Our Newsletter #13 would lead you on the following:
LEGAL UPDATE
I. Amending some articles in the field of state management of the Ministry of Construction
On 20 June 2023, the Government issued Decree No. 35/2023/ND-CP amending and supplementing a number of articles of decrees in the field of state management of the Ministry of Construction. This Decree takes effect from the date of issuance with some notable contents as follows:
1. Amending the procedures for selecting investors in commercial housing construction projects as follows:
- Investors are eligible to be an investor in commercial housing construction projects under the Law on Housing 2014 and the law on real estate trading, winning of bids, or auction of rights to use land used for housing construction projects or being granted investor approval according to regulations on the selection of an investor to implement an investment project. Such investors may become owners of commercial housing construction projects.
- Investors who hold land-use rights according to regulations on the types of land use to conduct projects for commercial housing projects under the Law on Housing 2014 are eligible to become an investor in a commercial housing construction project under the law on real estate trading and relevant laws and are granted investment guideline approval and investor approval. Such investors may become owners of commercial housing construction projects.
2. Adding authority to issue construction permits:
2.1. The authority to issue, adjust, renew, reissue, and revoke construction permits under the Law on Construction 2014 is as follows:
- Provincial People’s Committees: Issues construction permits for construction to the requirement for issuance of construction permits in the province;
- District People’s Committees: Issues construction permits for grade III, grade IV construction and separate houses.
- The competent agency that issues construction permits is the competent agency that adjusts, extends, re-issues, and revokes construction permits granted by the competent agency;
- If the competent agency fails to revoke the improperly issued construction permit, the provincial People’s Committee shall directly decide to revoke the construction permit.
2.2. Authority to issue construction permits in some cases:
- For projects with many construction parts with different types and grades of construction: The competence to issue construction permits is determined according to the construction with the highest grade in the project;
- If the construction design is adjusted, or the repair or renovation of construction results in a change in the grade of the construction, the authority to issue a construction permit shall be determined according to the grade of the construction after the adjustment in design or repair or renovation of the construction.
3. Reduce construction contract advance as follows:
- The advance payment must not exceed 30% of the contract value at the time of signing (including provisions, if any); if a higher advance is required, permission shall be obtained from investment decision-makers.
- Regarding projects in which decisions on investment are made by the Prime Minister, the decision on the higher amount of advance payment may be made by Ministers, Heads of ministerial agencies, or Chairpersons of provincial People’s Committees.
II. Conditions for foreign loans of borrowers which are not guaranteed by the government (self-borrowing, self-paying)
The State Bank of Vietnam issued Circular No. 08/2023/TT-NHNN (“Circular 08/2023”) stipulating conditions for non-government guaranteed foreign loans. Circular 08/2023 takes effect from 15 August 2023, with several notable contents as follows:
1. Purpose and limitation of loan for non-credit institution borrowers
Circular 08/2023 stipulates different conditions for non-credit institution borrowers compared to credit institution borrowers. Accordingly, the purposes and limits for non-credit institution borrowers are specified as follows:
1.1. For short-term loans (loan term up to one year), the borrower can take a foreign loan for the following purposes:
- Restructuring its foreign debts and paying its short-term debts payable in cash (excluding outstanding principal amounts of domestic loans). Short-term debts payable are those incurred by the borrower during its execution of investment projects, business plans, and/or other projects, and are determined under current regulations and guidelines on corporate accounting policies; and
- Using the short-term foreign loan capital for its business operations with a maximum duration of 12 months from the day on which the foreign loan capital is withdrawn when the borrower is required to achieve minimum levels of prudential indicators as prescribed by specialized laws (i.e. securities companies).
1.2. For medium and long-term loans (loan term of more than 01 years), the borrower can borrow abroad for the following purposes:
- Implementing the borrower’s investment projects (those projects granted an investment certificate, an investment registration certificate, or a written approval of an investment policy);
- Implementing production, business plans, and other projects of the borrower; and
- Restructuring foreign debts of the borrower.
2. Using the unused amounts:
Under Circular 08/2023, if a loan has been drawn down but temporarily unused for lawful foreign borrowing purposes, the borrower may use this money to deposit at credit institutions or foreign bank branches operating in Vietnam. The maximum term of each deposit must not exceed 01 month.
3. Foreign loans in Vietnamese Dong:
3.1. A foreign loan in Vietnamese Dong (“VND”) means a foreign loan that is disbursed to the borrower’s account used for foreign borrowing and debt repayment in VND or for which debt obligations are denominated in VND;
3.2. A foreign loan in VND shall be granted if:
- The borrower is a microfinance institution;
- The borrower that is a foreign-invested enterprise gets a loan from profits earned from direct investments in the territory of Vietnam by the lender that is the foreign investor making a capital contribution to the borrower; or
- The borrower withdraws loan capital and pays debts in foreign currency but debt obligations are denominated in VND.
4. The limit on foreign loans:
- The foreign loan is used for executing an investment project: The sum of outstanding principal amounts of the borrower’s medium/long-term domestic and foreign loans (including short-term loans that are extended and overdue short-term loans that are treated as medium/long-term loans) used for executing its investment project shall not exceed the limit on borrowed capital of that investment project;
- The foreign loan is used for executing business plans or other projects of the borrower: The sum of outstanding debts of the borrower’s medium/long-term domestic and foreign loans (including short-term loans that are extended and overdue short-term loans that are treated as medium/long-term loans) used for this purpose shall not exceed total demand for borrowed capital defined in its plan for use of foreign loan capital approved by an authorized approving authority;
- The foreign loan capital is used for restructuring the foreign debts of the borrower: The maximum foreign loan amount used for restructuring the borrower’s foreign debts shall not exceed the sum of outstanding principal, unpaid interest, and relevant expenses of the existing foreign loan, and expenses associated with the new loan determined when restructuring its foreign debts.
III. Lending activities of credit institutions and foreign bank branches to customers
On 28 June 2023, State Bank of Vietnam issued Circular No. 06/2023/TT-NHNN (“Circular 06/2023”) amending several articles of Circular No. 39/2016/TT-NHNN (“Circular 39/2016”) regulating lending activities of credit institutions and foreign bank branches with customers. Circular 06/2023 will take effect from 01 September 2023, with several notable contents as follows:
1. Adding cases of which lending is not allowed:
Credit institutions shall not be allowed to approve the following loan demands:
- Loans used for doing business or investing in sectors or activities prohibited by the Law on Investment;
- Loans used for paying expenses or meeting financial demands of business or investment in sectors or activities prohibited by the Investment Law and other transactions or activities prohibited by law;
- Loans used for purchasing or using goods or services on the list of prohibited sectors and activities under the Law on Investment;
- Loans used for buying gold bullion;
- Loans used for repaying loan debts owed to lending credit institutions, except those used for paying loan interest arising during the construction process which are accounted for in the total construction cost estimate approved by a competent authority in accordance with regulations of law;
- Loans used for repaying foreign loan debts (excluding foreign loans granted in the form of deferred payment for purchased goods) or repaying loan debts owed to other credit institutions, except for a loan used for making early repayment of an existing loan that meets the conditions under the law;
- Loans used for sending money to deposit accounts;
- Loans used for making capital contributions, buying or receiving a transfer of stakes of a limited liability company or a partnership, or shares of a joint-stock company not yet listed on the securities market or registered for trading on the Upcom system;
- Loans used for making capital contributions under capital contribution contracts, investment cooperation contracts, or business cooperation contracts for executing investment projects that are unfit for sale or for business operation as prescribed by laws when the credit institution issues its lending decision; and
- Loans used for financial offsetting purposes, except for those meeting the conditions under the law.
2. Reducing loan restrictions to repay loans:
- Under Circular 39/2016, loans to refinance existing loans must meet the following conditions:
- Be a loan used for business activities;
- The term of the new loan does not exceed the remaining term of the old one; and
- The old loan has not yet undergone any debt rescheduling.
- Circular 06/2023 has removed condition (a) above, which means credit institutions are allowed to lend if the loans are used for any lawful purpose (for example, consumer loans) if the loan meets the conditions (b) and (c) above.
3. Loan repayment currency:
Circular 39/2016 requires the repayment currency to be the loan currency of the loan. However, Circular 06/2023 allows the borrower to repay the debt in another currency as stipulated in the agreement between the credit institution and the borrower.
The above is not official advice from BLawyers Vietnam’s lawyers. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. BLawyers Vietnam would love to hear from you.
Date: 28 August 2023
Writer: BLawyers Vietnam
Legal News and Update Team
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