Circular 06/2023/TT-NHNN is a circular amending and supplementing Circular 39/2016/TT-NHNN of the State Bank of Vietnam regulations on lending activities of credit institutions, and foreign bank branches to customers. Circularity directly impacts the economic market in general and the real estate market in particular. To clarify this impact, readers should follow the following article.

Additional the case of having to implement the plan to use capital

Additional the case of having to implement the plan to use capital

Circular 06/2023/TT-NHNN has amended and supplemented point c, Clause 6, Article 2 of Circular 39/2016/TT-NHNN on the content of the plan to use capital (collection of information about the use of the borrowed fund by a customer), thereby adding loans for the needs of daily life:

“The plan or project serving the business purpose or living purposes such as house purchase, construction or a renovation or receipt of a transfer of land use rights for building a house”.

As before, the Customer only has to declare the capital use plan for the plan or project to carry out business activities, and activities that use the capital for living needs are not required to be declared under this procedure.

However, the current new Circular, the State Bank regulations that loans to serve daily needs must also comply with a stricter application process when having to fulfill the requirement to provide a full capital use plan, debt repayment plan, and stricter procedural conditions in order to effectively control risks to loans for life-related to real estate. 

In addition, in Circular 06/2023/TT-NHNN, a term has appeared as a loan for financial offsetting refers, this activity is understood as follows:

“Loan for financial offsetting refers to a credit institution’s grant of a loan to a customer to offset that customer’s own funds or funds borrowed from another individual or organization (other than a credit institution) used for paying or covering its costs incurred from a plan or project serving the business purpose or living purpose”.

Strengthening the ability to control the lending business in some areas

Circular 06/2023/TT-NHNN has been supplemented at point g, clause 2, Article 22 of Circular 39/2016/TT-NHNN with the following contents:

“Control of extension of loans serving the purpose of repaying loan debts owed to the credit institution, repaying foreign loan debts in order to prevent and stop any deviation in reporting on the credit quality; Control of extension of rollover loans and revolving loans in order to manage the customer’s cash flow to assure possibility of recovering loan principal and interest amounts in full by the agreed due date and reliable reporting on the credit quality; Control of extension of loans used for investing in securities; trading real estate; executing investment projects in the form of public-private partnerships; serving demands for large amounts of borrowed funds for living purposes as assessed by the credit institution; loans granted adopting digital lending method”.

This supplement has expanded the scope of control over lending by credit institutions in a number of areas such as the securities business, and real estate business, … In general, the legal regulations are somewhat stricter in management. This is a measure to strengthen debt management as well as help banks and credit institutions control real estate lending more closely. These additional provisions make banks’ and credit institutions’ loan appraisal activities more cautious.

This leads to real estate owners having many difficulties in the loan process. Direct impact on the real estate market when the real estate market is in the current difficult situation.

Add 04 additional capital needs that are not loanable

Circular 06/2023/TT-NHNN has been added in Clauses 7, 8, 9, 10, Article 8 of Circular 39/2016/TT-NHNN, adding the following capital needs that will not be loaned:

• Loans used for sending money to deposit accounts.
• Loans used for making capital contribution to, buying or receiving transfer of stakes of a limited liability company or a partnership, or shares of a joint-stock company that is not yet listed on the securities market or registered for trading on the Upcom system.
• Loans used for making capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts for executing investment projects that are unfit for sale or for business operation as prescribed by laws when the credit institution issues its lending decision.
• Loans used for financial offsetting purposes, except for those meeting the following conditions:
  • The customer has used their own funds for paying costs incurred from their business project for a period of fewer than 12 months by the time of grant of the lending decision by the credit institution;
  • Costs paid using the customer’s funds for executing a business project are costs to be covered using the fund borrowed from the credit institution under the plan to use borrowed funds submitted to the credit institution when applying for a medium-term or long-term loan for executing that business project.

Case 1: The addition of subjects in Clause 7 that do not lend to deposit is appropriate given the current economic situation

Because credit institutions cannot carry out loan procedures so that enterprises and borrowers bring that loan source to carry out procedures for depositing at credit institutions or other organizations. That is to enjoy a higher interest rate differential without putting capital into production, business, or consumption. This is an inappropriate job because, in essence, the lending of credit institutions is aimed at providing capital for those who are in need of capital for their life needs and essential business needs.

Capital should be supported by the right person at the right time. Therefore, adding this clause is appropriate to strictly control the demand and purpose of mobilizing capital from the people, and avoid situations where capital is not supported, where loans are used for wrong purposes, and inefficiently.

Case 2: The addition of subjects in Clause 8 may cause some inadequacies and cause difficulties for enterprises

Because of capital contribution, M&A of enterprises is quite popular, especially in the current period, it is done a lot by small and medium enterprises that have yet to be listed on the stock market. Therefore, if the credit institution does not lend in this case, it will cause difficulties and affect the mobilization of capital to solve the difficulties of these types of enterprises.

Case 3: The addition of the subject of Clause 9 has many factors to consider

Regulations that credit institutions may not provide loans to pay for capital contributions under capital contribution contracts, investment cooperation or business cooperation are inconsistent with the Civil Code 2015 and law on investment 2020. Because according to these two laws, it is legal for individuals and legal entities to contribute capital for the above purpose at all stages of project implementation are legal, and does not violate the prohibition of the law.

Why are subjects in this case, when they want to raise capital from credit institutions to carry out legal activities, but are not allowed to lend? This regulation may arise from doubts about the ability to return capital because investment projects are not eligible for business. However, the project may not be eligible at the moment but may be eligible in the future (in the form of “future-formed assets”) according to the law. 

In the short term, this regulation reveals a number of considerations when implementing. If this regulation comes into effect, it will better examine risks in the lending sector. However, this causes great difficulties for individuals and businesses when carrying out loan procedures and using loans for business investment.

Case 4: The addition of subjects under Clause 10 that do not provide loans for the purpose of financial compensation (except in some cases prescribed by law) may cause inadequacies and cause difficulties for enterprises.

Currently, businesses are facing difficulties raising capital from corporate bonds or are blocked from mobilizing capital from customers. Therefore, the need to borrow capital from credit institutions to offset the financial situation of enterprises is very urgent and important.

In the context of real estate businesses struggling with prolonged difficulties, the upcoming Circular unintentionally creates more difficulties for the industry, making it difficult for capital flows to come to businesses, the risk of driving many real estate businesses into a difficult situation to access loans.

Impact of circular 06/2023/TT-NHNN on the real estate market

Thus, when Circular 06/2023/TT-NHNN takes effect, the real estate market has many positive points but also some disadvantages. Thereby, the circular has focused on adding conditions not to borrow capital as well as controlling the debt status of the real estate market and other lending activities. With the tightening of lending regulations, Circular 06 will have some impact in the future. But now that the real estate market is directly affected by the economic crisis, these regulations will control more risks in the lending sector and will be more secure for the economy and the real estate market.