EXTENSION OF SHORT-TERM FOREIGN LOANS

EXTENSION OF SHORT-TERM FOREIGN LOANS

Currently, the law only provides for short-term foreign loans with loans that are not guaranteed by the Government to ensure that risks are limited. So how are short-term foreign loans regulated? Is the loan extended? Let’s find out with Siglaw in the article below.

• Short-term foreign loans

• Notion

According to Clause 1 Article 3 of Circular 08/2023/TT-NHNN, a self-borrowing and self-paying foreign short-term loan is a loan not guaranteed by the Government with a loan term of up to 1 year.

Thus, short-term loans can only be borrowed within one year in return.

Foreign loan currency

Typically, the currency of foreign loans will be foreign currencies. It may only be used in Vietnamese dong in the following cases: (1) The borrower is a microfinance institution; (2) The borrower is a foreign direct investment enterprise borrowing from profits from direct investment activities in the territory of Vietnam and the lender is a foreign investor contributing capital to the borrower; (3) The borrower withdraws capital, repays the debt in foreign currency and the debt obligation of the loan is determined in Vietnamese dong.

• Conditions for short-term foreign loans

1. 1. For borrowers being credit institutions, foreign bank branches

• Purpose
• Used to supplement operating capital to grant credit according to credit growth
• Restructuring foreign debt
• Limits of short-term foreign loans
• This is the maximum ratio of total principal balance of short-term foreign loans on individual own capital: up to 30% for commercial banks; maximum 150% with branches of foreign banks and other credit institutions. The foreign short-term loan limit must be met as of 31/12 of the year preceding the time the loan arises.
• In addition, when borrowing short-term foreign loans, borrowers must ensure compliance with the provisions of law on safety ratios in the Law on Credit Institutions at the end of the last 03 months before the date of signing the foreign loan agreement, the agreement on change to increase the value of the foreign loan.

1. For borrowers other than credit institutions or foreign bank branches

Purpose:

• Use foreign short-term capital to restructure foreign debts and pay short-term debts payable in cash (the principal of the domestic loan is not included). Note: These short-term debts arise during the implementation of investment projects, production and business plans or other projects of the borrower and are determined based on regulations according to current laws guiding the corporate accounting regime

This use must be consistent with the scope of the business registration line of the enterprise, the scope of the establishment license, investment certificate, investment registration certificate, written approval of investment policy, certificate of registration of a cooperative, cooperative union or other documents of equivalent value as prescribed by law. Other lawful scope of operation specified in current legal documents on the charter of organization and operation of the borrower.

• Limits of short-term foreign loans

Short-term foreign loans only need to comply with the loan limit in case of borrowing to carry out the restructuring of the borrower’s foreign debt:

• The maximum amount of foreign loans does not exceed the total value of the principal balance, the amount of interest, outstanding fees of the existing debt and the fees of the new loan determined at the time of restructuring.

1. Extension of short-term foreign loans

Pursuant to Clause 2 Article 11 of Circular 12/2022/TT-NHNN for loans subject to registration, there is a short-term loan with an extension of the principal repayment period in which the total duration of the loan is more than 1 year and a short-term loan without an extension agreement but there is a balance of principal (including interest debts entered into the principal) at the time in 1 year from the date of the first withdrawal (unless the borrower completes the principal balance within 30 working days from the date of the first withdrawal).

Thus, with the above provisions, short-term loans can be extended with a total loan duration of more than 1 year and must register a foreign loan.

Order and procedures for registration of short-term foreign loans not guaranteed by the Government

Step 1: Documents to prepare

• Application for loan change according to the form specified in Appendix 4 of Circular 12/2022/TT-NHNN
• A copy of a document issued by a competent authority in accordance with the law on assignment and decentralization of the exercise of rights, responsibilities and obligations of state owners with respect to state-owned enterprises and state capital invested in enterprises on the approval of changes in foreign loan plans of borrowers being state-owned enterprises in case of change increase the loan amount or extend the loan term (not applicable to loans of commercial banks where the State Bank is the owner’s representative agency and has been approved and approved by the State Bank in accordance with regulations on management and use of state capital at enterprises).
• Copies and Vietnamese translations of signed loan change agreements (certified by the Borrower) in case the changes need to be agreed between the parties.
• A copy or original document proving the purpose of the loan includes:
• For loans for the implementation of investment projects: Investment certificate, Investment registration certificate or Decision approving investment policies in accordance with the provisions of investment law and current provisions of relevant laws;
• For loans for implementation of production and business plans other than investment projects: The plan on use of foreign loans shall be approved by competent authorities in accordance with the provisions of the Law on Investment, the Law on Enterprises and the enterprise’s charter, the Law on Cooperatives and the charter of cooperatives and other relevant legal documents;
• For loans for restructuring foreign debts of borrowers: The plan for restructuring foreign debts of the borrower shall be approved by competent authorities in accordance with the Law on Enterprises and the enterprise’s charter, the Law on Cooperatives and the charter of cooperatives and other relevant legal documents;
• For loans specified in Clauses 2 and 3, Article 11 of this Circular: Report on the initial use of short-term foreign loans meeting regulations on conditions for short-term foreign loans (enclosed with supporting documents such as the borrower’s plan to use foreign loans,  foreign debt restructuring plan);
• The components of dossiers specified at Points a, b and c of this Clause do not apply to loans of state-owned commercial banks of which the State Bank is the owner’s representative agency and have been approved and approved by the State Bank in accordance with regulations on management and use of state capital at enterprises.
• Written confirmation of the bank providing account services on the situation of capital withdrawal and debt repayment (principal and interest) up to the time of registration of loan change for borrowers opening loan accounts or repaying foreign debts at the bank providing account services in the following cases:
• foreign loans for restructuring foreign debts: Documents of the bank providing account services of the borrower on the situation of capital withdrawal and repayment for foreign loans will be restructured from foreign loans;
• loans specified in Clauses 2 and 3, Article 11 of this Circular: Documents of the bank providing account services of the borrower on the situation of capital withdrawal and repayment for the initial short-term foreign loan
• Report on compliance with regulations of the State Bank on limits and safety ratios in operations of credit institutions and branches of foreign banks according to regulations on conditions for self-borrowing and self-payment foreign loans at the end of the last 03 months before the date of signing the loan agreement to the end of the latest month before the time of sending complete dossiers of registration of foreign loans according to the form specified in Appendix 02 promulgated together with this Circular or documents proving the non-compliance with the provisions of law on credit grant limits and safety ratios approved by the Prime Minister or the Governor of the State Bank in accordance with law ( if any) for borrowers being credit institutions or branches of foreign banks.
• Documents and documents proving that profits are lawfully divided in Vietnamese dong from direct investment activities of the lender being a foreign investor contributing capital at the borrower and certification of the bank providing account services on the situation of profit sharing and transfer to the lender’s home country in order to prove the loan disbursement for in case of foreign loans in Vietnamese dong according to regulations on conditions for foreign loans in Vietnamese dong.

Step 2: Submit paint lake

• Form: Online (the borrower declares the Loan Extension Application on the Website and prints, signs and stamps) or in person
• Application deadline:

+ 30 working days from the date of signing the agreement on extension of short-term foreign loans into medium-term and long-term loans, for short-term loans to which the principal repayment period is extended but the total term of the loan is over 01 year.

+ 60 working days from the date of 01 year from the date of the first capital withdrawal

Step 3: Get the result

The State Bank shall issue a written confirmation or refusal to confirm the registration of loan change within the time limit:

• 12 (twelve) working days from the date of receipt of a complete and valid application from the Borrower (in case the Borrower chooses the online form), or;
• 15 (fifteen) working days from the date of receipt of a complete and valid application from the Borrower (in case the Borrower chooses the traditional form);
• In case of refusal to confirm the registration of loan change, the State Bank shall issue a written statement clearly stating the reason.

For  free ADVICE ON SHORT-TERM FOREIGN LOAN EXTENSION comprehensively, please contact:

Siglaw Law Firm

Phone: (+84) 961 366 238

Email:

• vphn@siglaw.com.vn
• vphcm@siglaw.com.vn

Headquarters: No.44/A32-NV13, Gleximco A, Le Trong Tan street, An Khanh, Hoai Duc, Ha Noi, Vietnam.

Southern branch: A9.05 BLOCK A, SkyCenter Building, 5B Pho Quang Street, Ward 2, Tan Binh District, Ho Chi Minh City, Vietnam.

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