Vietnam: What is the loan maturity date? What are the differences between loan maturity and refinancing?
What is the loan maturity date in Vietnam?
Currently, there are no legal regulations on maturity date, maturity, or loan maturity date.
In fact:
A maturity date is the last day to pay a loan (or debt) or other financial contract such as a term deposit or bond. At this date, the entire principal amount together with all outstanding interest must be paid
Maturity is a term that applies generally to all industries related to financial currencies. Maturity includes many such as Credit card maturity, Passbook maturity, Loan maturity, Bond maturity, Insurance policy maturity,....and many other types of maturity.
The maturity date of the bank loan is the last day to pay back the loan amount together with the interest rate agreed in the loan contract.
Example of loan maturity date:
Customer A applied for a loan of VND 2 billion at Bank B with a loan term of 1 year and an interest rate of 8%/year. The contract states a loan start date of Jan. 1, 2023, and a maturity date of Jan. 1, 2024.
What are the differences between loan maturity and refinancing in Vietnam?
Loan maturity and refinancing both have the same purpose to extend the repayment period for an old loan that is about to be paid to the bank. However, there are certain differences between bank loan maturity and refinancing:
+ Loan maturity is a form of a bank re-borrowing capital when the old loan repayment term has expired but the debt has not been paid off.
+ Refinancing is done to turn 1 old loan that is about to be repaid into a new loan, in order to extend the repayment period. In other words, refinancing is the disbursement of a new contract to repay the debt to the old one.
Refinancing is prohibited by law. Specifically, according to the provisions of Article 8 of Circular 39/2016/TT-NHNN amended by Clause 2 Article 1 of Circular 06/2023/TT-NHNN as follows:
Rejected loan demands
Credit institutions shall not be allowed to approve the following loan demands:
...
5. Loans used for repaying loan debts owed to lending credit institutions, except those used for paying loan interests arising during the construction process which are accounted for in the total construction cost estimate approved by a competent authority in accordance with regulations of law.
6. Loans used for repaying foreign loan debts (excluding foreign loans granted in the form of deferred payment for purchased goods) or repaying loan debts owed to other credit institutions, except for a loan used for making early repayment of an existing loan that meets the following conditions:
a) The term of the new loan does not exceed the remaining term of the old one;
...
Loan maturity can be done in the form of debt rescheduling as prescribed in Article 19 of Circular 39/2016/TT-NHNN:
Debt rescheduling
The credit institution shall consider deciding whether the debt rescheduling is necessary at the customer’s request and depending on the financial capability of that credit institution and results of assessment of the customer's capability to repay debt as prescribed hereunder:
1. If the customer is incapable of making due repayment of loan principal and/or interest, and is rated by the credit institution as having capacity for fully repaying loan principal and/or interest within the adjusted repayment period, the credit institution shall consider adjusting the period of repayment of that principal and/or interest as appropriate to the customer's source of financing for debt repayment without prejudice to the loan term.
2. If the customer is incapable of paying off loan principal and/or interest in full within the agreed loan term, and is rated by the credit institution as having capacity for fully repaying loan principal and/or interest within a specified period of time following the said loan term, the credit institution shall consider extending the period of debt repayment as appropriate to the customer’s source of financing for such debt repayment.
3. The debt rescheduling shall be performed prior to or within a period of 10 (ten) days from the agreed date on which debt repayment is due.
For example: A loan of VND 100 million for a term of 1 year, with an interest rate of 7%/year, starting from June 20, 2023. Therefore, Customer A will have to pay the loan amount and interest by June 20, 2024. June 20, 2024 is considered the due date. If the maturity date comes, Customer A can choose to mature the loan by asking the bank to reschedule debts to comply with the law. If Customer A chooses to refinance, Customer A will ask the bank granting the loan to A or another bank to disburse another loan to repay the debt. This form is prohibited by law.
What are the eligibility requirements for a loan in Vietnam?
Pursuant to the provisions of Article 7 of Circular 39/2016/TT-NHNN as follows:
A credit institution shall consider granting a decision to offer a loan to a customer who meets the following requirements:
- If that customer is a legal person, it must have civil capacity in accordance with the civil law jurisdictions. If that customer is a natural person, (s)he must be aged exactly 18 years or older and have full capacity for civil conduct in accordance with the civil law jurisdictions, or must be aged between exactly 15 and nearly 18 years and must not have his/her incapacity or restricted capacity for civil conduct as provided by laws.
- Demonstrate the customer’s demands for a loan to be used for legally accepted purposes.
- Establish that customer’s plan for effective use of borrowed funds.
- Prove the customer’s sound financial capability to repay the debt owed.
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