Circular No. 18/2021/TT-NHNN dated November 18, 2021 on rediscount of negotiable instruments among credit institutions and foreign bank branches

CIRCULAR

ON REDISCOUNT OF NEGOTIABLE INSTRUMENTS AMONG CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Pursuant to the Law on State Bank of Vietnam dated June 16, 2010;

Pursuant to Law on Credit Institutions dated June 16, 2010 and Law on amendments to a number of Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Law on Negotiable Instruments dated November 29, 2005;

Pursuant to Decree No. 16/2017/ND-CP dated February 17, 2017 of the Government on functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the request of Director of the Monetary Policy Department;

The Governor of State Bank of Vietnam promulgates Circular on rediscount of negotiable instruments among credit institutions and foreign bank branches.

Article 1. Scope

This Circular prescribes rediscount of negotiable instruments among credit institutions and foreign bank branches.

Article 2. Regulated entities

This Circular applies to credit institutions, foreign bank branches that rediscount negotiable instruments (hereinafter referred to as “rediscounting party”) and the party owning the rediscount of negotiable instruments (hereinafter referred to as “beneficiary”) including: Commercial banks, cooperative banks, foreign bank branches (FBB), and financial companies.

Article 3. Rules of rediscounting negotiable instruments

1. Credit institutions and FBBs are allowed to rediscount negotiable instruments when the License issued by State Bank of Vietnam (hereinafter referred to as “SBV”) includes rediscounting of negotiable instruments.

2. Credit institutions and FBB shall rediscount negotiable instruments in accordance with this Circular, the Law on Credit Institutions, the Law on Negotiable Instruments, and relevant law provisions. In case the rediscounting of negotiable instruments involves foreign factors, the parties shall conform to this Circular, the Law on Credit Institutions, regulations on adoption of international treaties, international trade practices in relation of negotiable instruments that involve foreign factors under the Law on Negotiable Instruments and regulations on civil relations that involve foreign factors.

3. Credit institutions and FBBs shall rediscount negotiable instruments in foreign currency within their permissible foreign exchange operations.

Article 4. Negotiable instruments eligible for rediscount

1. Negotiable instruments shall be eligible for rediscount when:

a) The instruments have been discounted for customers by the beneficiaries in accordance with regulations of SBV on rediscounting of negotiable instruments of credit institutions and FBB;

b) The instruments are legally owned by the beneficiaries, allowed to be traded in accordance with the law, free of disputes, and not being used as security for other obligations;

c) The instrument payment is not mature;

d) The instruments are intact, not modified or fabricated.

2. The rediscounting party has the right to request the beneficiary to provide information and documents to prove rediscounted negotiable instruments in accordance with Clause 1 of this Article. The beneficiary is responsible for providing information and documents on negotiable instruments at request of the rediscounting party and assuming accountability for accuracy and adequacy of the information and documents.

Article 5. Rediscount method

Credit institutions and FBBs shall discuss and choose any of the following rediscounting methods:

1. Temporary purchase of negotiable instruments refers to an instance where the rediscounting party purchases and receives negotiable instruments that are not mature from the beneficiary while being guaranteed by the beneficiary to repurchase the same negotiable instruments after a definite amount of time set forth under the rediscounting agreement.

2. Purchase with rights of recourse of negotiable instruments refers to an instance where the rediscounting party purchase and receives negotiable instruments that are not mature from the beneficiary; if the person or persons liable for paying for the negotiable instruments fail to make adequate payment, the beneficiary is then responsible for incurring the remaining payment for the rediscounting party on behalf of said person or persons.

Article 6. Currency in rediscounting

1. In case of negotiable instruments paid for in VND, credit institutions and FBBs shall rediscount using VND.

2. In case of negotiable instruments paid for in foreign currency:

a) Credit institutions and FBBs shall rediscount using the foreign currency specified on the negotiable instruments or using VND as agreed upon. In case of rediscounting in VND, the parties shall agree upon the exchange rate that conforms to regulations of SBV on exchange rate;

b) In case of rediscounting negotiable instruments in form of temporary purchase, credit institutions and FBBs shall repurchase the negotiable instruments using whatever currency used to sell the negotiable instruments in the first place.

Article 7. Duration of rediscount

1. Duration of rediscount of negotiable instruments refers to the period starting from the date on which the rediscounting party rediscounts negotiable instruments to the date on which the beneficiaries must fulfill the repurchase guarantee or the date on which the payment specified on the negotiable instrument is matured and includes both holiday and non-working day.

2. Discounting party and beneficiary shall agree on the duration of rediscount of negotiable instruments which must not exceed 12 months and not extend past the date on which the beneficiary must fulfill the obligation to sell the negotiable instruments to their customers (for cases where the beneficiary discount negotiable instruments from customers using temporary purchase) or the date on which the payment specified on the negotiable instruments is matured (for cases where the beneficiary discount negotiable instruments from customers using purchase with rights of recourse).

Article 8. Rediscount price, repurchase price of negotiable instruments, and rediscount interest rate

1. Rediscount price of negotiable instruments means the amount of money paid for the beneficiary by the rediscounting party when rediscounting negotiable instruments.

2. Repurchase price of negotiable instruments means the amount of money paid for the rediscounting party by the beneficiary when repurchasing the negotiable instruments following temporary purchase method.

3. Credit institutions and FBBs shall agree on rediscount price, repurchase price of negotiable instruments, rediscount interest rate, and interest rate applied to the money that passes its maturity date, and other legitimate costs relating to discounting of negotiable instruments as per the law.

Article 9. Rediscount agreement

1. Negotiable instrument rediscount agreement between credit institutions and FBBs must be presented in format deemed suitable with regulations of the law and must contain the following details:

a) Information on the rediscounting party and the beneficiary;

b) Information on discounted negotiable instrument;

c) Method of rediscount;

d) Rediscount currency;

dd) Negotiable instrument rediscount price, payment date, payment method;

e) Duration of rediscount;

g) Rediscount interest rate;

h) Rights and obligations of the parties;

i) Penalties.

2. When rediscounting negotiable instruments in form of temporary purchase, in addition to details under Clause 1 of this Article, negotiable instrument rediscount agreement must include guarantee to repurchase negotiable instruments and repurchase price of negotiable instruments.

3. When rediscounting negotiable instruments in form of purchase with rights of recourse, in addition to details under Clause 1 of this Article, negotiable instrument rediscount agreement must include responsibility of the beneficiary to incur the remaining amount for the rediscounting party if the person or persons liable to pay for the negotiable instruments fail to do so adequately.

4. In addition to details under Clause 1, Clause 2, and Clause 3 of this Article, credit institutions and FBBs may agree to include other details in a manner conforming to this Circular and other law provisions.

Article 10. Transfer of negotiable instruments

1. When the rediscounting party rediscounts negotiable instruments, the beneficiary shall adopt procedures to transfer negotiable instrument to the rediscounting party as per the law.

2. In case of rediscounting in form of temporary purchase, when the beneficiary fulfills their obligation to repurchase negotiable instruments, the rediscounting party shall adopt procedures to transfer negotiable instruments to the beneficiaries as per the law.

Article 11. Internal regulations on negotiable instrument rediscount

1. Based on this Circular, the Law on Credit Institutions, the Law on Negotiable Instruments and relevant law provisions, credit institutions and FBBs shall promulgate Internal regulations on negotiable instrument rediscount depending on their management model, characteristics and business conditions in order to ensure operational safety for credit institutions and FBBs.

2. Internal regulations must specify responsibilities of every department and individual related to rediscounting of negotiable instrument.

3. Internal regulations must contain professional procedures for rediscounting negotiable instruments, risk management in negotiable instrument rediscount, and appraisal of the beneficiary and negotiable instrument to be rediscounted.

Article 12. Recording, accounting, and statistical report

Credit institutions and FBBs shall record, keep an account, and produce statistical reports on negotiable instrument rediscount in accordance with applicable laws on accounting, statement, and statistical report of SBV.

Article 13. Responsibilities of entities

1. Monetary Policy Department shall:

Cooperate with other entities in resolving difficulties relating to this Circular.

2. Department of Finance and Accounting shall

Cooperate with other entities in resolving difficulties relating to statement, recording, and accounting during implementation of this Circular.

3. Exchange authority shall

Monitor, consolidate information on negotiable instrument rediscount between credit institutions and FBBs in accordance with regulations of SBV.

4. Bank Supervision and Inspection Agency, branches of SBV of provinces and cities shall

Supervise and inspect implementation of this Circular and take actions against violations within their competence.

Article 14. Organizing implementation

1. This Circular comes into force from January 7, 2022.

2. Chief of Office, Director of Monetary Policy Department, and heads of entities affiliated to SBV; credit institutions and FBBs are responsible for implementing this Circular./.