Revolve, Rollover and Refinance: New Lending Rules in Vietnam
A few years ago the State Bank of Vietnam (“SBV”) started the custom of celebrating the new year by firing a salvo of new regulations during the last working days of the year. This time it was no different, except that the salvo lasted beyond the Lunar New Year holidays. On 9 February 2017, the SBV released on its website the last two circulars of 2016 dated 30 December. The new regulations are of great importance for the country’s banking system and the economy at large as they aim to overhaul the regulatory framework applicable to lending activities of credit institutions and foreign bank branches in Vietnam (hereafter, banks). Although, it will take some time for banks and their clients to fully assess the impact of the new lending regime, we believe the following three changes introduced by the first of the two circulars – Circular 39/2016/TT-NHNN on credit activities of credit institutions and foreign bank branches (“Circular 39”) – are the most significant.
Revolving loans and rollover of loans. Despite being quite common in other markets, these two very common international banking practices were not formally permitted in Vietnam. Circular 39 will allow borrowers having business cycles not exceeding one (1) month to obtain revolving loan facilities from banks for up to three (3) months. Rollovers will also be possible provided that the borrower does not have non-performing loans and the total tenor of the rolled over loan does not exceed 12 months following the initial disbursement and does not exceed one business cycle of the borrower.
Refinancing. Similarly to revolving loans or rollover of loans, refinancing was not allowed in Vietnam in the past. Limited refinancing of cross-border loans was first authorised in 2014. Circular 39 will now allow refinancing of domestic loans as well, provided that all the following conditions are met: (i) the refinanced loans were extended for business purposes (consumer loans remain therefore excluded from refinancing); (ii) the maturity of the refinancing must not exceed the residual tenor of the loans being refinanced; and (iii) the refinanced loans have not been restructured. Importantly, it is still prohibited for a bank to extend a new loan to refinance another loan granted by the same bank.
Enhanced lenders rights. Circular 39 makes an effort to reinforce the protection of banks as creditors. For instance, they will now have the right to continue the recovery of unpaid loans even after exhausting all agreed loan recovery methods (e.g. sale of secured assets). Banks will have the right to claim compensation for damage caused by breaches of loan contracts in addition to penalty interest payments (provided that the principle of compensation for damage caused by breach of contract has been agreed with the client in the loan contract). They will also have greater freedom in agreeing to reductions or waivers of interest and fees.
Circular 39 will take effect in a month time, on 15 March 2017, and will replace Decision 1627/2001/QD-NHNN dated 31 December 2001 on the lending regime of credit institutions amended on multiple occasions by the SBV over the 15 years of its implementation. With these rather positive changes the SBV hopes to ensure that credit continues to grow despite a challenging global and domestic macro-economic environment while non-performing loans are kept in check. Whether Circular 39 will help achieve these objectives remains to be seen. It is still early stages in understanding all the implications of the regulatory step 39.
 The term “credit institutions” in Vietnam includes commercial banks, non-bank financial institutions (mainly finance companies), micro-finance institutions and people’s credit funds.
 State Bank of Vietnam Circular 12/2014/TT-NHNN dated 31 March 2014 on conditions applicable to foreign borrowings of enterprises not guaranteed by the Government.