Thông tư 07/2003/TT-NHNN

CIRCULAR

GUIDING THE IMPLEMENTATION OF A NUMBER OF REGULATIONS ON CREDIT INSTITUTIONS’ LOAN SECURITY

Pursuant to the Government’s Decree No.178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security;
Pursuant to the Government’s Decree No.85/2002/ND-CP of October 25, 2002 amending and supplementing Decree No.178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security;
The State Bank of Vietnam hereby guides a number of regulations on loan security in the above documents so that credit institutions implement them when providing loans under the Vietnam State Bank’s Regulation on Providing Loans as follows:

I. LOAN SECURITY WITH MORTGAGED OR PLEDGED PROPERTIES OF BORROWERS, GUARANTEE WITH PROPERTY OF THE THIRD PARTY

1. Credit institutions may select fully qualified properties as loan security and select the third parties to provide security with their properties.

2. Properties of borrowers and the third parties may be used as loan security.

2.1. Pledged properties:

a) Machinery, equipment, transport means, raw materials, fuel, materials, consumer goods, precious metals, gemstones and other valuable objects;

b) Foreign currencies in cash, credit balances on deposit accounts at organizations providing payment services in Vietnamese and foreign currencies;

c) Bonds, share certificates, papers, promissory notes, deposit certificates, savings books, commercial bills and other papers valued in money. Particularly for share certificates of the issuing credit institutions, the borrowers must not pledge them right at such credit institutions;

d) The property rights arising from copyrights, industrial property, debt claims, right to receive insurance indemnity, other property rights arising from contracts or from other legal bases;

e) The right over contributed capital in enterprises, including foreign-invested enterprises;

f) The rights to exploit natural resources as provided for by law;

g) Sea-going ships as provided for in Vietnam’s Maritime Code, aircraft as provided for by Vietnam’s Civil Aviation Law in cases where they can be pledged;

h) Assets to be formulated in the future, which are moveables formulated after the time of concluding the pledge transactions and shall belong to the pledgers such as yields, interests, assets formulated from loan capital, other moveables which the pledgers are entitled to receive;

i) Other properties as provided for by law.

Yields and the rights arising from the pledged properties also belong to the pledged properties if it is so agreed upon by the parties or prescribed by law; where the pledged properties are insured, the insurance indemnity amounts shall also belong to the pledged properties.

For the property rights prescribed at Items d, e and f, credit institutions shall accept the pledge thereof when they can determine the specific values agreed upon by the parties or hire consultancy or professional organizations to determine them.

2.2. Mortgaged properties:

a) Dwelling houses, constructions affixed to land, including properties closely affixed to dwelling houses, constructions and other properties closely affixed to land;

b) The land use right value which can be mortgaged under the provisions of the land legislation;

c) Sea-going ships as prescribed by Vietnam’s Maritime Code, aircraft as prescribed by Vietnam’s Civil Aviation Law in cases where they can be mortgaged;

d) Assets to be formulated in the future, which are immovable assets formulated after the conclusion of mortgage transactions and shall belong to the mortgagors’ ownership such as yields, interests, assets formulated from loan capital, constructions, other immovables which the mortgagors can receive;

e) Other assets as provided for by law.

In cases where the entire assets with auxiliary objects are mortgaged, such auxiliary objects also belong to the mortgaged assets. Where a part of an immovable asset with auxiliary objects is mortgaged, the auxiliary objects shall belong to the mortgaged asset if so agreed upon by the parties.

Yields, interests and rights arising from the mortgaged assets shall also belong to the mortgaged assets, if it is so agreed upon by the parties or prescribed by law; where the mortgaged assets are insured, the insurance indemnity shall also belong to the mortgaged assets.

2.3. Security properties:

The third party’s properties used to secure the fulfilment of guarantee obligations shall include the assets prescribed at Points 2.1 and 2.2 of Clause 2, this Section.

3. Assets which the borrowers or the guarantors use as pledge, mortgage or security to borrow capital from credit institutions must satisfy the following conditions:

3.1. The assets must belong to the ownership, use or management rights of the borrowers or the guarantors under the following regulations:

a) For the land use right value, it must belong to the borrowers or the guarantors and must be mortgaged or guaranteed according to the provisions of the land legislation;

b) For assets of Sate enterprises, they must be the assets assigned by the State to such enterprises for management, use and can be used to secure loans as provided for by the legislation on State enterprises;

c) For other assets, they must belong to the ownership of borrowers or guarantors. Where the assets over which the ownership must be registered as provided for by law, the borrowers or the guarantors must have the certificates of ownership over such assets.

3.2. Assets permitted for transaction mean assets which the law permits or does not ban from, purchase, sale, donation, exchange, transfer, pledge, mortgage, guarantee and other transactions.

3.3. Assets not in dispute mean assets not in dispute over the ownership or the use or management rights of the borrowers or the guarantors at the time of signing the guarantee contracts. In separate documents or pledge, mortgage or guarantee contracts, the borrowers or the guarantors must make commitments with the credit institutions that the pledged, mortgaged or security properties are not in dispute, and be accountable for their commitments.

3.4. For assets which, as stipulated by law, must be insured, the borrowers or the guarantors must buy the property insurance within the period of loan security.

4. Credit organizations shall select the guarantors that meet the following conditions:

4.1. Having civil law capacity, civil act capacity as provided for by Vietnamese law for the guarantors being Vietnamese legal persons or individuals. For guarantors being foreign legal persons or individuals, they have civil law capacity and civil act capacity under the provisions of law of the countries of which the foreign legal persons bear the nationalities or foreign individuals are citizens, if the laws of such foreign countries are prescribed by the Civil Code or other legal documents of the Socialist Republic of Vietnam or the international treaties which the Socialist Republic of Vietnam has signed or acceded to; where the foreign legal persons or individuals establish and implement the security in Vietnam, they must have civil law capacity and civil act capacity as provided for by Vietnamese law.

4.2. Having assets which satisfy the conditions prescribed at Point 2.3, Clause 2 of this Section for the performance of guarantee obligations, except where the guarantors are credit institutions or State budget-managing agencies, the security shall comply with the legislation on bank guarantee, guarantee of the State budget.

5. That the guarantors do or do not pledge or mortgage their property for the performance of the guarantee obligations shall be agreed upon by the credit institutions and the guarantors.

II. PLEDGE, MORTGAGE AND GUARANTEE CONTRACTS AND PROCEDURES

1. Pledge, mortgage or guarantee contracts (referred collectively to as security contracts) must be made in writing; the security contracts can be made in separate documents or inscribed in the credit contracts.

1.1. The contracts on property pledge or mortgage shall have the following principal contents:

a) Names and addresses of the parties; day, month, year;

b) The secured obligations;

c) Description of the pledged or mortgaged assets; the value of the pledged or mortgaged assets; particularly for pledged or mortgaged assets to be formulated in the future, the general description of the assets can be made;

d) The keeper of assets, papers of pledged or mortgaged assets;

e) Rights and obligations of the parties;

f) The agreements on cases of handling and mode of handling pledged or mortgaged assets;

g) Other agreements.

1.2. The guarantee contracts shall have the following principal contents:

a) Names and addresses of the parties; day, month, year;

b) The guarantor’s commitments to perform the obligations for the guaranteed party;

c) The guaranteed obligations, the guarantee scope and the guaranteed party;

d) The guarantee assets, the value of guarantee assets, except for cases where the guarantors are credit institutions or State budget-managing agencies; particularly for the guarantee assets which are assets to be formulated in the future, the general description thereof can be made;

e) Rights and obligations of the guarantor, the guarantee and the guaranteed;

f) The agreements on cases of handling and modes of handling the guarantee assets;

g) Other agreements.

2. Where loan security transactions are considered partially or fully invalidated, such shall not affect the effect of the credit contracts which such security transactions constitute a condition. Borrowers and guarantors must continue performing their debt repayment obligations and guarantee obligations and supplement the security property assets as committed.

3. The certification, authentication or non-certification, non-authentication, of property pledge, mortgage or guarantee contracts by State notaries public or competent People’s Committees shall be agreed upon by the parties; where the law prescribes that property pledge, mortgage or guarantee contracts must be certified or authenticated, the parties must comply therewith. The People’s Committees competent to authenticate property pledge, mortgage or guarantee contracts are the People’s Committees of the levels prescribed by the Government and the guiding documents of the Ministry of Justice on notarization and authentication.

4. The registration, deletion of registration of property pledge, mortgage or guarantee shall comply with the Government’s Decree No.08/2000/ND-CP of March 10, 2000 on registration of security transactions and the guiding documents of the Ministry of Justice, the Ministry of Finance, the Ministry of Natural Resources and Environment, other concerned ministries and branches.

The registration, deletion of registration of the mortgage or guarantee with properties being the land use right, immovable assets affixed to land shall be effected when the concerned ministries or branches issue documents guiding in detail the order, procedures and fee for security transaction registration and the provincial/municipal Land Administration Services or the Land Administration- Housing Services, the People’s Committees of communes, wards or district towns shall effect the security transaction registration.

5. The keeping of loan security properties and papers thereof.

5.1. When pledging assets or providing security with moveables, the borrowers or the guarantors are obliged to hand over the pledged properties to the credit institutions for keeping. The parties may reach agreement on the keeping of pledged properties by the borrowers, the guarantors or the third party in the following cases:

a) The pledged properties have the ownership registration, but the credit institutions must keep the originals of the property ownership certificates.

b) The pledged properties are not subject to ownership registration but the pledge of such properties must be registered at the security transaction registry.

5.2. When mortgaging properties, providing security with immovable assets, the mortgaged or security properties shall be kept by the borrowers or the guarantors, except for cases where the parties agree to assign them to the credit institutions or the third parties for keeping. If mortgaging or providing security with properties with ownership registration or the land use right value, the credit institutions shall have to keep the originals of the property ownership certificates of the land use right certificates.

5.3. For pledged properties being transport means, fishing means with registration certificates as required by law (called the registration certificates for short), the credit institutions shall have to keep the originals of the registration certificates; the borrowers or the guarantors may use their copies with certification by State notaries public and confirmation by the credit institutions (being pledgees or mortgagees) for circulation of means during the pledge or mortgage. The credit institutions shall write the confirmation on the copies of the registration certificates after they are certified by the State notaries public. The contents of confirmation by the credit institutions on the copies of registration certificates shall be: "The original is being kept at.... from day... month... year... to day... month... year..." and the signature of the general director (director) or deputy-general director (deputy-director) and seals of the credit institutions; or the signature of the director (deputy-director) and seals of member units of the credit institutions, which are authorized to provide loans. In cases where loans are extended, the credit institution shall confirm the extension of the time limit for circulation of the copies of the registration certificates compatible with the time limit of debt extension.

The copies of registration certificates with certification by the State notaries public and confirmation by the credit institutions shall be valid for circulation of means within the pledge or mortgage time limits, including the debt extension time limit (if any). Upon the expiry of the use duration of copies of the registration certificates, the borrowers or the guarantors shall have to re-submit them to the credit institutions.

5.4. For pledged, mortgaged or guarantee properties being sea-going ships or aircraft operating on international routes, the credit institutions shall keep the copies of the registration certificates with certification by State notaries public and the means owners keep the originals thereof for circulation of their means.

6. For pledged or guarantee properties being supplies or goods rotated in the process of production and business, the borrowers or the guarantors may sell or exchange them only when so approved in writing by the credit institutions being the pledgees. For mortgaged or guarantee properties being dwelling houses, construction works for sale or lease, the borrowers or the guarantors may sell or lease them only when so approved in writing by the credit institutions being the mortgagees.

7. In case of pledging or guaranteeing with, the property rights arising from copyrights, industrial property, debt claims, right to receive insurance money, rights to contributed capital portions in enterprises, right to natural resource exploitation..., the borrowers and/or the guarantors must hand over to the credit institutions the originals of the papers proving their property rights and join the credit institutions in carrying out the legal procedures for the credit institutions to lawfully own the pledged or security property rights in cases the borrowers fail to fulfill their debt-repaying obligations.

8. The contracts on pledge, mortgage or guarantee with properties to be formulated in the future give the general description of the properties; when such properties are put to use and the pledgors, mortgagors or guarantors may own them, the parties must make appendices to the pledge, mortgage or guarantee contracts, describing the properties, the valuation of the properties, the keeping of such properties and papers thereof in compliance with the provisions in Clause 5 of this Section. The concerned parties shall carry out the registration and deletion of the registration of security transactions according to the provisions in Clause 4 of this Section.

9. State enterprises may pledge or mortgage the properties assigned to them by the State for management and use in order to borrow capital at credit institutions. State corporations may make pledges, mortgages or guarantees with the properties assigned by the State to them for management and use after subtracting the values of properties already assigned to their independent cost-accounting member enterprises.

When State enterprises pledge or mortgage properties being the entire principal technological chains under the regulations of the eco-technical branch- managing agencies, such must be agreed upon in writing by the agencies deciding the establishment of such enterprises. The pledge or mortgage of properties other than the principal technological chains shall be agreed upon by the State enterprises and the credit institutions.

For State enterprises which are subject to business contracting or lease under decisions issued by competent State agencies, the pledge or mortgage of properties for borrowing capital at credit institutions must be agreed upon in writing by competent State bodies.

For State enterprises which the competent State agencies have issued decisions to be assigned to collectives of laborers in the enterprises, to be sold or to be converted into one-member limited liability companies, the contracts and procedures for property pledge or mortgage shall comply with the law provisions prescribed for borrowers other than State enterprises.

10. For foreign legal persons’ or individuals’ properties existing in Vietnam, the contracts and procedures for property pledge, mortgage or guarantee shall comply with the provisions of Vietnamese law; if the properties exist in foreign countries, the concerned parties may reach agreement on whether the property pledge, mortgage or guarantee contracts and procedures shall comply with Vietnamese laws or foreign laws and international practices provided that such foreign laws and international practices are not contrary to Vietnamese law.

III. SCOPE OF SECURITY FOR PERFORMANCE OF DEBT-REPAYING OBLIGATIONS AND SCOPE OF PROPERTY SECURITY FOR LOANS

1. The scope of security for the performance of debt-repaying obligations of borrowers towards credit institutions: The borrowers’ debt-repaying obligations towards credit institutions shall cover loans (principal), loan interests, overdue debt interests, charges (if any) inscribed in the credit contracts, which the borrowers have to pay as provided for by law, except for cases the parties have agreed that the loan interests, overdue debt interests and charges (if any) do not fall within the scope of security for performance of obligations.

2. Where many parties provide guarantee for one obligation of the borrower, the guarantors shall have to jointly perform the guarantee, except for cases where the guarantee are provided for independent parts as agreed upon or prescribed by law; the credit institutions being the guarantees may request any of the guarantors to perform the whole guarantee obligations. Where the credit institutions being guarantees can clear the obligations with the guaranteed borrowers, the guarantors shall not have to perform the guaranteed obligations.

3. The value of security properties shall be determined at the time of signing the security contracts, agreed upon by the parties, except for case of the value of the right to use the State-leased land, which shall comply with the provisions at Point b, Clause 11, Article 1 of Decree No.85/2002/ND-CP of October 25, 2002.

The security property value must be higher than the value of the secured obligations, except for cases where the credit institutions and the borrowers agree that the property security is a supplementary measure for the loans which the borrowers are fully qualified to borrow without property security as provided for in Clause 18, Article 1 of Decree No.85/2002/ND-CP of October 25, 2002.

4. The debt-repaying obligations inscribed in the credit contracts can be security with one or many properties through one or many property security measures, provided that the provisions in Clause 3 of this Section are complied with.

5. Within the security time limit, the parties can agree to partly withdraw, add or replace the security properties provided that the provisions in Clause 3 of this Section are complied with. Where the borrowers have partly performed the debt-repaying obligations with property security, if they wish, the credit institutions can permit the withdrawal of security properties corresponding to the performed obligation parts and the withdrawal of security properties shall not affect the remaining debt-repaying obligations with property security and the subsequent handling of the security properties.

6. The scope of property security for loans shall comply with the provisions in Clause 13, Article 1 of Decree No.85/2002/ND-CP of October 25, 2002. Where the parties agree to use one property to security the performance of many debt-repaying obligations, the borrowers or the guarantors shall have to notify the credit institutions which accept the subsequent guarantees of the previous securities; if failing to notify, they must make compensations when damage is caused to the damage-suffering party.

Each time of pledging, mortgaging or providing guarantee with, one property for the performance of many debt-repaying obligations, the parties must compile documents thereon and make registration at the security transaction registry.

The order of payment priority among credit institutions guaranteed with one property shall be determined according to the order of security transaction registrations. Where the credit institutions being co-guarantors agree to change the payment priority order, they must register such change at the security transaction registry.

IV. LOAN SECURITY WITH PROPERTIES FORMULATED FROM BORROWED CAPITAL

1. The borrowers’ conditions on the levels of own capital involved in investment projects or production, business, service and/or livelihood plans and the value of loan security properties through measures of pledge or mortgage as prescribed at Item c, Point 1, Clause 17, Article 1 of Decree No.85/2002/ND-CP of October 25, 2002 shall be met in one of the following three cases:

1.1. Having the own-capital amount involved in investment projects or production, business, service and/or livelihood plans being at least equal to 15% of the total investment amount;

1.2. Having the own-capital amount involved in investment projects of production, business, service or livelihood plans plus the value of loan security property through pledge or mortgage measures being at least equal to 15% of the total investment amount;

1.3. Having the value of loan security properties through one or several measures of pledge or mortgage being at least equal to 15% of the total investment amount of the projects or the production, business, service or livelihood plans.

2. The procedures and contracts for pledge or mortgage of properties formulated from the borrowed capital shall comply with the law provisions on loan security and the guidance in this Circular on pledge or mortgage of properties to be formulated in the future.

V. MORTGAGE AND GUARANTEE WITH THE VALUE OF THE RIGHT TO USE LEASED LAND WITH THE REMAINING PAID LEASING DURATION BEING LESS THAN 5 YEARS

1. The borrowers or guarantors may make mortgages or provide guarantees with the value of the right to use leased land with the remaining paid leasing duration being less than 5 years, but the paid leasing duration must be over one year; the lending term must be compatible with the remaining leasing duration. The credit institutions shall consider and decide the acceptance of mortgage or guarantee for this kind of land and take responsibility for their decisions.

2. The determination of the value of the right to use land with the remaining paid leasing duration being less than 5 years shall comply with the provisions at Point b, Clause 11, Article 1 of Decree No.85/2002/ND-CP of October 25, 2002.

3. The order, procedures and contracts for mortgage of land of this kind shall comply with the law provisions on land, the Government’s regulations on loan security and this Circular.

VI. TERMINATION OF MEASURES FOR LOAN SECURITY WITH PROPERTIES

1. The measures of loan security with pledged or mortgaged properties of borrowers or guarantors shall terminate in the following cases:

1.1. The borrowers have fulfilled their debt-repaying obligations or the guarantors have fulfilled their guarantee obligations towards the credit institutions;

1.2. The loan security properties have been disposed of to recover loan debts under the provisions of law;

1.3. The parties agree to replace them with other security measures;

1.4. Other cases prescribed by law or decided by competent State bodies.

2. Upon the termination of measures of loan security with pledged or mortgaged properties of borrowers, the third party’s guarantee, the security contracts can be liquidated according to law provisions.

VII. PROVIDING LOANS WITHOUT PROPERTY SECURITY

1. Credit institutions shall select fully qualified borrowers to provide loans without property security under the provisions of Decree No.85/2002/ND-CP of October 25, 2002 and Decree No.178/1999/ND-CP of December 29, 1999. Where the borrowers fully meet the conditions for loans without property security, the credit institutions may reach agreement with the borrowers on the prestigious and financially capable third parties’ commitments in writing to repay debts instead, if the borrowers cannot repay their debts.

The credit institutions shall issue regulations on providing loans without property security and the amounts of loan without property security for application within their own systems.

2. Customers paying loan principals and loan interests on time are the borrowing customers who, by the time of signing the credit contracts, have no overdue principals or do not delay the payment of loan interests to the lending credit institutions or other credit institutions; the overdue principals, the unpaid loan interests do not include frozen debts, extended debts, debts awaiting the handling under the Government’s regulations and the unpaid loan interests arising from these debt amounts.

3. Where the Government or the Prime Minister stipulates the provision of loans without property security for borrowers and the specific capital borrowing demands, the credit institutions shall comply with the regulations of the Government or the Prime Minister and the guidance of the State Bank of Vietnam.

VIII. IMPLEMENTATION ORGANIZATION

1. This Circular takes effect 15 days after its publication in the Official Gazette.

2. This Circular replaces Circular No.06/2000/TT-NHNN1 of April 4, 2000 of the Government of the State Bank of Vietnam guiding the Government’s Decree No.178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security and Circular No.10/2000/TT-NHNN1 of August 31, 2000 of the Governor of the State Bank of Vietnam guiding the implementation of measures for security of loans of credit institutions according to the Government’s Resolution No.11/2000/NQ-CP of July 31, 2000.

3. The credit contracts, the pledge, mortgage or security contracts, which had been established before the issuance date of the Government’s Decree No.85/2002/ND-CP of October 25, 2002 amending and supplementing Decree No.178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security and remain effective, the terms which are agreed upon by the parties and conform to the law provisions at the time of signing the contracts shall continue to apply until the borrowers pay up their debts to the lending credit institutions.

4. The heads of the units under the State Bank, the directors of the State Bank’s branches in provinces and centrally-run cities, the chairmen of the Managing Boards and the general directors (directors) of the credit institutions shall have to implement this Circular.