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

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

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

1. What is lending?

According to Clause 1, Article 2 of Circular 39/2016/TT-NHNN, lending refers to a form of extension of a line of credit under which a credit institution offers or undertakes to offer a customer a sum of money for specific uses within an agreed time period provided that that customer adheres to the principle that both principal and interest arising must be repaid.

2. What loan demands shall the credit institutions not be allowed to approve in Vietnam?

Credit institutions shall not be allowed to approve the following loan demands:

- Loans used for investing in sectors or activities prohibited by laws.

- Loan used for paying expenses or meeting financial demands of transactions or acts which are prohibited by laws.

- Loans used for purchasing or using goods or services in the list of sectors or activities prohibited by laws.

- Loans used for buying gold bullions.

- Loans used for repaying credit loan debts owed to lending credit institutions, except for those used for paying loan interest arising during the construction process of which cost is accounted for in the total construction investment approved by a regulatory authority in accordance with laws.

- Loans used for repaying credit loan debts owed to other credit institutions and foreign loan debts, except for loans used for repaying debts prior to the payment due date that fully meet the following requirements:

= Be a loan used for business activities;

= Have the loan term that does not exceed the residual loan term of an older loan;

= Be a loan under which the debt rescheduling has not been carried out.

(Article 8 of Circular 39/2016/TT-NHNN amended in Decision 312/QD-NHNN 2017)

3. Eligibility requirements for a loan in Vietnam

According to Article 7 of Circular 39/2016/TT-NHNN, a credit institution shall consider granting a decision to offer a loan to a customer who meets the following requirements:

(i) 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.

(ii) Demonstrate that customer’s demands for a loan to be used for legally accepted purposes.

(iii) Establish that customer’s plan for effective use of borrowed fund.

(iv) Prove the customer’s sound financial capability to repay debt owed.

(v)  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.

4. Loan interest rate of credit institutions in Vietnam

A credit institution and its customer shall agree on the interest rate depending on capital demands and supplies on the market, loan demands and creditworthiness of customers, unless otherwise stipulated by the State Bank's regulations on the maximum interest rate set forth in Clause 2, Article 13 of Circular 39/2016/TT-NHNN.

Terms and conditions of an agreement on the interest rate shall comprise interest rate levels and methods for calculating the interest rate on a loan.

Where the interest rate is not converted into %/year and/or the method for calculating the interest rate based on the actual outstanding amount of debt and time length of maintenance thereof is not applied:

The loan agreement must include terms and conditions of the interest rate converted into %/year (one year is calculated as three hundred and sixty five of days) according to the actual outstanding amount of debt and time length of maintenance of Circular 39/2016/TT-NHNN.

(Clause 1 and 3, Article 13 of Circular 39/2016/TT-NHNN)

Nguyen Thi Hoai Thuong

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