State Bank regulations on bank guarantee activities

The State Bank of Vietnam (SBV) has just issued Circular No. 28/2012/TT-NHNN regulating guarantee operations of credit institutions (CIs) and foreign bank branches. Regarding the scope of guarantee obligations, the Circular clearly states that the guarantor can commit to guarantee part or all of the following 6 obligations of the guaranteed party:

First, the obligation to repay principal, interest and other costs associated with the loan.

Second, the obligation to pay for the purchase of materials, goods, machinery, equipment and expenses for implementing projects or investment plans, production, business, or life services.

Third, the obligation to pay taxes, fees, and other financial obligations to the State.

Fourth, obligations when participating in bidding.

Fifth, obligations in contract performance, product quality assurance, receipt and refund of advance payments.

Sixth, other legal obligations agreed upon by the parties.

The Circular also specifies the conditions for the guaranteed party. That is, it must have full civil legal capacity and civil conduct capacity as prescribed by law; the guarantee obligation and the transaction giving rise to the guarantee obligation are legal; and it must be able to properly and fully perform its commitments to the relevant parties in the guarantee relationship.

Regarding the guarantee application documents, based on the actual situation of guarantee activities of credit institutions and foreign bank branches, and the specific characteristics of each customer group, credit institutions and foreign bank branches provide specific instructions on the requirements for the types of documents and files that customers need to send to credit institutions and foreign bank branches for consideration and guarantee.

The Circular also clearly states that the issuance of foreign currency guarantees by credit institutions and foreign bank branches must be consistent with the scope of business and provision of foreign exchange services in the domestic and international markets of credit institutions and foreign bank branches. Credit institutions and foreign bank branches shall issue foreign currency guarantees to organizations and individuals who are residents for guarantee obligations arising from legal transactions in foreign currency.

The Circular takes effect from December 2, 2012. Guarantee commitments signed before this date shall continue to be implemented according to the signed agreements until the guarantee obligation is terminated. Amendments and supplements to the above commitments shall only be implemented if the amendments and supplements are in accordance with the provisions of this Circular.

(According to Chinhphu.vn) - LT