, the borrower may open a separate foreign loan account at the bank where it holds its DICA.
• If a foreign-invested enterprise becomes jointly liable for the original borrower's repayment obligation after a division, separation, consolidation or merger, that enterprise does not have to use its DICA to repay the debt for which it is jointly liable.

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6. Foreign-currency loan accounts may be used for four more types of transaction

Circular 12 adds four types of transaction that a borrower may carry out through its foreign-currency foreign loan account:

• For receipts:
  • receipts from derivative transactions relating to the foreign loan;
  • interest earned on the account balance;
• For expenditures:
  • charges for account management and money transfers through the account, as set by the account service bank;
  • payments under derivative transactions that hedge exchange rate and interest rate risks relating to the foreign loan.

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7. VND loan accounts may be used for two more types of transaction

Circular 12 adds two types of transaction that a borrower may carry out through its VND account for borrowing and repaying foreign loans:

• For receipts:
  • interest earned on the account balance, as provided by law;
• For expenditures:
  • charges for account management and money transfers through the account.

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8. The cases in which drawdowns need not go through a loan account are adjusted

Circular 12 removes the case of "drawdown in the form of deferred payment for goods imported from the lender". It adds the case of "drawdown where the money spent on investment preparation is converted into a foreign loan as agreed between the parties, in accordance with the law on foreign exchange management for foreign direct investment in Vietnam".

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9. Repayment by shares or contributed capital need not go through a loan account

Circular 12 sets out in more detail when a debt may be repaid with shares or contributed capital:

• the parties agree to convert the outstanding debt into shares or contributed capital in the borrower;
• the parties agree to swap the outstanding debt for shares or contributed capital owned by the borrower.

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10. The rules on who performs guarantee obligations are more detailed

Circular 03 only stated which documents the account service bank relied on to transfer money when the guarantor paid from its current account. Circular 12 sets out in more detail who the guarantor may be and how each type of guarantor transfers the guaranteed amount:

• The guarantor is a resident: it transfers the money for the guarantee obligation through a bank that services guarantee transactions;
• The guarantor is a credit institution or a foreign bank branch in Vietnam: it does not have to transfer the money through such a bank, but it must comply with the law on bank guarantees and notify the account service bank of the amount it has paid under the guarantee.

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11. Banks that service guarantee transactions have their own rules

Circular 12 adds a separate provision on banks that service guarantee transactions.

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This provision guides how these banks process transfers to perform guarantee obligations and which supporting documents they require.

12. The borrower no longer has to repay the debt owed to the guarantor

Under Circular 03, once the guarantor performed the guarantee for the borrower, the borrower had to repay that amount to the guarantor. Circular 12 no longer makes this repayment mandatory.