Structure of Draft Circular
Particulars of Draft Circular
Additional conditions under Draft Circular


On 12 May 2022, the State Bank of Vietnam (SBV) published for consultation the full text of the Draft Circular on Requirements for Enterprises' Offshore Loans without Government Guarantee (the Draft Circular), replacing Circular 12/2014/TT-NHNN (Circular 12). The consultation is ongoing. The Draft Circular aims to tighten the control over offshore loans without guarantee while supporting the need to use offshore loans effectively for the development of the economy.

Structure of Draft Circular

The Draft Circular comprises five chapters and includes 21 articles, while Circular 12 has only four chapters and 14 articles. In particular, the Draft Circular has a new chapter on the responsibilities of stakeholders and new articles on:

  • plans to use offshore loans;
  • foreign currency derivative transactions;
  • offshore loans of state-owned enterprises;
  • offshore loan limits;
  • the responsibilities of borrowers; and
  • authorised credit institutions.

The content on the purposes of taking offshore loans is now categorised as "Additional Conditions" instead of "General Conditions" as in Circular 12.

Particulars of Draft Circular

Ceiling level for offshore loan expenses to be followed by borrower
The Draft Circular regulates the interest rate ceiling by limiting the margin to no more than 8%. Further, while Circular 12 stipulates that the governor of the state bank shall decide and announce the ceiling level of offshore loan expense from time to time if necessary, the Draft Circular imposes a lending rate ceiling. In particular, the maximum lending rate stipulated in the Draft Circular is composed of:

  • the reference rate plus 8% per annum;
  • the secured overnight financing rate (SOFR) plus 8% per annum for offshore loans in foreign currencies; or
  • the latest real interest rate of 10-year government bonds in Vietnamese dong plus 8% for Vietnamese dong-denominated loans.

The Draft Circular sets forth SOFR as the benchmark interest rate rather than the London Inter-Bank Offered Rate (Libor), which is in line with the Financial Conduct Authority's March 2021 announcement on the cessation of Libor.

The Draft Circular also regulates the borrower's responsibilities in calculating and disclosing information on offshore loan expenses, which are considered to support the monitoring of the borrower's compliance with offshore loan expense conditions.

Supplement conditions on guarantees for offshore loans
According to the Draft Circular, the borrower and related parties are solely responsible for adhering to the provisions of the current law on secured transactions and other relevant laws, which complies with the principle set forth in Decree 219/2013/ND-CP(1) on the management of enterprises' borrowing of foreign loans and payment of foreign debts without a government guarantee. At the same time, as part of the state management function (ie, monitoring cash flows related to borrowing and repaying offshore loans), the Draft Circular supplements the regulation that the focal point for handling collateral must be a credit institution, foreign bank branch or other legal entity established and operated under the law of Vietnam if the offshore loan has collateral formed in Vietnamese territory, unless the lender receives the collateral as a replacement for performance of the guaranteed obligation.

This provision will increase loan expenses, and its application to foreign lenders is unclear. Currently, credit institutions may only handle collateral for loans that they lend (either a single loan or a syndication loan (when acting as a focal member to receive security assets))(2) and there are no specific regulations regarding the provision of collateral handling services for loans made by other lenders. Also, there are no regulations governing the service industry of handling security assets, particularly for organisations that are not credit institutions. As a result, the SBV needs to provide more specific instructions in the final circular in order to implement this regulation.

Requirement for borrowers on conducting foreign currency derivative transactions
The Draft Circular imposes a new mandatory requirement on all borrowers of a loan of over US$500,000 to hedge exchange rate risk using derivative tools, with the exception of two groups:

  • credit institutions and foreign bank branches authorised to do business and provide foreign exchange services; and
  • borrowers who can demonstrate adequate forex inflows.

This regulation may increase the cost of financing for borrowers. To avoid the increase in borrowing expenses, parties can structure the principal repayment schedule so that no instalment exceeds US$500,000.

Additional conditions under Draft Circular

Purposes for taking out offshore loans
Circular 12 stipulates that a borrower is allowed to use foreign loans to:

  • implement the business plans or projects of investment funded by foreign loans of the borrower or of any company to which the borrower makes a direct capital contribution; or
  • restructure the foreign debts incurred by the borrower without increasing the loan expense.

The Draft Circular significantly restricts the purpose for taking out offshore loans. In particular:

  • for short-term loans – neither refinancing onshore debt nor financing debt resulting from securities or real estate trading, capital contribution to other enterprises, or project transfer financing is permitted; and
  • for medium and long-term loans – the Draft Circular removes the objective of borrowing to support the production and business projects of the organisation where the borrower is an investor. Under the Draft Circular, the medium and long-term loan will be used solely for the borrower's own investment, production and business projects.

Offshore loan limit
Under the Draft Circular, additional clauses are added to govern the offshore loan limit.

There is no short-term offshore loan limit for borrowers other than credit institutions and foreign bank branches. However, a loan limit is required for medium- and long-term loans, with the limit determined by the loan purpose as follows:

  • for implementing investment projects – the balance of the domestic and offshore loans for that project must not exceed the difference between the total capital investment and contributed capital as recorded in the investment certificate/approval;
  • for supplementing capital for production and business – the balance of domestic and offshore loans must not be in excess of three times the owners' equity or charter capital, whichever is greater. This is a significant barrier for Vietnamese economic organisations seeking access to foreign financing, particularly small and medium-sized companies with limited charter capital and/or equity; and
  • for restructuring an existing offshore loan – the maximum loan limit must not exceed the principal and interest balance of the restructured offshore loan. The Draft Circular removes the requirement that the cost of the new loan must be no higher than the restructured loan, but with this loan limit, the actual limit is tighter than it was previously.


Compared with Circular 12, the Draft Circular has put stricter control on the borrowers of offshore loans without a government guarantee.

The prohibition on using short-term offshore loans for debts from securities or real estate trade, capital contribution to other companies or project transfer financing is one of the most significant conditions of which companies should be aware.

Many management tools in the Draft Circular – such as requirements on the ceiling level for offshore loan expenses and offshore loan limits, conditions on offshore loan guarantees and requirements on conducting foreign currency derivative transactions – may appear to be obstacles for borrowers.

For further information on this topic please contact Thanh Minh Vu or Nguyen Dieu Quynh at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected] or [email protected]). The LNT & Partners website can be accessed at


(1) Article 4.3, Decree 219/2013/ND-CP.

(2) Article 2.7, article 13, Circular 42/2011/TT-NHNN.