Does the State Bank require credit institutions to reduce interest rates to a minimum of 1.5-2%/year, including old and new loans in Vietnam?

Does the State Bank require credit institutions to reduce interest rates to a minimum of 1.5-2%/year, including old and new loans in Vietnam?

On August 14, 2023, the State Bank of Vietnam (SBV) issued Official Dispatch No. 6385/NHNN-CSTT dated 2023 to credit institutions and foreign bank branches requesting to continue implementing solutions to reduce interest rates.

According to this regulation, the State Bank of Vietnam has requested credit institutions to reduce lending interest rates for old and new loans as follows:

1. Credit institutions proceed with solutions to reduce interest rates, especially reducing lending interest rates for existing outstanding loans and new loans (taking all necessary steps to reduce interest rates by at least 1.5 – 2% per year) under the directives of the Government and the Prime Minister. This will aid businesses and the people to recover and develop production and business.

Thus, in order to support businesses and people to recover and develop production and business, the State Bank of Vietnam requires credit institutions to strive for a minimum reduction of 1.5-2%/year, including old and new loans.

At the same time, credit institutions must have the responsibility to:

- Report on commitment to reduce lending interest rates in 2023 before August 25, 2023;

- Report on results of implementing the commitment to reduce lending interest rates in 2023 to the State Bank before January 8, 2024.

What are regulations on loan term between credit institutions and customers in Vietnam?

In Article 28 of Circular 39/2016/TT-NHNN, loan term between credit institutions and customers is stipulated as follows:

1. The credit institution and its customer shall refer to the business cycle, duration of fund recovery and solvency of the customer, source of loan fund and the remaining duration of operation of the credit institution in order to agree on the loan term.

2. The term of a loan offered to a customer that is a legal person established and operated within the territory of Vietnam, or a legal person established abroad and legally operated within the territory of Vietnam shall not exceed the remaining duration of legal operation of that customer, and to a customer that is a foreign citizen residing within the territory of Vietnam, shall not exceed the residual duration of legal residence in Vietnam.

What are conditions for a customer's loan to be lent by a credit institution for financial offsetting purposes in Vietnam?

In Article 8 of Circular 39/2016/TT-NHNN amended by Clause 2, Article 1 of Circular 06/2023/TT-NHNN, it is stipulated that capital needs that cannot be loaned are as follows:

Article 8: Rejected loan demands

Credit institutions shall not be allowed to approve the following loan demands:

...

7. Loans used for sending money to deposit accounts.

8. Loans used for making capital contribution to, buying or receiving transfer of stakes of a limited liability company or a partnership, or shares of a joint-stock company that is not yet listed on the securities market or registered for trading on the Upcom system.

9. Loans used for making capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts for executing investment projects that are unfit for sale or for business operation as prescribed by laws when the credit institution issues its lending decision.

10. Loans used for financial offsetting purposes, except for those meeting the following conditions:

a) The customer has used their own funds for paying costs incurred from their business project for a period of less than 12 months by the time of grant of lending decision by the credit institution;

b) Costs paid using the customer’s funds for executing a business project are costs to be covered using the fund borrowed from the credit institution under the plan to use borrowed fund submitted to the credit institution when applying for a medium-term or long-term loan for executing that business project.

Thus, the customer's loan that is lent by a credit institution for financial offsetting purposes must meet the following conditions:

- The customer has advanced the customer's own capital to pay and cover the costs of implementing the business project, but the costs of implementing this business project have arisen in less than 12 months up to the time of credit institutions decide to lend;

- Expenses paid and paid with the customer's own capital to carry out business projects are expenses that use loan capital from a credit institution according to the capital use plan submitted to the credit institution to be considered for medium and long-term loans to implement that business project.

Note: Circular 06/2023/TT-NHNN takes effect from September 1, 2023.

Best regards!