On October 11, 10, the Ministry of Finance issued Decision No. 2024/QD-BTC announcing information on Vietnam’s public debt for the period 2417 – 2019. Accordingly, Vietnam’s public debt by the end of 2023 was 2023% of GDP, lower than the ceiling set by the National Assembly (36,4%); Government debt was 60% of GDP, lower than the target set by the National Assembly (33,5%). The country’s foreign debt was at 50% of GDP, lower than the target set by the National Assembly (32,7%). The country’s foreign debt repayment obligation compared to the export turnover of goods and services was at 50%; ensuring within the ceiling and threshold allowed by the National Assembly (7,7%). According to statistics, the country’s foreign debt increased mainly due to the foreign debt of the business sector increasing by 25 trillion VND, equivalent to an increase of 672% over the entire period.

In fact, in order to access credit capital from domestic credit institutions, enterprises must ensure compliance with safety ratios or related credit limits. Foreign loans are increasingly playing an important role in supplementing investment and operating capital for enterprises in Vietnam. The foreign loans we mentioned in this article are a general term used to refer to foreign loans that are not guaranteed by the Government (hereinafter referred to as self-borrowed, self-repaid loan) through loan contracts, deferred payment import contracts, loan trust contracts, financial leasing contracts or issuance of debt instruments on the international market by the borrower[1].

According to current legal regulations on foreign exchange management, self-borrowed and self-repaid loans with a loan term of over 01 year (hereinafter referred to as “medium and long term loans”) will have to register with the State Bank of Vietnam (“SBV”). In order to present the content of the article in a focused and concise manner, we only analyze issues related to medium and long-term loans provided through loan contracts signed between borrowing enterprises established and operating in Vietnam but not being state-owned enterprises, commercial banks or foreign bank branches (hereinafter referred to as “Borrowing business“)[2] and the lender is a non-resident. This is the subject and form that we have been working with regularly and have a lot of experience in solving complex problems that occur in practice. 

1. Current legal documents regulating foreign borrowing and debt repayment activities

Borrowing and repayment of foreign loans by borrowing enterprises must comply with relevant regulations in the main legal documents listed below:

• Decree No. 219/2013/ND-CP dated December 26, 12 of the Government on management of foreign borrowing and debt repayment of enterprises not guaranteed by the Government (“Decree 219“);
• Circular No. 08/2023/TT-NHNN dated June 30, 06 of the State Bank of Vietnam (“SBV”) regulations on foreign loan conditions not guaranteed by the Government, amended by Circular No. 19/2024/TT-NHNN dated June 28, 6 of the State Bank of Vietnam (hereinafter referred to as “Circular 08“); and
• Circular No. 12/2022/TT-NHNN dated September 30, 09 of the State Bank of Vietnam guiding foreign exchange management for foreign borrowing and debt repayment of enterprises (“Circular 12“)

2. Foreign borrowing activities are subject to the control of the State Bank.

The State Bank is the governing body, implementing the management of foreign borrowing and debt repayment activities of enterprises borrowing under the self-borrowing and self-repayment method through the following mechanisms and methods:

• firstBorrowing enterprises must comply with foreign borrowing conditions issued by the State Bank (currently regulated in Circular 08) in accordance with state management purposes in each period;
• MondayBorrowing enterprises must register medium- and long-term foreign loans with the State Bank according to mandatory procedures and order (currently stipulated in Article 11). Circular 12);
• TuesdayBorrowing enterprises are responsible for declaring information, reporting periodically and suddenly as required by competent authorities, and storing records related to registered loans (as prescribed in Articles 41 and 42 of Circular 12; and Article 19 of Circular 08);
• WednesdayBanks providing account services and security transaction services only provide services of receiving loans, repaying debts, paying fees, and other money transfer transactions (from abroad to Vietnam or from Vietnam to abroad) related to foreign loans in accordance with the content registered with the State Bank and the loan agreement in effect; and
• ThursdayThe Prime Minister shall promulgate the annual national foreign commercial loan limit. The State Bank shall monitor the registration, withdrawal and repayment of foreign loans and develop appropriate solutions. At the time of registration with the State Bank, the value of the medium- and long-term loan of the borrowing enterprise together with the total net loan amount of other medium- and long-term loans in the year must be within the self-borrowed and self-repaid foreign loan limit approved by the Prime Minister.

3. Cases that must be registered with the State Bank

Borrowing enterprises are responsible for registering foreign loans with the State Bank in the following specific cases:[3]

• first, foreign medium and long-term loans with a term (determined from the expected date of first capital withdrawal to the expected date of final principal repayment) specified in the loan contract of over 01 year.
• Monday, short-term loans with extended principal repayment period, in which the total loan term (determined from the first withdrawal date to the expected final principal repayment date) specified in the foreign loan extension agreement is over 01 year.
• Tuesday, short-term loans without an agreement to extend but with outstanding principal (including principal-backed interest) at the time of exactly 01 year from the date of first withdrawal.

For the second and third cases, if the borrowing enterprise completes the principal payment of the short-term loan within 30 working days from the first anniversary of the date of capital withdrawal through the foreign loan and debt repayment account, it will not have to register with the State Bank.[4]. If the borrowing enterprise fails to register the loan within the above deadline, it will be subject to administrative sanctions according to regulations.[5].

4. Authority to confirm registration and register changes to loans

The competent authority to confirm registration and registration of changes to foreign loans is determined as follows:[6]

• Foreign Exchange Management Department – ​​State Bank of Vietnam: for loans with loan amount over 10 million USD (or other currency with equivalent value);
• State Bank branch in the province or city where the borrowing enterprise has its head office: for loans with loan amounts up to 10 million USD (or equivalent in other currencies).

After the loan has been registered, in case of any changes (including an increase or decrease in the loan amount above or below 10 million USD or the head office of the borrowing enterprise changes to another province or city), the borrowing enterprise must submit a dossier for registration of changes to the foreign loan to the agency that confirms the registration and registers the most recent change of the foreign loan. Within 07 working days from the date of receipt of the dossier for registration of changes, this agency will be responsible for transferring it to the competent authority determined according to the above principles for further processing.

Regarding the determination of the authority to confirm the registration and registration of changes to the above-mentioned loans, we note that there will be changes in the near future. With the implementation of the plan to arrange and streamline the Government’s organizational apparatus, we understand that the number of branches of the State Bank of Vietnam in provinces and cities is expected to be reduced from 63 to 15. Accordingly, borrowing enterprises headquartered in different provinces and cities may have the same authority to confirm the registration and registration of changes to loans.

5. Foreign loan and debt repayment account

Borrowing enterprises must carry out foreign borrowing and debt repayment activities through (i) foreign borrowing and debt repayment accounts (“Loan account”) opened at the bank providing account services (“NHCUDVTK”), applicable to enterprises with domestic capital)[7]; or (ii) direct investment capital account (“Capital account”), applicable to foreign invested enterprises.[8]. If the loan currency and the capital account currency are different, the borrowing enterprise is entitled to open another loan account to make foreign loans at the bank that opens the capital account. [9]Each foreign loan can only be made through one NHCUDVTK but one account can be used for one or more foreign loans.[10].

In case the obligation to repay a foreign loan is a joint responsibility arising after division, separation, consolidation or merger, a foreign-invested enterprise is not required to use the Capital Account to repay this foreign loan.[11]. In this case, the enterprises jointly responsible for performing the obligation to repay the foreign loan shall open a joint payment account as the Loan Account. If the enterprises do not open a joint payment account as above, these enterprises must ensure the opening of foreign loan and debt repayment accounts at the same NHCUDVTK to continue repaying the foreign loan.[12]. 

NHCUDVTK shall implement the reporting regime in accordance with the State Bank’s regulations on statistical reporting regime applicable to credit institutions and authorized foreign bank branches. When registering or registering changes to foreign loans, the borrowing enterprise shall be responsible for providing the State Bank with a document from NHCUDVTK confirming:

• The situation of capital withdrawal and debt repayment for foreign loans will be restructured in case of registration of new foreign loans with the purpose of restructuring foreign debt.[13];
• Withdrawal and repayment status of foreign loans in case of registration of loan changes related to contents such as loan amount, withdrawal plan, repayment plan, loan term, or change of NHCUDVTK[14].

6. Principle of cash flow transparency

To ensure the principle of cash flow transparency, all money transfer transactions (withdrawal, debt repayment, fee payment) related to foreign loans of the borrowing enterprise must be carried out through the Loan Account or Capital Account, unless the parties to the loan agreement have other agreements and these contents have been duly registered with the State Bank.

However, Circular 12 stipulates that the following cases of capital withdrawal will not have to be made through the Loan Account or Capital Account, including:[15]:

1. Withdraw capital from the lender to pay directly to the beneficiary who is a non-resident providing goods and services under a contract for the purchase and sale of goods and services with a resident who is a borrowing enterprise;
2. Withdraw capital through the borrowing enterprise’s account opened abroad in case the borrowing enterprise is allowed to open an account abroad to make foreign loans;
3. Withdrawing capital from medium- and long-term foreign loans through offsetting with obligations to pay directly to the lender, including: payment obligations under goods import contracts, obligations to repay foreign loans, obligations to repay debts directly to the lender; and/or
4. Withdraw capital in case the amount of money used to prepare investment is converted into foreign loan capital according to the agreement between the parties in accordance with the provisions of law on foreign exchange management for foreign direct investment activities in Vietnam.

Similarly, the borrowing enterprise and the lender can agree on a method of debt repayment not through the Loan Account or Capital Account, provided that this content has been mentioned in the loan registration document and in the dossier submitted to the State Bank, including[16]:

1. repay debt in the form of providing goods and services to the lender.
2. debt repayment through the lender and the borrowing enterprise agreeing to convert the outstanding debt into shares or capital contributions in the borrowing enterprise.
3. debt repayment through an agreement between the lender and the borrower to exchange the outstanding loan balance into shares or capital contributions owned by the borrowing enterprise.
4. Repay medium and long-term foreign loans through direct clearing of receivables with the lender.
5. Debt repayment through the borrowing enterprise’s account opened abroad (in case the borrowing enterprise is allowed to open an account abroad to make foreign loans). To clarify, this is the case where the borrowing enterprise has foreign currency revenue from outside Vietnam, but if the source of debt repayment is transferred from Vietnam, it must still be done through the Loan Account or Capital Account.

In case of capital withdrawal or debt repayment not through the Loan Account or Capital Account, the borrowing enterprise must note to notify and send supporting documents related to the transaction to NHCUDVTK within 05 working days from the date of transaction.[17].

During the course of our work, we learned that there were borrowing enterprises, perhaps because they did not fully understand the above regulations, that requested the lender to disburse foreign loans (mainly short-term loans) into their foreign currency payment accounts. If the withdrawal of capital has been completed, we believe that the payment of interest and principal of the foreign loan when due as stipulated in the loan contract is unlikely to be implemented in practice. To handle this, the borrowing enterprise needs to immediately report this violation to the State Bank for instructions on how to handle it. In this case, because the enterprise violated the regulations on capital withdrawal, use of loan accounts, and foreign debt repayment, it is highly likely that the State Bank, in addition to providing instructions on how to handle it, will also impose administrative sanctions on the borrowing enterprise.

7. Permitted purposes of medium and long-term foreign loans 

Borrowing enterprises are only allowed to borrow medium and long-term foreign loans for the following purposes:[18]:

• first, implementing investment projects of borrowing enterprises (limited to investment projects with one of 03 types of licenses granted under the Investment Law, including[19]: (i) investment certificate, (ii) investment registration certificate, or (iii) investment policy approval). Notably, these types of investment licenses mainly apply to foreign-invested projects and other projects with high investment value, implemented in industrial zones or associated with the development of residential or business real estate. When registering to use medium- and long-term loans for these projects, the borrowing enterprise must ensure that the total principal amount (excluding interest and other payable amounts) of all medium- and long-term loans does not exceed the loan limit of the licensed investment project (determined by the total investment capital minus the investor’s capital contribution, as stipulated in the investment license, investment registration certificate, or investment policy approval).[20].
• Monday, implement the production, business and other project plans of the borrowing enterprise. In this case, the borrowing enterprise is responsible for proving the purpose of the foreign loan by providing a plan for using foreign loans (clearly stating information about the use of the proceeds)[21]. Borrowing enterprises must ensure that the outstanding balance of domestic and foreign medium- and long-term loans (including extended short-term loans and overdue short-term loans converted into medium- and long-term loans) used for this purpose does not exceed the total loan demand mentioned in the foreign loan use plan approved by competent authorities.[22].
• Tuesday, restructuring the foreign debt of the borrowing enterprise. In this case, the borrowing enterprise is responsible for proving the purpose of foreign borrowing by providing a plan to restructure the foreign debt of the borrowing enterprise that has been approved by the competent authority.[23]. The borrowing enterprise must ensure that (i) the amount of foreign loan for the purpose of restructuring foreign debt does not exceed the total value of outstanding principal, interest, unpaid fees of the existing foreign debt and fees of the new loan determined at the time of restructuring; and (ii) repay the existing foreign loan within 05 working days from the date of withdrawal of capital from the new loan.[24].

We have some notes as follows:

• Unlike previous circulars, Circular 12 does not require that the cost of new foreign loans cannot be higher than the cost of existing restructured foreign debt. At the same time, Circular 12 does not impose any conditions or restrictions on the term of the new loan compared to the existing restructured foreign debt.
• The use of foreign loans to restructure the principal of domestic loans is not permitted, however short-term foreign loans may be used to pay interest and other (non-principal) amounts of domestic loans.
• It is feasible in practice for a borrowing enterprise to register to use a part of the foreign loan to pay for expenses arising from the receipt of the foreign loan or to reserve for paying a part of the principal and/or interest arising in the future, although Circular 12 does not have specific provisions allowing this to be done.
• Circular 08 also does not have clear regulations on whether borrowing enterprises can use medium- and long-term foreign loans for the purpose of mergers and acquisitions (M&A). When a borrowing enterprise invests in a target enterprise operating in the same business sector (by purchasing capital contributions or shares from existing shareholders or by newly issued capital by the target enterprise or contributing capital to cooperate with other enterprises), can it borrow medium- and long-term loans to finance these activities? During the working process, we found that depending on each specific case and depending on whether the borrowing enterprise can provide a full and appropriate explanation, it is feasible in practice to register to use medium- and long-term loans to carry out the activities as stated with the State Bank. 

If you have any questions regarding the article, please contact us via email: tuan.phung@ptnlegal.com or phuong.quach@ptnlegal.com

[1] Clause 1, Article 3, Circular 12.

[2] The scope of regulation of Decree 219, Circular 08 and Circular 12 does not include individuals. Accordingly, individual borrowers cannot access foreign loans in reality.

[3] Article 11 Circular 12.

[4] Clause 3, Article 11 Circular 12.

[5] Point g, Clause 3, Article 23 of Decree 88/2019/ND-CP of the Government dated November 14, 11, stipulating administrative sanctions for violations in the monetary and banking sector.

[6] Article 20 Circular 12.

[7] Clause 1, Article 26 Circular 12.

[8] Clause 2, Article 26 Circular 12.

[9] Point a, Clause 2, Article 26 of Circular 12.

[10] Clause 3, Article 26 Circular 12.

[11] Point d, Clause 2, Article 26 of Circular 12.

[12] Clause 3, Article 6 Circular 12.

[13] Point a, Clause 8, Article 16 of Circular 12.

[14] Clause 6, Article 19 Circular 12.

[15] Clause 1, Article 34 Circular 12.

[16] Clause 2, Article 34 Circular 12.

[17] Clause 3, Article 34 of Circular 12.

[18] Clause 2, Article 17 Circular 08.

[19] Point a, Clause 4, Article 17 of Circular 08.

[20] Clause 1, Article 18 Circular 08.

[21] Point b, Clause 4, Article 17 of Circular 08.

[22] Clause 2, Article 18 Circular 08.

[23] Point c, Clause 4, Article 17 of Circular 08.

[24] Clause 3, Article 18 Circular 08.

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