Vietnam: Financial company may only extend credit with terms of up to 01 year for customers

According to Article 11 of the Circular No. 23/2020/TT-NHNN of the State Bank of Vietnam (SBV), a financial company may extend credit with terms of up to 01 (one) year for customers to invest in corporate bonds if the following conditions are met:

- The credit extension comply with the prudential limits and ratios prescribed by law;

- Bad debt ratio must be below 3%;

- Risks are properly managed in accordance with regulations of SBV on internal control systems of non-bank credit institutions, regulations on classification of assets, rates of funds set aside for and use of provisions for losses for risk management by credit institutions and foreign bank branches.

A financial company must not extend credit with for a customer to invest in corporate bonds in the following cases:

- The collateral is a bond issued by a credit institution, subsidiary of a credit institution or foreign bank branch;

- The collateral is a bond of an enterprise borrowed by the customer to buy that enterprise’s bond;

- The customer is one of the organizations and individuals mentioned in Clause 1 Article 126 of the Law on credit institutions (amended) of Vietnam;

- The client is a related person of any of the organizations or individuals mentioned in Clause 1 and Clause 4 Article 126 of the Law on credit institutions (amended) of Vietnam;

- The customer is or is related to one of the organizations or individuals mentioned in Clause 1 Article 127 of the Law on credit institutions (amended) of Vietnam;

- The bonds are not listed or registered on the Unlisted Public Company Market (Upcom);

- The bonds are issued by a subsidiary of the financial company;

- The customer is a subsidiary or associate company of the credit institution.

Note: The total balance of credit extended for investment in corporate bonds (including bonds of credit institutions and foreign bank branches) must not exceed 5% of the charter capital of a financial company.

More details at the Circular No. 23/2020/TT-NHNN of the State Bank of Vietnam, effective from February 14, 2021.

Thuy Tram

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