28 June 2022
On 11 May 2022, the State Bank of Vietnam issued a draft circular on conditions for cross-border foreign loans without government guarantee (“draft circular”) for public consultation. The draft circular is intended to replace Circular No. 12/2014/TT-NHNN which was issued in March 2014.
The draft proposals seek to tighten conditions for non-government guaranteed cross-border foreign loans (“offshore loans”), mandating that borrowers meet additional requirements.
Key proposed changes
The key points of the draft circular are briefly as follows:
- Appointing an agent: Where an offshore loan is secured by collaterals in Vietnam, parties to the loan agreement must engage a credit institution, foreign bank branch, or other legal entity established and operating under Vietnamese law to act as an enforcement agent. This rule does not apply where the lender elects to take over the secured assets for enforcement.
- Cap on borrowing costs: The draft circular proposes imposing specific ceilings on borrowing costs applicable to offshore loans with the ceilings differentiated based on whether the offshore loan is in foreign currency or Vietnamese Dong.
- Hedging requirement: Vietnamese borrowers will be required to use foreign currency derivatives to hedge its borrowings to mitigate potential exchange rate risk.
- Changes to allowed purposes for offshore loans: New purposes are proposed for both short-term and medium- or long-term offshore loans. The former cannot be taken out to fund onshore debts, securities trading and acquisition of shares/capital contribution, projects or real property in Vietnam. A Vietnamese borrower’s total amount of all medium- or long-term loans (including offshore and onshore) must not exceed three times its equity, as recorded in its latest audited financial statements, in order for it to be able to take out medium- or long-term loans to finance its business activities.