On 23 August 2023, the State Bank of Vietnam (SBV) issued Circular No. 10/2023/TT-NHNN suspending the enforcement of certain provisions of Circular No. 39/2016/TT-NHNN, which was itself amended and supplemented by Circular No. 06/2023/TT-NHNN (Circular 06). Accordingly, the SBV has suspended the enforcement of clauses 8, 9, and 10 of article 8 of Circular 06 concerning non-eligible loan capital.

Potential challenges of implementation

Clauses 8, 9, and 10 of article 8 of Circular 06 are unclear and misaligned with reality, posing obstacles to the credit access of enterprises. Specifically, the following clauses under article 8 should be noted.

Clause 8

Clause 8 of article 8 regards enterprises that are not allowed to borrow for capital contribution payments, purchases, receipts of transferred capital contributions or shares.

This provision aims to ensure that investors contributing capital, purchasing capital contributions and purchasing shares of enterprises are capable and financially strong investors. In turn, this reflects the financial capacity of the enterprise.

However, this provision could lead to difficulties for enterprises that need to overcome current challenges both in terms of management and finance.

Clause 9

Clause 9 of article 8 regulates enterprises that are not allowed to borrow for capital contribution payments under capital contribution contracts, investment cooperation contracts or business cooperation contracts – specifically, contracts to carry out investment projects that do not meet the conditions for business operations as prescribed by law at the time that a credit institution decides to lend capital. Two issues need clarification.

Firstly, the term "investment projects that do not meet the conditions for business operations as prescribed by law" is ambiguous. The conditions for real estate to be put into business operations as stipulated in article 9 of the Law on Real Estate Business 2014 are different from the conditions for real estate formed in the future to be put into business operations according to article 55 of the Law on Real Estate Business 2014. They also differ from the conditions for signing capital mobilisation contracts for commercial housing development as stipulated in article 19 of Decree 99/2015/ND-CP – these detail and guide the implementation of certain provisions of the Law on Housing, not to mention the conditions for business operations in other industries.

Secondly, the timing of credit institution's decisions to lend must be clearly defined – does I refer to the time of appraisal, the announcement of lending, the signing of lending agreements or disbursement? Without specific regulations, credit institutions and enterprises will be passive in proposing, appraising and entering into loans. This may lead to different applications of the regulations arising from different understandings, thus negatively affecting the purpose of the provision.

Clause 10

Clause 10 relates to enterprises that are not allowed to borrow for financial offsetting purposes, except in some instances.

In other words, Circular 06 prohibits borrowing for financial offsetting purposes, except for loans that fully meet certain conditions. The condition that "costs borrowed for financial offsetting purposes must be costs for implementing business activities" has limited borrowing for financial offsetting purposes. The condition that "costs borrowed for compensation arising within 12 months until the time credit institutions decide to lend" has received opposing opinions from enterprises. These have suggested that the period be adjusted to 24 or 36 months to suit the investment and business activities of real estate enterprises, and support businesses in overcoming present difficulties.

Ripple Effects of Circular 10

Postponing the enforcement of the provisions mentioned above will make it easier for businesses to access funding from banks in challenging economic conditions. This will help them overcome obstacles when providing credit for M&A activities. In particular, Circular 10 actively supports restructuring activities in the near future, especially activities that deal with the considerable amount of corporate bonds that has been maturing in the last two quarters of 2023.

In a strategic move towards bolstering the economy, Circular 10 emerges as a beacon of hope, particularly for investors navigating the dynamic landscape of real estate trading. Circular 10 and the policy on reducing loan interest rates to provide timely guidance exemplify the government's support for the challenges that real estate businesses are currently facing.

One point to note is that Circular 10 only suspends the enforcement of clauses 8, 9, and 10 of article 8 of Circular 06 rather than abolishing them, thus shifting the risks to the future. Nevertheless, in the short term, it is still good news for the economy and the stock market in general.

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‍*Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.