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Entrustment principles laid out

Update: November, 26/2014 - 09:04

Credit institutions and foreign bank's branches are not authorised to perform entrustment or taking entrustment for lending organisations or individuals not granted credit under the regulations.— Source Photo tvfc.com.vn

The State Bank of Viet Nam (SBV) issued Circular No 30/2014/TT-NHNN (November 6, 2014) on entrustment and taking entrustment of credit institutions and the branches of foreign banks. Credit institutions and foreign bank branches are authorised to perform entrustment and taking entrustment for lending, financial leasing, capital contributions, share purchases, production and business-project investment, and enterprise's bonds purchase.

Principle of entrustment

1. Parties must enter into entrustment contract.

2. Parties are authorised to perform entrustment and taking entrustment for the activities as specified above.

3. The entrusted party is not authorised to re-entrust to a third party.

4. Capital entrustment must be consistent with the schedule of entrustment performance.

5. Entrusted parties are not authorised to use entrusted capital contrary to purposes and contents of entrustment specified in the entrustment contract.

6. Credit institutions and foreign bank branches entrusting to credit institutions and foreign bank branches and other organisations must calculate the balance of entrustment amounts in the limit and safety ratio for operation of credit institutions and foreign bank branches under SBV regulations.

7. Foreign bank branches taking entrustment from parent banks or parent bank branches to lend or purchase bonds must comply with this Circular and regulations on borrowing and paying for foreign debts.

8. Entrustment amounts in foreign currency must be made in compliance with regulations on foreign-exchange control and relevant regulations.

9. Entrusting party being the credit institution or the foreign bank branch must classify debts, make reserve funds and use reserve funds to settle risks under SBV regulations. Entrusted party being the credit institution or the foreign bank branch must not classify debts, make reserve funds or use reserve funds to settle risks for the balance of entrustment amounts.

10. With regard to entrustment abroad, credit institutions or foreign bank branches are authorised to entrust to banks and fund-management companies abroad to perform some of activities as above specified within their foreign exchange operations under SBV regulations.

Conditions for credit institutions and foreign bank branches to perform entrustment and taking entrustment

Credit institutions and foreign bank's branches are authorized to perform entrustment and taking entrustment upon fully satisfying the following conditions:

1. Contents on entrustment receipt operation must be stated in the licence for establishment and operation.

2. There are internal regulations on entrustment management.

3. Risks of entrustment and taking entrustment performance must be managed by their risk management function.

4. Entrusted party must have materials facilities, network and qualified human resources to perform entrustment activities.

5. Credit institutions or foreign bank branches taking entrustment for capital of organisations or individuals to invest into production and business projects, provide financial lease or lend must ensure that at the time of entrustment, the entrusting party being organisations or individuals do not have any amounts borrowed from these credit institutions or foreign bank branches.

Cases not authorised to perform entrustment or taking entrustment

1. Credit institutions and foreign bank's branches are not authorised to perform entrustment or taking entrustment for lending organisations or individuals not granted credit under the regulations.

2. Commercial banks, foreign bank branches, co-operative banks, people's credit funds and micro-financial organisations are not authorised to perform entrustment or taking entrustment for financial leasing.

3. Credit institutions, except commercial banks and foreign bank branches, are not authorised to perform entrustment or taking entrustment for capital contribution or shares purchase. Commercial banks are not authorised to perform entrustment or taking entrustment for capital contribution or shares purchase of organisations or individuals not authorised to contribute capital or purchase shares under SBV regulations.

4. Credit institutions, except financial companies and foreign bank branches are not authorised to perform entrustment or taking entrustment for investment into production and business projects.

5. Financial companies, financial leasing companies, co-operative banks, people's credit funds and micro-financial organisations are not authorised to perform entrustment or taking entrustment for an enterprise's bond purchase.

6. Credit institutions and foreign bank branches are not authorised to perform entrustment or taking entrustment for bonds purchase from other credit institutions or foreign bank's branches.

The Circular takes effect on January 1, 2015, and replaces SBV Circular No 04/2012/TT-NHNN (March 8, 2014) and Section II, SBV Circular No 05/2006/TT-NHNN (July 25, 2006).

MAI COUNSEL

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