Regulations on management of foreign exchange in debt purchase and sale transactions in Vietnam

Regulations on management of foreign exchange in debt purchase and sale transactions in Vietnam (Internet image)

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

1. Regulations on management of foreign exchange in debt purchase and sale transactions in Vietnam

Regulations on management of foreign exchange in debt purchase and sale transactions in Vietnam according to Article 9 of Circular 09/2015/TT-NHNN are as follows:

- Debt purchasers, debt sellers, debtors and other related parties shall comply with regulations on restriction on foreign exchange use in the Vietnamese territory when purchasing and selling debts and recovering purchased debts.

- When purchasing or selling debts from/to credit institutions and foreign bank branches:

+ Debt purchasers shall use Vietnam-dong accounts for payment for purchased debts and other expenses to credit institutions or foreign bank branches under debt purchase and sale contracts, for cases of using Vietnam dong in debt purchase transactions;

+ Debt purchasers being non-residents shall use their foreign-currency accounts at credit institutions or bank branches licensed for foreign exchange transactions in the Vietnamese territory or their foreign-currency accounts overseas for payment for purchased debts and other expenses to credit institutions or foreign bank branches under debt purchase and sale contracts, for cases of using foreign currencies in debt purchase transactions.

- When recovering purchased debts, recovered amounts shall be transferred into the debt purchaser’s Vietnam-dong account or foreign-currency account (for debts recovered in a foreign currency) at commercial banks or foreign bank branches licensed for foreign exchange transactions in the Vietnamese territory.

- Purchase and sale of debts arising from offshore lending operation or debts paid on behalf of a guaranteed party being a non-resident in the guarantee operation:

+ The debt seller shall register the change of offshore loans, recovery of guaranteed debts under current regulations on foreign exchange management of offshore lending and recovery of guaranteed debts for non-residents;

+ The debt purchaser being a resident shall register a debt recovery plan under current regulations on foreign exchange management of recovery of overseas debts arising from debt purchase and sale operation.

2. Principles of debt purchase and sale in Vietnam

 Principles of debt purchase and sale in Vietnam according to Article 5 of Circular 09/2015/TT-NHNN (amended in Circular 18/2022/TT-NHNN) are as follows:

(1) Debt purchase and sale must not be contrary to the contents of credit extension contracts and guarantee contracts signed by debts sellers, clients and guarantors.

(2)  Debt purchase and sale shall be agreed by parties and comply with Circular 09/2015/TT-NHNN and relevant regulations.

(3) An application for approval of debt trading submitted by a credit institution or FBB may be considered by the SBV if its nonperforming loan ratio is maintained below 3% according to the latest report on debt classification conducted according to the SBV’s regulations on classification of assets, rates and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and FBBs by the time of application, except credit institutions placed under special control.

When selling debts, credit institutions and FBBs are not required to obtain approval from the SBV.

A credit institution or FBB shall be allowed to purchase debts only if its debt trading has been approved by the SBV according to the license for establishment and operation of a credit institution or the establishment license of a foreign bank branch (hereinafter referred to as “license”);

And its nonperforming loan ratio is maintained below 3% according to the latest report on debt classification conducted according to the SBV’s regulations on classification of assets, rates and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and FBBs by the time of conclusion of the debt purchase agreement, except the cases specified in (12).

(4) B Before engaging in debt trading as prescribed in (3), each credit institution or FBB shall issue its own internal regulations on debt trading;

(including regulations on grant of authority which follows the principle of assignment of responsibilities in the assessment and decision-making stages; debt trading methods and payment methods; debt trading procedures; procedures and methods for debt valuation; procedures for management of risks arising from debt trading).

(5) Credit institutions and foreign bank branches purchasing debts shall comply with regulations on assurance of safety for their operations.

(6) Repurchase of a debt sold by a credit institution:

- The seller may not repurchase its sold debts, except the following cases:

+ A credit institution repurchases its debts sold to a credit institution placed under special control according to Point a Clause 12 of Article 5 of Circular 09/2015/TT-NHNN (amended in Circular 18/2022/TT-NHNN);

+ An assisting credit institution repurchases its debts sold to a credit institution placed under special control according to the approved recovery plan as prescribed in Clause 6 Article 146dd of the Law on Credit Institutions;

+ A credit institution that is the transferee under a mandatory transfer plan repurchases its debts sold to the commercial bank that is subject to the mandatory transfer as prescribed in Point c Clause 12 of Article 5 of Circular 09/2015/TT-NHNN (amended in Circular 18/2022/TT-NHNN).

- A credit institution shall repurchase its debts sold as prescribed in Point a(ii) or a(iii) of Clause 12 of Article 5 of Circular 09/2015/TT-NHNN (amended in Circular 18/2022/TT-NHNN) according to the commitment to repurchase debts specified in the restructuring plan approved by a competent authority in the following cases:

+ The debt to be repurchased is being used by the credit institution placed under special control as the collateral for its special loan granted by the SBV but is no longer classified as a standard debt according to the SBV’s regulations and must be replaced with another standard debt.

+ The special loan debt of a credit institution placed under special control becomes due but it does not have sufficient funding for repaying such debt to the SBV according to the special loan debt repayment plan.

(7) A credit institution is not allowed to sell debts to its subsidiaries, except the following cases:

- Debts are sold to a debt and asset management company according to a restructuring plan approved by a competent authority;

- The credit institution that is the transferee under a mandatory transfer plan sells standard debts to the commercial bank that is subject to the mandatory transfer according to the approved mandatory transfer plan.

(8) A debt management and asset operation company being a subsidiary company of a credit institution may only purchase debts of other credit institutions or foreign bank branches when the parent credit institution have a non-performing loan ratio of below 3%, except cases of debt purchase under an approved restructuring plan.

(9) In case of selling part of a debt or selling a debt to more than one purchaser, the debt seller and debt purchasers shall agree on proportion, modes, rights and obligations of each party, determination of the value of security assets (if any) for the part of purchased and sold debt and other specific contents of the debt purchase and sale contract in accordance with law.

(10) Purchased and sold debts shall be monitored, accounted and statistically reported in accordance with law.

(11) A credit institution or FBBs is not allowed to extend credit to clients to buy its debts.

(12) A credit institution shall not be required to maintain a nonperforming loan ratio below 3% when buying debts in the following cases:

- A credit institution placed under special control purchases standard debts according to Clause 2 Article 146a of the Law on Credit Institutions;

- A credit institution placed under special control purchases standard debts from an assisting credit institution according to the approved recovery plan as prescribed in Clause 1 Article 148b of the Law on Credit Institutions;

- A commercial bank that is subject to the mandatory transfer purchases standard debts from a credit institution that is the transferee under a mandatory transfer plan approved by a competent authority;

- The cases of debt purchase prescribed in Points a(ii) and a)iii) Clause 6 of Article 5 of Circular 09/2015/TT-NHNN (amended in Circular 18/2022/TT-NHNN).

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