A new circular on lending activities of credit institutions and foreign bank branches is expected to overhaul the regulatory framework applicable to the activities in Viet Nam.

Circular 39/2016/TT-NHNN issued by the State Bank of Viet Nam (SBV), which comes into effect from March 15, is also expected to ensure that lending continues to grow while non-performing loans are kept in check.

Under the new circular, new kinds of lending, including revolving and rollover, will be permitted in Viet Nam.

The new regulation will allow borrowers with business cycles not exceeding one month to obtain revolving loan facilities from banks for up to three months.

Rollover loans, which are quite common in other countries, will be also possible, provided that the borrower does not have non-performing loans and the total tenor of the rollover loan does not exceed 12 months following the initial disbursement and does not exceed one business cycle of the borrower.

Circular 39 also reinforces 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, such as the sale of secured assets. Banks will have the right to claim compensation for damage caused by the breach 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 upon with the client in the loan contract). They will also have greater freedom in agreeing to reductions or waivers of interest and fees.

The new circular also regulates that business households and other unincorporated businesses will not be eligible for bank loans as this kind of lending is risky for credit institutions.

Doan Thai Son, director of the SBV’s Legal Department, explained that the lending prohibition regulation has been issued to guide the implementation of the 2015 Civil Law, which came into effect on January 1, 2017.

Circular 39 will replace Decision 1627/2001/QĐ-NHNN, dated 31 December 2001, on the lending regime of credit institutions amended on multiple occasions by SBV over the 15 years of its implementation. — VNS