Are banks in Vietnam required to conduct assessment of assets before offering a loan?

Regarding this matter, LawNet would like to answer as follows:

1. Are banks in Vietnam required to conduct assessment of assets before offering a loan?

According to Article 7 of Circular 39/2016/TT-NHNN, 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 that customer’s demands for a loan to be used for legally accepted purposes.

- Establish that customer’s plan for effective use of borrowed fund.

- Prove the customer’s sound financial capability to repay debt owed.

To be able to consider whether customers meet the conditions for a loan? Is the information and assets provided by customers not truthful or accurate? The Bank will need to assess the customer's ability to meet loan conditions.

According to the provisions of Clause 1, Article 17 of Circular 39/2016/TT-NHNN:

1. The credit institution shall assess customer’s ability to satisfy loan requirements as prescribed by Article 7 of Circular 39/2016/TT-NHNN in order to consider granting a decision to offer a loan. In the course of such assessment, the credit institution can use the internal credit rating system associated with information available at the National Credit Information Center of Vietnam and other communications channels.

Specifically, based on Point b, Clause 2, Article 22 of Circular 39/2016/TT-NHNN (amended by Clause 6, Article 1 of Circular 06/2023/TT-NHNN) on internal rules on lending of the credit institution shall be implemented in a consistent manner within the entire network of the credit institution, the procedures for assessing include:

- The maximum duration for assessing a loan application and decide to grant a loan; delegation or assignment of rights and responsibilities to each individual or department in loan application assessment, approval and issuance of lending decisions, including those for digital lending operations prescribed in Article 32dd of Circular 39/2016/TT-NHNN (if any); other workloads as part of loan application assessment, approval and lending decision-making procedures;

- Cases in which loans are given for making capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts for executing investment projects;

- In case of a loan used for making cash payment as security for performing an obligation, measures for freezing amounts of borrowed funds disbursed by the lending credit institution in accordance with regulations of law, and under specific agreements of the parties included in the loan agreement until fulfillment of the secured obligation;

Assessment of assets is considered an indispensable step in considering and deciding to grant a loan. This process will determine the quality of the loan that the Bank grants to customers and is the basis for the Bank to make accurate lending decisions.

Through that, the Bank will detect and predict bad cases that can lead to the risk of not being able to repay the loan or the worst situation for the Bank, thereby preventing and limiting possible losses.

Thus, assessment of assets before lending is something the Bank is required to do in accordance with the standards and regulations of the Price Law 2023 on price appraisal and the Bank's internal regulations on lending.

2. Procedures for assessment of collateral by a bank in Vietnam

Collateral is a type of asset for security for obligation fulfillment to the secured party. Based on Article 8 of Decree 21/2021/ND-CP, collateral for security for obligation fulfillment includes:

- Current properties or off-plan properties, except for cases where the Civil Code or other relevant laws forbid sale, transfer or other change of ownership at the time of establishing security contracts, security measures;

- Properties sold under property sale agreements with retention of ownership;

- Properties considered as subjects of obligations under infringed bilateral contracts in case of lien measures;

- Properties under general public’s ownership if prescribed by relevant laws.

- Typically, the procedures for assessment of assets by a bank will include the following steps:

Step 1: Receive the collateral file, verify general information, and determine the legal value of the collateral.

Step 2: Develop an appraisal plan, schedule an appointment with the client to visit the location of the existing asset for actual inspection and valuation.

Step 3: Use specific procedures as required by the bank to determine the value of the collateral, such as the listed selling price, current market price, potential increase or decrease in asset value, etc.

Step 4: Prepare the minutes and report the assessment results.

Step 5: Prepare the collateral dossier, register the secured transaction, and store the documentation.

Best regards!

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Key word: collateral | bank | in Vietnam | Vietnam | assessment of assets |

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