Thông tư 02/2017/TT-NHNN

CIRCULAR

ON FACTORING SERVICES PROVIDED BY CREDIT INSTITUTIONS AND BRANCHES OF FOREIGN BANKS

Pursuant to the Law on the State bank of Vietnam dated June 16, 2010;

Pursuant to the Law on credit institutions dated June 16, 2010;

Pursuant to Government's Decree No. 16/2017/ND-CP dated February 17, 2017 of the Government defining functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the request of the Chief Banking Inspector-Supervisor;

The Governor of the State bank of Vietnam promulgates a Circular on factoring services provided by credit institutions and branches of foreign banks.

Article 1. Scope

This Circular deals with factoring services provided by credit institutions and branches of foreign banks for clients.

Article 2. Regulated entities

1. Factors being commercial banks, general finance companies, factoring companies, and branches of foreign banks that are permitted to provide factoring services.

2. Clients being residents and non-residents prescribed in regulations of law on foreign exchange management, including:

a) Buyers in factoring requested by buyers;

b) Sellers in factoring requested by sellers.

3. Other organizations or individuals relating to factoring services provided by factors.

Article 3. Interpretation

For the purposes of this Circular, these terms below shall be construed as follows:

1. Seller (including exporter) means a party that sells goods and supplies services and has legitimate interests regarding amounts receivable as agreed upon in a good or service contract.

2. Buyer (including importer) means a party that buys goods and uses services and has amounts payable as agreed upon in the good or service contract.

3. Good or service contract means a contract concluded between one party (the seller) and another party (the buyer) for sale of goods or supply of services as prescribed by law.

4. Factoring agreement means an agreement entered into by a factor and a client on establishment, change or termination of rights and obligations of parties in factoring.

5. Recourse factoring means that a factor reserves a right to reclaim its advance, interests and factoring charges from the client in the case that the buyer fails to pay the amounts payable.

In case of factoring requested by seller, the factor shall perform recourse against the seller. In case of factoring requested by buyer, the factor shall perform recourse against the buyer.

6. Documentation means documents relating to the delivery of goods or supply of services and payment claim of the selling party to the buying party on the basis of the good or service contract.

7. Amount receivable means an amount that a seller has a right to receive because it had provided the buyer with goods or services.

8. Amount payable means an amount that a buyer owes because it had provided the seller with goods or services.

9. Factoring requested by seller means that a factor purchases accounts receivable in the form of recourse factoring from the client being the seller by giving an advance to receive rights and legitimate interests relating to the accounts receivable as agreed.

10. Factoring requested by buyer means that a factor purchases accounts payable in the form of recourse factoring from the client being the buyer by giving an advance to the seller and receiving an advance, interests and charges from the client as agreed.

11. Domestic factoring means a form of factoring provided on the basis of a good or service contract in which the seller and the buyer are residents.

12. International factoring means a form of factoring provided on the basis of a good or service contract between an exporter and importer, in which a party is a resident and the other party is a non-resident.

13. Factoring debt means an amount that the factor has advanced to the client and has not repaid.

14. Factoring period means the period of time that starts from the day succeeding the date on which the factor advances an amount as the first installment and finishes when the client is obliged pay debt and interests in full as agreed in the factoring agreement. If the due date falls on the weekends or holiday, the factoring period shall finish on the succeeding working day. If the factoring period lasts within a day, it shall be determined as prescribed in the Civil Code in terms of commencement of time limit.

15. Repayment term means periods of time in the contractual factoring period of which at the end of each period the client has to pay a part of debt or interests or debt and interests in full to the factor. If the due date of a term falls on the weekends or holiday, the repayment term shall finish on the succeeding working day.

16. Overdue factoring debt includes:

a) The factoring debt to be converted into overdue debt prescribed in Clause 2 Article 15 hereof;

b) Factoring debt that the client fails to pay before the due date of payment when the factor terminates the factoring services or recover debt before the due date of payment as prescribed in Clause 1 Article 16 hereof.

17. Capital use plan means a collection of information about the use of advance given to the client, including the following:

a) Amounts receivable, amounts payable; amount of advances; purpose use of advances; using time;

b) Fund resources for repayment of client in case of factoring requested by buyer.

18. Financial resources mean client’s capacity of capital, assets and other lawful financial resources.

Article 4. Language

1. A factoring agreement may be made in Vietnamese or in both Vietnamese and a foreign language.

2. If any document to be used in factoring services is written in foreign language, the factor must translate it into Vietnamese (bearing authorization of the competent person of the factor or being notarized or authenticated) in case of request of competent authority.

Article 5. Internal regulations

1. Pursuant to the Law on credit institutions, this Circular and relevant law provisions, each factor shall promulgate internal regulations on factoring services, management of accounts receivable and accounts payable in conformity with its operating activities (hereinafter referred to as factoring internal regulations).

2. Factoring internal regulations of a factor shall be consistently complied with in the whole of factor system and contain at least the following:

a) Conditions for factoring; accounts ineligible for factoring; methods of factoring; interest rates, factoring charges and methods of determining interests and factoring charge; factoring documentation and documents sent from the client to the factor; debt recovery, recourse; conversion to overdue debt;

b) procedures for verification, approval, decisions on factoring; in which specifying the time limit for verification or decision on factoring; decentralization, authorization and responsibilities of each individual and division relating to verification, approval, decision on factoring and other tasks to be performed in factoring services.

c) Procedures for inspection and supervision of the factoring process and client’s repayment; decentralization, authorization and responsibilities of each individual and division relating to inspection and supervision of the factoring process and client’s repayment;

d) Using security interests in factoring services, verification of collateral, management, supervision of collateral in conformity with security interests, characteristics of collateral and client;

dd) Termination of factoring, debt settlement; remission of interests and fees;

e) Identification of risks likely incurring in the factoring process; procedures for monitoring, evaluating, and control risks; risk reduction plan;

g) Measures for risk management in a case where the buyer has not provided a commitment to make payment to the factor (in case of factoring requested by seller). Measures for inspection, supervision, and management if no original of contract or documentation for sale of goods or supply of services is not used.

h) A list of or standards applied for organizations that provide payment guarantees and insurance for accounts payable prescribed in Point c(ii) Clause 2 Article 11 of this Circular.

3. Within 10 working days from the date on which new factoring internal regulations are promulgated or applicable factoring internal regulations are amended, the factor shall forward them to Bank Supervision and Inspection Agency affiliated to the State bank of Vietnam.

Article 6. Accounts ineligible for factoring

{The following accounts receivable and accounts payable shall not be factored by the factor:

1. Accounts arising from a good or service contract forbidden by applicable laws.

2. Accounts arising from a good or service contract of which remaining payment period is longer than 180 days from the date of receiving an application for factoring services.

3. Accounts arising from a good or service contract of which a term indicating that rights and obligations in the contract may not be assigned has existed.

4. Accounts arising from a contract for service supply in sectors of finance, banking and insurance as prescribed by the Prime Minister in terms of Vietnam Standard Industrial Classification.

5. Accounts that have been factored or used to guarantee other debt obligations.

6. Overdue accounts according to the good or service contract.

7. Accounts under dispute.

Article 7. Types of factoring

1. Factoring upon request: The factor and client shall follow the factoring procedures and conclude a factoring agreement.

2. Factoring by funding limit: The factor shall determine and agree with the client about a maximum amount of factoring debt permitted to maintain within a certain period of time and the use thereof. The factor shall reconsider the funding limit and period thereof at least once a year.

3. Syndicated factoring: At least two factors provide factoring services for one or a number of accounts receivable or accounts payable of clients, in which one factor shall play the central role to provide such factoring services.

Article 8. Currencies to be used in factoring or debt repayment

1. The currency to be used in factoring is Vietnamese dong, except for regulations in Clause 2 hereof. The factor is entitled to factor by Vietnamese dong for a client being non-resident only when he/she uses the factoring funding within Vietnam’s territory.

2. The factor is entitled to consider factoring in foreign currency for accounts receivable or accounts payable in accordance with regulations of law on foreign exchange management to any of the following clients:

a) A non-resident; or

b) A resident who satisfies the following requirements:

(i) The seller who uses factoring funding for payment of transactions in foreign currency as prescribed by law; or

(ii) The seller who earns sufficient foreign currency from business revenues to pay factoring debt; or

(iii) The head oil and gas importer to which the Ministry of Industry and Trade imposes annual oil and gas import quota that uses factoring for outward remittance of oil and gas import duty.

3. The currency to be used for debt repayment or interest payment is currency to be used in factoring.

Article 9. Factoring interest rates and charges

1. Factoring interest rates and charges shall be agreed upon by the factor and the client in accordance with regulations of law.

2. When the factoring interests and charges are due but they are not paid or not fully paid as agreed, the client is obliged to pay interests as follows:

a) Amount of interests on factoring debt according to contractual interest rate equivalent to overdue factoring period;

b) If the client fails to pay the amount of interests on time as prescribed in Point a of this Clause, it must pay late payment interest according to the interest rate agreed upon by the factor and the client, provided that it does not exceed 10% per year on balance of late payment interest equivalent to the late payment period;

c) If the factoring debt becomes overdue debt, the client must pay interest according to the overdue debt equivalent to late payment period, provided that the interest rate does not exceed 150% of the interest rate within the term of the factoring period.

3. If the floating interest rate applies to the factoring, the factor and the client must agree about the rules and elements for determining floating interest rate, interest adjustment point of time. If the floating interest rate is determined according to relevant elements resulting in different factoring interest rates, the factor shall apply the lowest factoring interest rate.

Article 10. Requirements for providing factoring services

1. The factor shall agree with the client on the amount of advance provided that it does not exceed the amount of accounts receivable or accounts payable and such amount of money is advanced only after receiving sufficient documents below:

a) Original copy of contract or documentation of sale of goods or supply of services; or

b) Copies of good or service contract and copies/list of documentation of sale of goods or supply of services if the factor and the client has agreed about the measures for ensuring that copies or lists and original copies are accurate, truthful, and sufficient.

2. The factor is entitled to provide factoring services in foreign currency within the scope of foreign exchange business in the domestic market or international market mentioned in the permit issued by the State Bank of Vietnam.

3. In case of factoring requested by seller, the factor shall:

a) Agree with the seller about the notice of assignment that is sent to the buyer and other parties incurring relevant obligations (if any), unless the seller, the buyer, and other parties incurring relevant obligations (if any) agree that non-notification program will applies. The notice of assignment shall contain at least the contents of assignment of rights and obligations relating to the accounts receivable between the seller and the factor, and written request to the buyer and other parties incurring relevant obligations (if any) to make written commitment to the payment to the factor;

b) If the buyer and other parties incurring relevant obligations fail to make a written commitment to the payment to the factor as prescribed in Point a of this Clause, the factor is entitled to provide factoring services for the client only when they have entered into an agreement on measures enabling the factor to control payments by the buyer or other parties incurring relevant obligations (if any).

4. In case of factoring requested by buyer, the factor is entitled to provide factoring services only when the seller and the buyer have entered into an arrangement on assignment of payment of accounts payable to the factor.

5. The syndicated factoring shall be provided in accordance with this Circular, regulations of the State bank of Vietnam in terms of syndicated loans and relevant law provisions.

Article 11. Conditions for factoring

A factor shall consider providing factoring services for clients that satisfy the following requirements:

1. For residents

a) The client is a juridical person who has legal personality as prescribed by law;

b) The client is an individual aged 18 or older who has full legal capacity as prescribed in law or an individual aged 15 or older but under the age of 18 who lacks of legal capacity or has limited legal capacity as prescribed by law;

c) The client wishes to use factoring services to use the option fee for legitimate purposes and engaging in business;

d) The client has financial resources for debt repayment;

dd) The client obtains a feasible plan for capital use.

2. For non-residents

a) The client is an organization;

b) The client meets conditions prescribed in Points c, d, and dd Clause 1 of this Article;

c) The client being the importer shall satisfy conditions prescribed in Point a, b of this Clause and one of the following conditions:

(i) The client is an enterprise establishing and operating overseas of which a part of capital is/are held Vietnamese enterprise(s) in the form of foreign direct investment;

(ii) the total amount of accounts payable that is guaranteed, insured by a third party, deposited by the client, or guaranteed by deposits of the client at the factor.

Article 12. Application for factoring services

1. A client will, if wishes, sends an application for factoring services to a factor, including documents proving its eligibility for factoring services as prescribed in Article 11 of this Circular and other documents according to guidelines of the factor.

2. The client shall take legal responsibility for the accuracy, truthfulness, and sufficiency of documents sent to the factor.

Article 13. Verification and decision on factoring

1. The factor shall verify if the client satisfies factoring conditions as prescribed in Article 11 of this Circular so as to consider granting the decision on factoring. During the verification process, the factor may use the internal credit rating system and information from the National credit information center of Vietnam and other channels.

2. The factor shall consider granting factoring according to the rules of separating responsibilities between the verification and decision stage.

Article 14. Factoring agreement

1. A factoring agreement must be made in writing in accordance with this Circular and relevant provisions of law, at least containing:

a) Name, address, business identification number of the factor; name, address, ID number, citizen number, or passport that remains valid or business identification number of client;

b) Amount of accounts receivable or accounts payable; amount of advance; funding limit in case of factoring by funding limit; contents, time for assignment of rights and legitimate interests relating to the accounts receivable or accounts payable in conformity with the good or service contract;

c) Purposes for which the advance is used;

d) Factoring currency; currency to be used for debt repayment or interest payment;

dd) Type of factoring;

e) Factoring period; period over which factoring limit is maintained;

g) Factoring interest rates and calculation method thereof; rules and elements to be used for determining interest rate, time for determining interest rate in case of application of floating interest rate; interest rate converted as % per year (1 year includes 355 days) according to actual factoring debt and unpaid debt period; interest rate charged for overdue factoring debt; interest rate charged for late payment interest; relevant fees and amount thereof;

h) Debt repayment, interest payment; order of recovery of debts, interests; early repayment;

i) Convert factoring debt into overdue debt; form and contents of the notice of conversion to overdue debt are prescribed in Clause 2 Article 15 of this Circular;

k) Recourse of debt and interest, factoring charge; contents and time for assignment of rights and interests relating to the accounts receivable or accounts payable during the course of recourse;

l) Termination of factoring; collection of early repayment, conversion of factoring debt to overdue debt upon the termination of factoring; form and contents of notification of factoring termination, collection of early repayment as prescribed in Clause 1 Article 16 of this Circular.

m) Deal with debts; impose penalties for violations and claim for compensation for damage;

b) Responsibility for giving notice to the buyer (if any);

o) Rights and obligations of parties, in which the client commits that accounts receivable or accounts payable will not be used to guarantee other debt obligations or for other credit extension purpose without consent of the factor;

p) The mode to hand over the good or service contract, sale vouchers , the rights, interest and documents relating to the accounts receivable or accounts payable, which is factored;

q) Dispute settlement;

r) Effective term of the factoring contract.

2. Apart from the contents prescribed in Clause 1 of this Article, the factor and the client may reach agreement about other matters in accordance with this Circular and relevant law provisions.

3. The factoring agreement prescribed in Clause 1, 2 of this Article shall be made in a specific factoring agreement or in both agreement framework and a specific factoring agreement.

4. The parties may make amendments to or terminate the factoring agreement in accordance with this Circular and relevant law provisions.

5. If a model agreement is used or conditions for general transactions in factoring agreement apply, the factor shall:

a) Post the model contract or conditions for general transaction in factoring agreement publicly at the factor’s head office and on its website;

b) Provide sufficient information about the model contract or conditions for general transaction in factoring agreement for client prior to the conclusion of such factoring agreement and obtain a written consent of information from the client.

Article 15. Determination of factoring period, repayment terms and conversion to overdue debt

1. The factoring period, repayment term shall be determined according to remaining period, payment terms of the accounts receivable or accounts payable mentioned in the good or service contract and the period of recourse. The period of recourse begins from the day succeeding the closing day of the period, payment terms of the accounts receivable or accounts payable mentioned in the good or service contract and ends at the closing day of the factoring period or repayment term. The period of recourse shall be agreed upon by the factor and the client and included in the factoring agreement providing that it does not exceed 60 days in case of domestic factoring and 120 days in case of international factoring.

2. The factor shall convert the amount of advance that is not paid by the required time to the overdue debt. The factor must notify the client of the conversion to overdue debt, at least containing the amount of overdue factoring debt, time of conversion and interest rate charged for overdue factoring debt.

3. In case of an overdue factoring debt, the factor shall collect factoring debt prior to interest.

Article 16. Termination of factoring, debt handling, remission of factoring interest and charges

1. The factor is entitled to terminate the factoring agreement, recover debt before the due date of payment as agreed if it is found that the client has provided incorrect information or committed breaches of factoring agreement or guarantee contract. The factor shall give a prior notice of termination of factoring agreement or recovery of debt before the due date of payment to the client as agreed in the factoring agreement. The notice shall at least contain time of termination, factoring debt to be recovered before due date of payment; time limit for payment factoring debt to be recovered before due date of payment, time of conversion to overdue debt and interest rate charged for the factoring debt to be recovered before due date of payment, the return of accounts receivable or accounts payable.

2. If the client fails to repay the due debt, the factor is entitled to apply measures for debt recovery as agreed in the factoring agreement, the guarantee contract and relevant law provisions. In case of client’s failure to repay debt in full to the factor regardless of application of measures for debt recovery, the client is responsible for keep repaying the factoring debt and interests to the factor.

3. If a court decides to start bankruptcy proceedings or declare bankruptcy against the client or the grantor, the debts incurred by the client or grantor shall be recovered in accordance with regulations of law on bankruptcy.

4. The factor is entitled to decide remission of interests and charges for the client as prescribed in internal regulations of the factor.

Article 17. Security for factoring services

1. The factor and the client shall agree whether the security interests apply or not. The agreement on security interests is reached by the factor and the client in accordance with regulations of law on security interests and relevant law provisions.

2. The factor shall decide and take responsibility for non-application of security interests in factoring services.

3. The client or the grantor shall cooperate with the factor in dealing with collateral according to the legal bases mentioned in the factoring agreement, guarantee contract and relevant law provisions.

Article 18. E-factoring services

1. The factor may provide factoring services by electronic means as prescribed in this Circular and regulations of law on electronic transactions in banking sector.

2. At least 10 working days before the e-factoring services are provided, the factor shall send documentation to the system serving the e-factoring services (including application design model, technology infrastructure and solutions for the system safety) to the Information Technology Administration affiliated to the State bank of Vietnam.

3. The client who applies for e-factoring services must comply with conditions and guidelines for electronic transactions provided by the factor and relevant law provisions.

Article 19. Penalties and compensation for damage

1. The factor and the client shall agree about penalties and compensation for damage as prescribed in law if one of them fails to adhere to the factoring agreement, except for the case prescribed in Clause 2 Article 9 hereof.

2. The factor and the client may agree that the breaching party shall incur either penalties or compensation for damage or incur both penalties and compensation for damage. If the factor and the client have agreed that the breaching party shall incur penalties but not agreed that the breach party shall incur both penalties and compensation for damage, the breaching party shall only incur penalties.

Article 20. Keeping records of factoring documentation

1. The factor shall keep records of factoring documentation below:

a) Applications for factoring services;

b) Factoring agreement;

c) Client’s report on financial situation;

d) Documentation relating to collateral (if any);

dd) Decision on factoring bearing signature(s) of the competent person(s); or specifying the decision made by a group which has been passed;

e) Documentation arising during the use of advance in connection with the factoring agreement guided by the factor.

2. Time limit for keeping records shall be consistent with regulations of law.

Article 21. Other regulations

Responsibilities of the factor:

1. Comply with regulations on cases of ineligibility for factoring, factoring restrictions and factoring limits as prescribed in Articles 126, 127, 128 of the Law on credit institutions and regulations of the State bank of Vietnam on limits and prudential ratio applicable to credit institutions and branches of foreign banks.

2. Classify, build up reserve, and use reserve to deal with risks to be incurred in factoring services as prescribed by the State Bank of Vietnam on classification of credit assets, amount and method of building up loan loss reserves and using reserve to deal with risks to be incurred by credit institutions, branches of foreign banks.

3. Do accounting, release statistical reports on factoring services as prescribed in regulations of law of the State Bank of Vietnam on accounting and statistical reports applicable to credit institutions, branches of foreign banks.

Article 22. Transitional regulations

1. With regard to any factoring agreement which has been signed before the effective date of this Circular and considered accordant with law at the signing time, the related factor and client are entitled to keep adhering to the agreement for the rest of its term.

2. Any amendment to or extension of the factoring agreement prescribed in Clause 1 of this Article shall be made or issued only when it complies with regulations of this Circular and relevant law provisions.

Article 23. Entry in force

1. This Circular comes into force from September 30, 2017.

2. From the effective date of this Circular, the following documents shall become expired:

a) Decision No. 1096/2004/QD-NHNN dated September 6, 2004 of the Governor of the State bank of Vietnam on promulgation of regulations on factoring services provided by credit institutions.

b) Decision No. 30/2008/QD-NHNN dated October 16, 2008 of the Governor of the State bank of Vietnam on amendments to regulations on factoring services provided by credit institutions which are issued together with Decision No. 1096/2004/QD-NHNN dated September 6, 2004 of the Governor of the State bank of Vietnam;

c) Article 8 of Circular No. 24/2011/TT-NHNN dated August 31, 2011 of the Governor of the State bank of Vietnam on enforcement of plan for simplifying administrative procedures for establishment and operation of banks according to Resolutions of the Government on simplifying administrative procedures under the management of the State Bank of Vietnam;

d) Article 2 and Clause 2 Article 3 of Circular No. 14/2016/TT-NHNN dated June 30, 2016 of the Governor of the State bank of Vietnam on amendments to Circular No. 30/2014/TT-NHNN dated November 6, 2014 of the Governor of the State Bank on authorization and of credit institutions, branches of foreign banks and repealing a number of articles of regulations on factoring services of credit institutions enclosed together with Decision No. 1096/2004/QĐ-NHNN dated September 6, 2004 of the Governor of the State Bank.

Article 24. Implementation

The Chief officers, the Chief Banking Inspector-Supervisor and heads of affiliates of the State bank of Vietnam, Directors of branches of State Bank of Vietnam of provinces and central-affiliated cities; Presidents of the Board of Directors, Presidents of the Member assembly and General Director (Director) of credit institutions, branches of foreign banks shall implement this Circular./.