New Revisions to Vietnam's Onshore Lending Regulations Before Taking Effect in September
On 23 August 2023, the State Bank of Vietnam (SBV) issued Circular No. 10/2023/TT-NHNN (Circular 10). Circular 10 is a unique legal document in that it removes several provisions of Circular 6/2023/TT-NHNN (Circular 6), which introduces revisions to onshore lending regulations, before Circular 6 has even taken effect. The Prime Minister directed the SBV to remove certain restrictions of Circular 6 so as to provide better access to bank loans for both real estate developers and customers, as well as borrowers in other sectors. Perhaps looking at the gloomy prospects of neighbouring China's real estate market, the introduction of Circular 10 appears to reflect a policy decision that borrowing in a tight credit market, especially by real estate developers, should not be further constrained by stringent government regulations.
Circular 6
Circular 6 was promulgated on 28 June 2023 to amend Circular No. 39/2016/TT-NHNN and will take effect as of 1 September 2023. Circular 6 introduces several new restrictions to lending activities of onshore credit institutions (which includes foreign bank branches and Vietnamese subsidiaries of foreign banks). In particular, Articles 8.7-8.10 of Circular 6 prohibit onshore credit institutions from lending to customers for purposes of:
(i) making bank deposits;
(ii) paying for share/equity purchase in non-listed companies;
(iii) paying for contributions under business cooperation contracts, joint investment contracts, or capital contribution contracts (collectively "BCC Arrangements") with respect to projects that are not qualified for sales/transactions; and
(iv) offsetting financial obligations.
The restriction in item (iii) above seems to particularly target real estate developers, who have frequently used BCC Arrangements to collect sale proceeds from buyers (who usually purchase the units with bank loans) when their residential real estate projects are not yet qualified for sale/transaction under the Law on Real Estate Business and the Housing Law.
Circular 10
On 23 August 2023, the SBV issued Circular 10, amending Circular 6, by removing the restrictions in items (ii)-(iv) above even before the effective date of Circular 6.
To the relief of the real estate financing markets, local credit institutions (including foreign bank branches and subsidiaries of foreign banks) will not be subject to these restrictions, and must make their own decisions with respect to risk management when lending for the purposes listed above.
