07 Principles of performing letter of credit operations in Vietnam

07 Principles of performing letter of credit operations in Vietnam (Internet image)

07 Principles of performing letter of credit operations

The implementation of letter of credit operations and other business activities related to letters of credit in Vietnam must comply with the principles stipulated in Article 5 of Circular 21/2024/TT-NHNN. To be specific:

(1) The letter of credit operations of banks with customers shall be carried out according to the agreement between the bank and the customer.

When conducting letter of credit operations, banks must comply with the provisions specified in Circular 21/2024/TT-NHNN, relevant laws on credit extension. Other contents regarding letter of credit operations shall be executed according to international commercial practices for letters of credit.

(2) Banks performing letter of credit operations in foreign currency must comply with the scope of foreign exchange activities in the domestic and international markets as stipulated in the operating license of each bank, the regulations of the law on the scope of foreign exchange activities, the conditions, sequence, procedures for approving foreign exchange operations of credit institutions, foreign bank branches, and must comply with the law on business and providing foreign exchange services in the domestic and international markets of banks.

(3) When recovering principal, interest, and fees in foreign currency in letter of credit operations, if the customer does not have or does not have enough foreign currency to repay the debt, the customer is allowed to buy foreign currency at the bank performing the letter of credit operation or at other credit institutions, foreign bank branches to repay the debt.

In case the customer wishes to buy foreign currency at the bank performing the letter of credit operation, the bank must sell foreign currency to the customer. If the customer buys foreign currency at a credit institution, a foreign bank branch, the credit institution, the foreign bank branch that sold the foreign currency must transfer that foreign currency to the bank performing the letter of credit operation.

Customers must sell foreign currency to the credit institution, foreign bank branch that sold foreign currency to the customer in case of having income in foreign currency from production and business activities when the credit institution, foreign bank branch requires it.

(4) When negotiating payments for non-resident customers, banks must comply with the regulations in Circular 21/2024/TT-NHNN and the law on foreign exchange management regarding overseas borrowing and debt recovery.

(5) When issuing, confirming, reimbursing letters of credit for non-resident customers, banks are not required to open specialized foreign currency accounts at a payment service provider to recover foreign debts from letter of credit operations.

In case the bank opens a specialized foreign currency account at a payment service provider in Vietnam, the payment service provider is responsible for verifying and reconciling documents presented by banks to ensure the proper execution of transactions related to letter of credit operations.

(6) Banks perform other business activities related to letters of credit for customers as agreed by the parties not contrary to the provisions in Circular 21/2024/TT-NHNN, relevant laws, and international commercial practices for letters of credit.

(7) Comply with the provisions of Law on Credit Institutions 2024 and guidelines of the State Bank of Vietnam (hereinafter referred to as the State Bank) on prohibited acts, cases of non-credit extension, restrictions on credit extension, and credit extension limits.

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