In case the collateral has a conversion value that is ineligible for repayment of principal of special loans in Vietnam, what should the borrower do?
- What are the regulations on the order of provision of collateral for special loans in Vietnam?
- How is the conversion value of each type of collateral for a special loan adjusted?
- In case the collateral has a conversion value that is ineligible for repayment of principal of special loans in Vietnam, what should the borrower do?
What are the regulations on the order of provision of collateral for special loans in Vietnam?
According to the provisions of Clause 1, Article 12 of Circular No. 08/2021/TT-NHNN (amended and supplemented by Clause 1, Article 2 of Circular No. 13/2022/TT-NHNN) as follows:
Collateral for special loans granted according SBV’s decision
1. With regard to the special loans specified in Point a Clause 1, Point b Clause 2, Point b Clause 3 Article 4, Point a Clause 1 Article 6 of this Circular, the borrower must provide collateral in the following order of priority:
a) Pledge: Bills of State Bank of Vietnam, government bonds (including: treasury bills, treasury bonds, bonds for central-level works, national development bonds, government bonds issued by Vietnam Development Bank (formerly, Development Assistance Fund) according to the Prime Minister’s directive), government-guaranteed bonds of which principal and interest shall be fully paid when they are due, municipal bonds which are included in the list of financial instruments used in SBV’s transactions;
b) Pledge of bonds issued by commercial banks over 50% of charter capital of which is held by the State (except commercial banks which have been compulsorily acquired);
c) Pledge of bonds issued by credit institutions which are not placed under special control (except commercial banks specified in Point b of this Clause) and other enterprises;
Thus, in case the State Bank of Vietnam makes a special loan to a credit institution to support liquidity, the borrower must provide collateral in the following order of priority:
- Pledge: Bills of State Bank of Vietnam, government bonds, government-guaranteed bonds of which principal and interest shall be fully paid when they are due, municipal bonds which are included in the list of financial instruments used in SBV’s transactions;
- Pledge of bonds issued by commercial banks over 50% of charter capital of which is held by the State (except commercial banks which have been compulsorily acquired);
- Pledge of bonds issued by credit institutions which are not placed under special control.
Thus, Circular No. 13/2022/TT-NHNN effective from October 28, 2022, removes the provision on mortgage of rights to claim debts of loans granted by the borrower to its clients (except credit institutions) from the order of priority when providing collateral for special loans.
In case the collateral has a conversion value that is ineligible for repayment of principal of special loans in Vietnam, what should the borrower do?
How is the conversion value of each type of collateral for a special loan adjusted?
According to the provisions in Clause 2, Article 12 of Circular No. 08/2021/TT-NHNN (amended by points a and b, Clause 1, Article 1 of Circular No. 13/2022/TT-NHNN) on the value of collateral for special loans granted according SBV’s decision as follows:
Collateral for special loans granted according SBV’s decision
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2. Value of collateral:
a) The value of the collateral types specified in Clause 1 and Clause 6 of this Article shall be determined according to the provisions of Appendix No. IV enclosed herewith;
b) Conversion value of each type of collateral for a special loan shall be determined adopting the following formula:
Where:
TS: Conversion value of a type of collateral;
GT: The value of the type of collateral which is determined according to the provisions of Appendix No. IV enclosed herewith;
TL: Collateral conversion ratio corresponding to the type of collateral.
c) The collateral conversion ratio (TL) is determined as follows:
(i) With regard to the financial instruments specified in Point a Clause 1 of this Article, TL is the minimum ratio of the value of the financial instrument to the loan amount secured by the pledge of that financial instrument granted by SBV to the credit institution according to SBV’s regulations in each period;
(ii) With regard to the types of collateral specified in Points b, c Clause 1 and Clause 6 of this Article, TL shall be 120%;
d) At the time of application for a special loan or extension of a special loan, the credit institution must ensure that total conversion value of types of eligible collateral shall not be smaller than the amount of the special loan or extended special loan that it applies for.
The collateral conversion ratio for special loans of bonds owned by commercial banks with 50% state capital is adjusted from 170% to 120%, a reduction of 50% compared to the old regulations in Circular No. 08/2021/TT-NHNN.
Thus, the value of the collateral for the special loan is calculated by the quotient of the value of each security asset according to the provisions of Appendix IV issued together with Circular No. 13/2022/TT-NHNN and corresponding collateral conversion ratio.
In case the collateral has a conversion value that is ineligible for repayment of principal of special loans in Vietnam, what should the borrower do?
According to the provisions of Clause 3, Article 12 of Circular No. 08/2021/TT-NHNN (amended by point c, Clause 1, Article 1 of Circular No. 13/2022/TT-NHNN) stipulating as follows:
Collateral for special loans granted according SBV’s decision
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3. If any type of collateral specified in Point c Clause 1 of this Article does not meet the requirements laid down in Clause 2 Article 13 of this Circular resulting in the circumstance that total conversion value of eligible collateral is smaller than the outstanding principal of the special loan, the borrower shall be required to implement the provisions of Point a Clause 4, Point a Clause 5 of this Article to ensure that total conversion value of eligible collateral shall not be smaller than the outstanding principal of the special loan within 10 working days from the occurrence of the circumstance.
Thus, the eligibility requirements for collateral are specified in Article 13 of Circular No. 08/2021/TT-NHNN (amended and supplemented by Clause 2, Article 1 of Circular No. 13/2022/TT-NHNN) including:
- The financial instruments specified in Points a, b Clause 1 Article 12 of this Circular must meet the following requirements:
+ They are issued in VND;
+ They are deposited at SBV, either deposited directly at SBV or deposited on SBV’s client accounts opened at Vietnam Securities Depository and Clearing Corporation (VSDC);
+ They are not the financial instruments issued by the borrower;
+ The term to maturity of the financial instrument must be longer than the term of the special loan.
- The bonds specified in Point c Clause 1 Article 12 of this Circular must meet the following requirements:
+ They must meet the requirements stated in Clause 1 of this Article;
+ They are listed in accordance with regulations of law;
+ The collateral is available and its value, as determined according to internal regulations of the credit institution at the nearest time to the time of application for special loan or application for extension of special loan or at the time of conversion of the refinancing loan into the special loan or at the time of valuation of collateral according to internal regulations of the credit institution during the special loan term, is not lower than the face value of bonds.
- Credit extensions specified in Clause 6 Article 12 of this Circular are secured by the collateral.
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