What loan demands are the credit institutions not allowed to approve in Vietnam?

What loan demands are the credit institutions not allowed to approve in Vietnam? (Internet image)

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

The State Bank of Vietnam issued Circular 06/2023/TT-NHNN dated June 28, 2023 amending Circular 39/2016/TT-NHNN prescribing lending transactions of credit institutions and foreign bank branches with customers, which supplement the rejected loan demands

1. What loan demands are the credit institutions not allowed to approve in Vietnam?

According to Article 8 of Circular 39/2016/TT-NHNN (amended in Circular 06/2023/TT-NHNN), credit institutions shall not be allowed to approve the following loan demands:

(1) Loans used for doing business or investing in sectors or activities prohibited by the Investment Law.

(2) Loans used for paying expenses or meeting financial demands of business or investment in sectors or activities prohibited by the Investment Law and other transactions or activities prohibited by laws.

(3) Loans used for purchasing or using goods or services in the list of prohibited sectors and activities under the Investment Law.

(4) Loans used for buying gold bullion.

(5) Loans used for repaying loan debts owed to lending credit institutions, except those used for paying loan interests arising during the construction process which are accounted for in the total construction cost estimate approved by a competent authority in accordance with regulations of law.

(6) Loans used for repaying foreign loan debts (excluding foreign loans granted in the form of deferred payment for purchased goods) or repaying loan debts owed to other credit institutions, except for a loan used for making early repayment of an existing loan that meets the following conditions: 

- The term of the new loan does not exceed the remaining term of the old one;

- The old loan has not yet undergone any debt rescheduling.

(7) Loans used for sending money to deposit accounts. (Newly added)

(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. (Newly added)

(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. (Newly added)

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

- 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;

- 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, compared with the provisions of Circular 39/2016/TT-NHNN, Circular 06/2023/TT-NHNN adds 04 additional cases where credit institutions shall not be allowed to approve the loan demands

2. Eligibility requirements for a loan in Vietnam from September 1, 2023

According to Article 7 of Circular 39/2016/TT-NHNN (amended in Circular 06/2023/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.

(Compared to Circular 39/2016/TT-NHNN, Circular 06/2023/TT-NHNN has annulled the condition "Where that customer obtains a loan from a credit institution on which the interest rate is prescribed by Clause 2 Article 13 of Circular 39/2016/TT-NHNN, it shall be rated transparent and healthy in its financial status by a credit institution.”)

Circular 06/2023/TT-NHNN takes effect as of September 1, 2023.

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