05 new points about the bank's interest rate derivatives business

The Governor of the State Bank has issued Circular 25/2021/TT-NHNN amending Circular 01/2015/TT-NHNN stipulating business activities and supply of interest rate derivative products of commercial banks, foreign bank branches. Accordingly, adding a number of new regulations on trading in interest rate derivative products.

05 new points about the bank's interest rate derivatives business

05 new points about the bank's interest rate derivatives business (Illustration image)

1. Trading and supplying interest rate derivative products by electronic means

Circular 25/2021 supplements regulations on trading and providing interest rate derivatives by electronic means as follows:

Commercial banks and branches of foreign banks that trade in and supply interest rate derivatives by electronic means must develop business processes and provide interest rate derivatives by electronic means in accordance with the law. In accordance with the provisions of Circular 25/2021 , the provisions of the law on prevention and combat of money laundering, the law on electronic transactions and related legal provisions, ensuring safety and confidentiality of customer information. and operational safety of commercial banks and foreign bank branches.

- Commercial banks, foreign bank branches must fully store information related to the business and supply of interest rate derivatives by electronic means to serve the inspection and review. screening, settlement of tracing, complaints and disputes and providing information upon request from competent state management agencies.

2. Regulations on effective date of interest rate derivative contracts

At point b, clause 2, Article 1 of Circular 25/2021 , regulations on the effective date of interest rate derivative contracts, specifically:

- The date of entering into the interest rate derivative contract is the date on which the parties sign the interest rate derivative contract.

- The effective date of the interest rate derivative contract as agreed by the parties is the date the parties begin to perform the interest rate derivative contract; effective date of interest rate derivative contract coincides with or after the date of conclusion of interest rate derivative contract.

3. Limits on business activities, supply and use of interest rate derivative products

In Clause 9, Article 1 of Circular 25/2021 amending and supplementing regulations on limits on trading, supply and use of interest rate derivative products as follows:

- Commercial banks, foreign bank branches trading, supplying and using interest rate derivative products must comply with the provisions of Circular  41/2016/TT-NHNN . (New content)

- In case commercial banks and foreign bank branches have not yet applied the provisions of Circular 41/2016/TT-NHNN : conducting business, supplying and using interest rate derivative products with limited control net loss on business activities, supply and use of interest rate derivative products does not exceed 5% of charter capital or allocated capital of that commercial bank or foreign bank branch.

In case the net loss limit exceeds 5% of charter capital or allocated capital, the commercial bank or foreign bank branch shall stop entering into new interest rate derivative contracts and report to the State Bank of Vietnam. (Banking Inspection and Supervision Agency) on the cause of loss, measures and time limit for remedy.

When there is a need to enter into a new interest rate derivative contract, a commercial bank or foreign bank branch must determine the net loss limit on business activities, supply and use of interest rate derivative products to serve as a basis for compliance with the provisions of Circular 25/2021. The net loss limit on the use of interest rate derivatives is determined by the total net profit and net loss of the valid interest rate derivative contracts plus (+) the total net profit and net loss of the derivative contracts. interest paid in the financial year.

- Credit institutions, foreign bank branches (excluding commercial banks and foreign bank branches mentioned above) use interest rate derivatives when they satisfy either of the following two conditions:

+ Having internal regulations on risk management, which includes interest rate risk limits; stop loss limit; total interest rate risk exposure limit for interest rate derivative products;

+ Controlling the net loss limit on the use of interest rate derivative products according to regulations.

(This is new content added to the current regulations)

4. Regulations on arising transactions in foreign currencies

According to Point b, Clause 6, Article 1 of Circular 25/2021 , in case a customer receives foreign currency from the interest arising in interest rate derivative transactions or receives foreign currency from the exchange of nominal capital, the foreign source shall This currency is used to pay for obligations arising from the customer's original transaction or the customer must sell this source of foreign currency to a commercial bank or foreign bank branch to trade and supply derivative products. generate that interest.

5. Responsibilities of customers using interest rate derivative products

In Clause 13, Article 1 of Circular 25/2021 , regulations on responsibilities of customers using interest rate derivatives have been amended as follows:

- For legal entities using interest rate derivative products:

Provide commercial banks, foreign bank branches: A true copy or an extract of the contract of the original transaction (currently the original or a certified copy of the contract of the original transaction) ; other information and documents prescribed by commercial banks or foreign bank branches providing interest rate derivative products to prove eligibility to use interest rate derivative products as prescribed in Clause 1 of this Article. To take responsibility before law for the accuracy and truthfulness of information and documents provided to commercial banks and foreign bank branches.

- For credit institutions, foreign bank branches using interest rate derivative products:

+ Commitments with commercial banks, foreign bank branches in interest rate derivative contracts or in separate documents on: using interest rate derivative products for the purpose of preventing and limiting interest rate risks ; ready to provide a true copy or a copy (currently the original or a certified copy) of the original transaction contract or a plan to hedge against interest rate risk for the balance sheet items. (including off-balance sheet items) at the request of the State Bank of Vietnam and competent authorities.

+ To take responsibility before law for the accuracy and truthfulness of information and documents provided to commercial banks and branches of foreign banks providing interest rate derivative products;

(Compared to the current one, the regulation on providing other information and documents to prove eligibility to use interest rate derivative products is removed).

+ Develop and approve according to authority plans to prevent and limit interest rate risks for balance sheet items (including off-balance sheet items), including analysis of interest rate risks. capacity.

Circular 25/2021/TT-NHNN takes effect from February 14, 2022.

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