Hanoi-Vietnam: Proposed regulations on the eligibility requirements for collateral for special loans granted to credit institutions facing bank run

Hanoi-Vietnam: Proposed regulations on the eligibility requirements for collateral for special loans granted to credit institutions facing bank run (Image from the Internet)

On this matter, LawNet explains as follows:

The State Bank of Vietnam is seeking comments on the draft Circular regulating special loans (hereinafter referred to as the draft Circular).

Proposed regulations on the eligibility requirements for collateral for special loans granted to credit institutions facing bank run

According to Article 15 of the draft Circular, the proposed regulations on eligibility requirements for collateral are as follows:

- Financial instrument as stipulated in points a and b, clause 1, Article 14 of the draft Circular must meet all the following conditions:

+ Issued in Vietnamese Dong;

+ Currently deposited at the State Bank of Vietnam, including direct deposit at the State Bank of Vietnam or deposit at the Customer Account of the State Bank of Vietnam at the Vietnam Securities Depository and Clearing Corporation;

+ Not issued by the borrower of special loans;

+ The remaining term of the financial instrument must be longer than the term of the special loan.

- Bonds stipulated in point c, clause 1, Article 14 of the draft Circular must meet all the following conditions:

+ Conditions stipulated in clause 1, Article 14 of the draft Circular;

+ Listed according to legal provisions;

+ Secured by assets and the value of collateral according to the latest internal regulations of the credit institution at the time of submitting the application for special loans, special loan extension, or asset evaluation according to internal regulations during the special loan period is not less than the bond's par value.

- Credit extensions stipulated in clause 2, Article 14 of the draft Circular are already secured by assets.

Proposed regulation on collateral for special loans granted to credit institutions facing bank run facing bank run

In Article 14 of the draft Circular, new regulations on collateral for special loans in cases specified in point a, clause 1, Article 4 of the draft Circular are as follows:

- Credit institutions applying for special loans must have collateral in the following priority order:

+ Pledge: Treasury bills of the State Bank of Vietnam, bonds of the Government of Vietnam (including: Treasury bills, Treasury bonds, Central project bonds, national construction bonds, bonds of the Government of Vietnam issued by the Vietnam Development Bank, or the Development Assistance Fund as designated by the Prime Minister), government-guaranteed bonds with 100% principal and interest payment upon maturity, and local government bonds in the list of financial instrument s used in transactions with the State Bank of Vietnam;

+ Pledge of bonds issued by commercial banks where the state holds more than 50% of the charter capital (excluding mandatory purchased commercial banks);

+ Pledge of bonds issued by credit institutions not under special control (excluding commercial banks specified in point b, clause 1, Article 14 of the draft Circular) and other enterprises.

- In cases where the borrower of special loans has exhausted the assets stipulated in clause 1, Article 14 of the draft Circular, the borrower of special loans may use the following assets as collateral for special loans, special loan extensions, and will not be subject to the provisions of clauses 4 and 5, Article 14 of the draft Circular for remaining special loan balances:

+ Mortgage of debt claims arising from the borrower of special loans's credit extensions to customers (excluding credit institutions);

+ Mortgage of receivables arising from the borrower of special loans's credit extensions to customers (excluding credit institutions).

- Value of collateral:

+ The value of collateral as stipulated in clause 1, Article 14 of the draft Circular is determined according to Appendix IV issued with the draft Circular;

+ The converted value of each collateral for a special loan is determined according to the following formula:

Where:

TS: The converted value of each collateral;

GT: The value of each collateral determined according to Appendix IV issued with the draft Circular;

TL: The conversion rate of collateral corresponding to each collateral.

+ The conversion rate of collateral (TL) is determined as follows:

(1) For financial instrument s stipulated in point a, clause 1, Article 14 of the draft Circular, TL equals the minimum ratio between the value of financial instrument s and the secured loan amount by pledging financial instrument s of the State Bank of Vietnam to credit institutions as specified by the State Bank of Vietnam from time to time;

(2) For collateral stipulated in points b, c, clause 1, clause 2, Article 14 of the draft Circular, TL equals 120%;

+ At the time of applying for special loans, or special loan extensions, credit institutions must ensure the total converted value of eligible collateral is not less than the requested special loan amount or requested special loan extension amount.

- In cases where collateral stipulated in point c, clause 1, Article 14 of the draft Circular do not meet the conditions stipulated in clause 2, Article 15 of the draft Circular resulting in the total converted value of eligible collateral being less than the outstanding principal of the special loan, the borrower of special loans must comply with the provisions in point a, clause 5, Article 14 of the draft Circular so that the total converted value of eligible collateral is not less than the outstanding principal of the special loan within 10 working days from the date the total converted value of eligible collateral is less than the outstanding principal of the special loan.

- The addition and replacement of collateral stipulated in clause 4, Article 14 of the draft Circular is carried out as follows:

+ The borrower of special loans must submit a written request for the addition or replacement of collateral (approved by the Special Control Board for credit institutions under special control), specifying the additional collateral, and the assets proposed for replacement, and send it to the State Bank of Vietnam branch in the province or city.

+ Based on the written request of the borrower of special loans as stipulated in point a, clause 5, Article 14 of the draft Circular, the State Bank of Vietnam branch in the province or city shall implement or cooperate with relevant units to implement the procedures for adding or replacing collateral; in the case of a replacement, the withdrawal of ineligible collateral is only allowed after eligible collateral have been added.

See more draft Circular regulating special loans

To Quoc Trinh

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