On 31 March 2014 the State Bank of Vietnam (SBV) promulgated Circular No. 12/2014/TT- NHNN (Circular 12) to regulate the conditions for enterprises  to borrow non-government guaranteed foreign loans. Circular 12 also covers and governs foreign loans of other loan borrowers including cooperatives, cooperative alliances, credit institutions (except for commercial banks which are State owned enterprises) and foreign bank branches established and conducting business in Vietnam.

According to Circular 12, there are two general conditions and additional conditions. The loan borrower and the lender must satisfy these general conditions and also the relevant additional conditions applicable to each specific foreign loan.

First, the objectives of foreign loans of the borrower must be for the purpose of:

  • implementing a business and production plan or investment project using the foreign loan capital; or
  • restructuring foreign loan debt to obtain a lower interest rate.

In the first instance, using a foreign loan as capital in a business or investment project, the limit on loan size is measured by the capital contribution ratio of the borrowers in such enterprise. This is only applicable to medium and long-term foreign loans.

Second, the foreign loan agreement must be in writing and signed prior to drawdown of loan monies. If the foreign loan is from a credit institution or bank branch it may be signed at the time of drawdown of loan monies. Also, foreign loan agreements must not be contrary to the law of Vietnam.

Third, the currency of foreign loans is the foreign currencies. However, the currency also can be VND if it falls into some special cases.

Finally, any security transactions securing foreign loans and the use of shares, shareholding and capital contribution portions in Vietnamese enterprises or convertible bonds issued by Vietnamese enterprises in order to provide a mortgage for a non-resident being a foreign lender or related party must not be contrary to the current relevant laws of Vietnam (including the regulations on securities, on ratio of foreign investor holding in Vietnamese enterprises, and other relevant laws).

Even though foreign loan fees are agreed between the lender, the borrower and related parties, when necessary the SBV may regulate limits on caps of interest rates applicable to the self- borrowed foreign loans from time to time.

For the borrowers being credit institutions and foreign bank branches, Circular 12 further provides conditions relating to prudential limits during banking activities. On the other hand, for borrowers which are not credit institutions or foreign bank branches, Circular 12 focuses on the limitation of the balance of medium and long-term loans applicable to each specific case.

Circular 12 took effect on 15 May 2014 and replaces Chapter 2 of Circular 09/2004/TT-NHNN of the SBV dated 2 December 2004 guiding borrowing and repayment of foreign loans by enterprises.│