On September 1, 2023, Circular No. 06/2023/TT-NHNN (“Circular 06”) issued by the State Bank of Vietnam on June 28, 2023, will take effect. This circular introduces noteworthy amendments to the regulations concerning the offering of onshore loans to customers by credit institutions (including commercial banks and foreign bank branches).
Introducing New Lending Restrictions but Loosening Refinancing Restrictions
Circular 06 introduces several new categories of loans that credit institutions are not allowed to provide. These include loans for depositing money in accounts; loans for making or acquiring capital contributions or shares in other companies which have not yet been listed on the securities market or registered for trading on the UPCoM system; and loans for paying capital contributions under capital contribution contracts, investment cooperation contracts, or business cooperation contracts for implementation of investment projects that fail to satisfy conditions for being put into business operation. [However, Circular No. 10/2023/TT-NHNN, issued shortly before Circular 06 was to take effect (see related story here), suspended the restrictions on the latter two categories until further notice.]
A new exception in Circular 06 allows credit institutions to offer loans for repaying foreign loans if the foreign loans were granted in the form of deferred payment for purchase of goods. Circular 06 also amends an exception of the previous regulations that new loans for repaying foreign loans or onshore loans from other credit institutions can be offered, as long as the term of the new loan does not exceed the remaining term of the original loan and the refinanced loan has not yet undergone any repayment rescheduling. This exception removes a requirement under the previous regulations that the original loan had to be made “for business purposes.”
Further, Circular 06 introduces the term “financial reimbursement” (“cho vay bù đắp tài chính” in Vietnamese) whereby credit institutions offer loans to customers to reimburse expenses advanced by the customer from its own capital, or capital borrowed from other individuals and non-bank entities, to implement plans or projects for business activities or living purposes.
Credit institutions are not allowed to offer financial reimbursement unless the borrowers can prove statutory conditions are satisfied. First, the borrowers must have used their own capital for paying costs incurred from their business project within the 12-month period before the date of the lending decision. Second, the costs to be reimbursed must be those that are listed in the usage plan approved by the credit institution for the loan for that business project. [The application of these conditions has also been suspended under Circular No. 10/2023/TT-NHNN. For the time being, loans for financial reimbursement are permissible.]
Conditions for Digital Lending by Credit Institutions
Circular 06 provides key conditions for digital lending. To provide digital lending, credit institutions are required to have a level-3 or higher information system used for carrying out digital lending activities. (Information systems are classified in increasing strictness from level-1 to level-5 based on standards for the types of information processed and their respective security level.)
Credit institutions are free to adopt their own measures and technologies for carrying out digital lending, but must satisfy certain requirements such as:
- Adopting solutions and technologies for ensuring accuracy, confidentiality, and safety during the collection, use, and verification of information;
- Adopting measures for examining, checking, updating, and verifying information (“eKYC”), and measures for preventing acts of forging, interfering with, and falsifying information;
- Developing measures for monitoring, identifying, measuring, and controlling risks, and developing risk treatment plans; and
- Assigning responsibilities to each individual or department for performance of digital lending activities and risk management and control.
The requirement to develop and implement an efficient and secure process of verifying a customer’s identity makes the measures and technologies for eKYC the most essential to minimize the risk of identity fraud. Specifically, for individuals who apply for loans for living purposes and wish to obtain the loans from the credit institution via digital lending as the first transaction for establishing the relationship with such credit institution, the eKYC process must be conducted properly to check and verify that the individuals are the ones conducting the e-transaction and have consented to the loan agreement.
In addition, credit institutions must store and manage, in a full and detailed manner, customer identification information and biometric data of their customers; sounds, images, videos and recordings (as applicable to customer identification); telephone numbers used for conducting transactions; and transaction logs.
The outstanding balance of loans for living purposes for an individual customer who has been identified or duly verified via digital lending may not exceed VND 100,000,000 (approximately USD 4,200).
Circular 06 sets out other new regulations. In particular, credit institutions and their customers may agree on a currency for loan repayment that is different from the lending currency. For a loan having one or more overdue payments, Circular 06 also provides for a more detailed repayment order than the previous regulations.
After issuance of Circular 06 by the State Bank of Vietnam, the Prime Minister requested a working session between Deputy Prime Minister Le Minh Khai and the Governor of the State Bank of Vietnam to study and amend certain unreasonable points in Circular 06 that would too heavily restrict loans to borrowers. There may be further loosening of the requirements in the near future.
[UPDATE: This meeting resulted in the issuance of a new circular on August 23, 2023, which suspended some of the restrictions found in Circular 06, as noted above.]