What types of bank guarantees are available in Vietnam? Who are the subjects in bank guarantee activities?
What is a bank guarantee according to Vietnamese regulations?
Pursuant to the provisions of Clause 18, Article 4 of the Law on Credit Institutions 2010, the concept of bank guarantee is specified as follows:
18. Bank guarantee means a form of credit extension under which a credit institution commits to the guarantee to fulfill financial obligations of its client in case the client fails to fulfill or fully fulfill its obligations as committed. The client shall acknowledge and repay the debt to the credit institution as agreed upon.
At the same time, in Clause 1 Article 3 of Circular 07/2015/ TT-NHNN, there are also regulations on the concept of bank guarantee as follows:
1. Bank guarantee refers to a type of credit whereby the guarantor 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 fulfill their agreed-upon obligations to the obligee; the obligor must take on their debt obligations and repay the guarantor.
What types of bank guarantees are available in Vietnam? Who are the subjects in bank guarantee activities?
How many forms of bank guarantees in Vietnam?
For forms of bank guarantee, Clauses 2, 3 and 4, Article 3 of Circular 07/2015/TT-NHNN specify:
- Counter guarantee refers to a type of bank guarantee under which the counter-guarantee issuing party agrees to fulfill the financial obligation to the guarantor in the event that the guarantor is called upon to fulfill the financial obligation on behalf of the obligor being the customer of the counter-guarantee issuing party; the obligor must take on their debt obligations and repay the counter-guarantee issuing party.
- Guarantee confirmation refers to a type of bank guarantee under which the party issuing the bank guarantee confirmation makes a contractual agreement with the obligee to ensure that the guarantor would perform their obligations to the obligee. The party issuing the bank guarantee confirmation shall act on behalf of the guarantor to fulfill their financial obligations in case of the guarantor's nonperformance or insufficient performance; the guarantor must take on their debt obligations and repay the party issuing the bank guarantee confirmation. Meanwhile, the obligor must take on their debt obligations and make repayment to the guarantor.
- Co-guarantee refers to a loan syndication under which more than 02 (two) credit institutions or foreign bank branches collaborate in giving the bank guarantee; or a credit institution, foreign bank branch and credit institution collaborate in doing so.
Who are the subjects in bank guarantee activities in Vietnam?
In Clauses 5, 6, 7, 8, 9, 10 Article 3 of Circular 07/2015/TT-NHNN, there are listed entities in specific bank guarantee activities as follows:
Subjects in bank guarantee activities include:
- Guarantor refers to a credit institution or foreign bank branch giving the bank guarantee to the obligor. If the bank guarantee is taking the form of a co-guarantee, counter guarantee or guarantee confirmation, the guarantor shall include a foreign credit institution.
- Obligor includes a credit institution, foreign bank branch or foreign credit institution, or the individual whom the guarantor or the counter-guarantee issuing party issues the guarantee.
- Obligee includes a credit institution, foreign bank branch or foreign credit institution, or the individual who is the beneficiary of the bank guarantee issued by the guarantor or the guarantee-confirmation issuing party.
- Counter-guarantee issuing party refers to a credit institution, foreign bank branch or foreign credit institution giving counter guarantees to the guarantor.
- Guarantee confirming party refers to a credit institution, foreign bank branch or foreign credit institution giving the guarantee confirmation to the guarantor.
- Customer refers to a credit institution, foreign bank branch or foreign credit institution, or an individual in accordance with the following provisions:
+ Under the bank guarantee (exclusive of the counter guarantee and guarantee confirmation), customer of the guarantor is termed the obligor;
+ Under the counter guarantee, customer of the guarantor is termed the counter-guarantee issuing party while customer of the counter-guarantee issuing party is termed the obligor;
+ Under the guarantee confirmation, customer of the guarantor is termed the obligor while customer of the guarantee-confirmation issuing party is termed the guarantor.
How is the agreement for granting bank guarantees regulated in Vietnam?
Regarding the content of the agreement on granting bank guarantee, Article 14 of Circular 07/2015/TT-NHNN specifies that:
Credit commitment
1. In order to enter into the guarantee relationship, credit institutions or foreign bank branches and customers must sign the guarantee agreement. In terms of the guarantee given in the form of a counter guarantee, the guarantor shall not be obliged to sign the guarantee agreement with the counter-guarantee issuing party.
2. The guarantee commitment must include the following contents:
a) Applicable regulations;
b) Information about parties in the guarantee relationship;
c) Guarantee obligations;
d) Guarantee sum and currency;
dd) Form of guarantee commitment issuance;
e) Conditions for fulfillment of guarantee obligations;
g) Rights and obligations of parties;
h) Guarantee-issuing fee;
i) Agreement on compulsorily owing debts repaid by other parties, applicable interest rate imposed on the sum paid in favor of other party, debt repayment obligations and duration, once guarantee obligations are required to be fulfilled;
k) Serial numbers, signature date and validity of the agreement;
l) Dispute settlement.
3. Apart from matters stipulated in Clause 2 of this Article, parties shall be entitled to agree on other matters in the guarantee agreement unless this is in breach of regulations laid down in this Circular and legal regulations.
4. Any modification or annulment of agreed matters shall be approved or decided in compliance with legal regulations.
the guarantor and the customer and other related parties (if any) on the issuance of bank guarantee, reciprocal guarantee, confirmation of guarantee for customers.
- In order to make guarantees, credit institutions, foreign bank branches and customers sign agreements on granting guarantees.
In case of issuing guarantees on the basis of reciprocal guarantees, the guarantor is not required to sign a guarantee agreement with the reciprocal guarantor.
What are the regulations on bank guarantee commitments in Vietnam?
In case of bank guarantee commitment, Clause 12 Article 3 of Circular 07/2015/TT-NHNN stipulates:
Guarantee commitment refers to the written document issued by the guarantor or the counter-guarantee issuing party or the guarantee-confirmation issuing party which takes one of the following forms:
a) Letter of guarantee refers to the written commitment between the guarantor and the obligee to the guarantor's fulfilling the financial obligation on behalf of the obligor in the event the obligor fails to fulfill or insufficiently fulfill agreed-upon obligations to the obligee.
Under the counter guarantee or the guarantee confirmation, the letter of guarantee shall include the written commitment of the counter-guarantee issuing party to the guarantee, or of the guarantee-confirmation issuing party to the obligee;
b) Guarantee contract refers to the written commitment between the guarantor and the obligee and other related parties (if applicable) to the guarantee’s fulfilling the financial obligation on behalf of the obligor in the event the obligor fails to fulfill or insufficiently fulfill agreed-upon obligations to the obligee.
Under the counter guarantee or guarantee confirmation, the guarantee contract shall be composed of the written committee between the counter-guarantee issuing party and other related parties (if applicable), or between the guarantee-confirmation issuing party and the obligee as well as other related parties (if applicable).
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