Since March 15, 2017, the lending activities of credit institutions are carried out according to the provisions of Circular 39/2016/TT-NHNN with many noteworthy new points.
Article table of contents
Household Businesses Not Eligible for Loans
Clause 3, Article 2 of Circular 39 stipulates: Borrowers at credit institutions (hereinafter referred to as customers) are legal entities and individuals, including:
- Legal entities established and operating in Vietnam, legal entities established abroad and legally operating in Vietnam;- Individuals with Vietnamese nationality, individuals with foreign nationality.
These are also the two subjects permitted to participate in civil relations as specified in the Civil Code 2015. Thus, non-legal entities such as households, cooperatives, or organizations without legal personality do not have the qualification to borrow from credit institutions.
However, if an individual customer has a borrowing need for business or other activities, they can borrow to meet the capital needs of the individual and the capital needs of the household business or private enterprise that the individual owns.
No Limit on Loan Purpose
According to the Lending Regulations in Decision 1627/2001/QD-NHNN, customers are only permitted to borrow capital to meet capital needs for production, business, services, investment, and living expenses. However, Circular 39 stipulates and limits loan purposes by categorizing capital needs into two groups:
- Group 1: Loans for life needs;- Group 2: Loans for business or other activities, except for the following non-permissible capital needs:- To carry out investment and business activities in sectors or professions that are prohibited by law.- To pay expenses or meet financial needs in transactions or acts that are prohibited by law.- To purchase or use goods and services in sectors or professions that are prohibited by law.- To purchase gold bullion.- To repay a loan at the same credit institution, except in the case of borrowing to pay the interest incurred during the construction period where the interest cost is included in the construction budget approved by the competent authority according to the law.- To repay loans at other credit institutions and repay foreign loans, except in the case of early loan repayment.
Agreement on Loan Interest Rates
The new regulation stipulates that loan interest rates are as agreed upon between the credit institution and the customer, where both parties will agree on the interest rate and the method for calculating interest on the loan.
If the loan interest rate is not converted to an annual percentage rate (APR) and/or does not apply the method of calculating interest based on the actual loan balance and the actual period of maintaining the loan balance, the loan agreement must include a provision on the converted interest rate as a percentage per year (one year is three hundred sixty-five days) based on the actual loan balance and the actual period of maintaining the loan balance. Specifically:
Credit institutions and customers agree on the interest rate based on market capital demand and supply, borrowing needs, and the customer's creditworthiness, except when the State Bank of Vietnam regulates the maximum lending interest rate;
Credit institutions and customers agree on the short-term loan interest rate in Vietnamese dong, but it must not exceed the maximum lending interest rate set by the Governor of the State Bank of Vietnam for each period to meet certain capital needs:
- Serving the development of agriculture and rural areas as per regulations of the Government of Vietnam on credit policy for agricultural and rural development;- Implementing export business plans as stipulated in the Law on Commerce and its guiding documents;- Serving small and medium-sized enterprises in accordance with the Government of Vietnam's support policy for developing such enterprises;- Developing supporting industries as per the Government of Vietnam's regulations on supporting industry development;- Serving high-tech enterprises as prescribed in the Law on High Technology and its guiding documents.
Additionally, Circular 39 supplements additional regulations on the obligation to pay loan interest when the due date arrives and the customer does not or inadequately repays the principal and/or loan interest, as follows:
- Interest on the principal due is charged at the agreed loan interest rate corresponding to the loan term that has not been paid;- If the customer fails to pay interest on time as specified in point a, they must pay overdue interest at a rate agreed upon by the credit institution and the customer, but not exceeding 10% per year on the overdue interest amount corresponding to the overdue period;- If the loan is classified as overdue debt, the customer must pay interest on the overdue principal corresponding to the overdue period, with the applicable interest rate not exceeding 150% of the on-time loan interest rate at the time of classifying the loan as overdue.
Loan Term:
Clause 8, Article 2 of Circular 39 stipulates: The loan term is the period calculated from the day following the date when the credit institution disburses the loan to the customer to the time when the customer must fully repay the principal and loan interest according to the agreement between the credit institution and the customer.
If the last day of the loan term falls on a holiday or weekend, it shall be moved to the next working day. For loan terms less than one day, the provisions of the Civil Code regarding the start time of the term shall apply.
Depending on the type of loan, different loan terms apply. Specifically:
- Short-term loans are loans with a maximum term of 01 (one) year.- Medium-term loans are loans with a term of more than 01 (one) year and up to 05 (five) years.- Long-term loans are loans with a term of more than 05 (five) years.
According to the stipulations of Circular 39, the loan term must not exceed the remaining loan term of the existing loan to repay a loan at another credit institution or repay a foreign loan, except for early loan repayments.
Standard Contracts and General Transaction Terms Must Be Publicly Listed
To ensure objectivity in lending activities, Circular 39 clearly stipulates that when standard contracts or general transaction terms are used in concluding lending agreements, the credit institution must:
- Publicly list the standard contracts and general transaction terms for lending at its headquarters and post them on the credit institution's website;- Fully provide information about the standard contracts and general transaction terms for the customer to know before signing the lending agreement and obtain the customer's confirmation that the credit institution has fully provided this information.
