If the obligee and the obligor be both non-residents, can they be provided with guarantee by a credit institution in Vietnam?
What is a bank guarantee and the parties to the guarantee relationship?
Pursuant to the provisions of Clause 6, Clause 7 and Clause 8, Article 3 of Circular No. 11/2022/TT-NHNN, the explanation of bank guarantee and guarantor is given as follows:
“bank guarantee” means a form of credit extension whereby the guarantor that is a credit institution or foreign bank branch undertakes to act on behalf of the obligor to fulfill their financial obligations to the obligee in the event the obligor fails to fulfill or insufficiently fulfills their obligations as agreed upon with the obligee; the obligor shall have the obligation to repay the debt to the guarantor.
“guarantor” means a credit institution or foreign bank branch that provides the guarantee for the obligor. In case of co-guarantee, counter-guarantee and guarantee confirmation, the guarantor shall also include foreign credit institutions.
“obligor” means an organization (including credit institution, foreign bank branch and foreign credit institution) or individual whose obligations are guaranteed by the guarantor or counter-guarantor.
In addition, “obligee” means an organization (including credit institution, foreign bank branch and foreign credit institution) or individual that is the beneficiary of the guarantee issued by the guarantor or guarantee confirmation giver.
At the same time, point a clause 11 Article 3 of Circular No. 11/2022/TT-NHNN specifically stipulates that in the case of the bank guarantee, customer of the guarantor is the obligor.
If the obligee and the obligor be both non-residents, can they be provided with guarantee by a credit institution in Vietnam? (Image from the Internet)
What requirements must the obligor meet from the guarantor?
According to the provisions of Article 11 of Circular No. 11/2022/TT-NHNN, the requirements to be satisfied by customers are as follows:
Requirements to be satisfied by customers
1. Credit institutions and foreign bank branches shall consider and decide issuance of the guarantee, counter guarantee or guarantee confirmation to customers as long as customers meet the following requirements:
a) The customer has the full legal personality and legal capacity in accordance with regulations of law;
b) The guaranteed financial obligations must be lawful;
c) The customer has been assessed by the credit institution or foreign bank branch issuing the guarantee to be capable of repaying sums that the credit institution or foreign bank branch has paid to fulfill the guaranteed obligations in favor of them.
2. Credit institutions and foreign bank branches shall not issue guarantee to fulfill payment obligations for bonds issued for the purposes of restructuring of the issuer’s debts, contribution of capital to or purchase of shares of another enterprise, or increase of working capital.
Thus, in order to be guaranteed by a credit institution, the obligor must meet requirements such as legal personality and legal capacity, financial obligation, etc. In addition, credit institutions are not allowed to guarantee to fulfill payment obligations for bonds issued for the purposes of restructuring of debt and capital mobilization.
If the obligee and the obligor be both non-residents, can they be provided with guarantee by a credit institution in Vietnam?
Pursuant to Article 12 of Circular No. 11/2022/TT-NHNN on guarantee for non-resident customers as follows:
Guarantee issued to customers that are non-residents
1. Credit institutions and foreign bank branches may only provide guarantee for organizations that are non-residents and must meet one of the following requirements (the customer that is a foreign credit institution shall not be required to meet these requirements):
a) The customer is an enterprise that is established and operating in a foreign country with capital contributed from Vietnamese enterprises in the form of investments prescribed in Points a, c Clause 1 Article 52 of the Investment Law or in other investment form prescribed in Point dd Clause 1 Article 52 of the Investment Law;
b) The customer has fully made a deposit equivalent to 100% of the guarantee value or has ensured 100% of the guarantee value by the customer’s assets, including the customer’s deposits at the credit institution or foreign bank branch issuing the guarantee, and deposit certificates issued by the same;
c) The obligee is a resident.
2. Foreign bank branches shall not be allowed to provide guarantee in foreign currency for organizations that are non-residents, unless the guarantee is provided on the basis of the counter guarantee of a foreign credit institution or guarantee confirmation in respect of guaranteed obligations of a foreign credit institution to the obligee that is a resident.
3. When giving guarantee in foreign currency to customers that are non-residents, credit institutions and foreign bank branches shall:
a) comply with regulations of law regarding guidelines for foreign exchange management in overseas lending and collection of debts from provision of guarantee to non-residents;
b) has established procedures for credit risk assessment and management, including risks from provision of guarantee to non-residents.
4. In addition to the provisions of this Article, other contents about the provision of guarantee for customers that are non-residents shall comply with relevant provisions of this Circular.
Thus, this provision shows that in case the obligee and the obligor are both non-residents, they will still be guaranteed by a credit institution when they satisfy one of the following two requirements specified at Points a and b of Clause 1, Article 12 of Circular No. 11/2022/TT-NHNN.
Circular No. 11/2022/TT-NHNN issued by the State Bank of Vietnam takes effect from April 1, 2023.
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