Press release on issuance of Circular No. 21/2024/TT-NHNN
Hanoi, June 28, 2024 – The Governor of the State Bank of Vietnam (SBV) has issued Circular No. 21/2024/TT-NHNN regulating the letter of credit (L/C) operations and other L/C related business operations.
This Circular is composed of 5 Chapters with 58 Articles, specifically as follows:
- Chapter I: General provisions, comprising of 20 Articles.
- Chapter II: Regulating the L/C operations, comprising of 5 sections stipulating 4 L/C operations (i.e. the issuance of an L/C; the confirmation of an L/C; the negotiations for an L/C payment; the reimbursement of an L/C), and the operation of entrusting the issuance of an L/C.
- Chapter III: Regulations on other L/C related business operations.
- Chapter IV: Reporting requirements and Implementation arrangements.
- Chapter V: Enforcement.
This Circular covers the following key substances:
(i) The scope of regulation: including the L/C operations (4 operations of issuance, confirmation, reimbursement and negotiation of payment of an L/C), and other L/C related business operations.
(ii) The operation of issuance of an L/C (off-balance sheet commitment) is the credit granting operation for the purpose of serving the trading of goods and services by customers; stipulating that a customer may borrow capital to pay for his/her contract for the trading of goods or services.
(iii) Guidance for the Usance Payable At Sight Letter of Credit (UPAS L/C): At the time when the reimbursing bank pays the beneficiary, the reimbursing bank and the issuing bank must calculate the debt outstanding into the total credit limit for the customer; the bank can only issue the UPAS L/C for customers who are residents in Vietnam; in case the beneficiary is a non-resident, the issuing bank can only request a reimbursing bank which is a non-resident to pay the beneficiary.
(iv) Regulations on the operation of "Purchasing permanently and waiving the right to recourse the documents presented under an L/C" is another business operation with credit risks, so the Circular regulates that the total balance of purchasing permanently and waiving the right to recourse the documents under an L/C must be calculated into the total credit outstanding of the bank purchasing the documents with the issuing bank, or the confirming bank if the L/C is confirmed.
(v) Regulations on the operation of entrusting the issuance of an L/C. Accordingly, the trustor shall bear all risks arising from their customers, while the trustee shall bear all risks arising from the trustor.
(vi) Regarding the provision of information about the related persons: The Circular stipulates that customers being credit institutions overseas are not required to provide information about the related persons in the operations of confirming or reimbursing an L/C.
(vii) Regarding electronic transactions in the L/C operation: The Circular does not stipulate the limit of the value of the L/C transactions in which the customer has been identified, or their identification has been verified electronically. For the identification and verification of customers’ information through electronic means, when a customer establishes an initial relationship with the bank (except for the case that the customer submits an identification request via the SWIFT system, or the customer uses an electronic signature), if the customer is a resident, the implementation shall be done in accordance with the Circular on opening and using accounts; if the customer is a non-resident, the credit institution can make its own decision on the measures, the means and technologies to ensure the safety, and shall take full responsibility for any arising risks.
(viii) Regulations on the L/C related services: The Circular clearly specifies the services provided to the buyers and the importers of goods and services, and the services provided to the sellers and the exporters of goods and services.
The issuance of Circular No.21/2024/TT-NHNN is aimed to improve the legal framework while ensuring alignment with the international practices and compliance with the applicable laws, meeting the practical requirements and ensuring the efficiency and safety of the L/C operation and other L/C related business operations of the credit institutions and the foreign bank branches.
This Circular takes effect from July 1, 2024.
Translated by Le Hang