Overview On Foreign Loans Compliance In Vietnam

CONDITIONS FOR FOREIGN LOANS WITHOUT GOVERNMENT GUARANTEE IN VIETNAM (FROM 15 AUGUST 2023)

Vietnam’s regulatory environment for foreign borrowing underwent a significant shift with the introduction of Circular No. 08/2023/TT-NHNN, issued by the State Bank of Vietnam and effective from 15 August 2023. Replacing Circular No. 12/2014/TT-NHNN, this new legal framework provides greater clarity, restricts previously ambiguous exceptions, and aligns borrowing practices more closely with Vietnam's macro-financial goals. This analysis outlines key provisions, highlights critical changes, and examines implications for businesses—especially foreign-invested enterprises.

One of the most notable developments in Circular 08 is the explicit limitation of VND-denominated foreign loans to only three circumstances: (i) microfinance institutions; (ii) FDI enterprises borrowing from reinvested earnings of their foreign investors; and (iii) cases where loans are disbursed and repaid in foreign currency but calculated in VND. This move significantly narrows the conditions under which foreign lenders can extend VND credit, reflecting the State Bank’s intent to reinforce foreign exchange control and reduce currency risk.

Another major shift applies to short-term foreign borrowing by credit institutions and foreign bank branches. Beginning 1 January 2024, commercial banks must cap their short-term foreign borrowings at 30% of their own capital, while foreign bank branches and other credit institutions are allowed up to 150%. This provision introduces prudential limits aimed at safeguarding banking sector liquidity, particularly in volatile global conditions.

For non-credit institutions, Circular 08 introduces more nuanced rules regarding loan purpose and borrowing limits. Short-term loans are now permitted for two key uses: (i) refinancing existing foreign debt, and (ii) paying short-term cash liabilities, excluding repayment of domestic principal loans. This replaces the previous outright prohibition on borrowing for business or investment purposes and allows firms greater financial flexibility—provided the borrowed funds are not misallocated.

Meanwhile, medium- and long-term loans are restricted to: (i) investment project execution; (ii) funding business operations as approved in registered plans; and (iii) restructuring existing foreign debts. The loan amount must not exceed the capital needs as stated in corresponding approved documentation. Moreover, in the case of refinancing, the new disbursement must be used to settle existing obligations within five working days. These safeguards are designed to ensure transparency and prevent excessive leveraging by enterprises.

Importantly, Circular 08 clarifies that foreign loans in the form of deferred import payments are outside its scope. However, such transactions remain subject to other regulatory frameworks, such as foreign exchange management and trade law. This distinction prevents unnecessary overlap while preserving regulatory oversight.

From a compliance perspective, businesses must now be more diligent in preparing documentation that supports the loan purpose, particularly for medium- and long-term borrowing. Enterprises must also calculate their allowable borrowing limits based on the gap between total investment capital and actual contributions, or based on detailed operational needs. This emphasizes the importance of robust financial planning and legal alignment.

Overall, Circular 08 reflects Vietnam's cautious but strategic approach to managing foreign debt exposure. By imposing clearer conditions and tighter limits, the government aims to protect the stability of the domestic financial system while still enabling access to foreign capital for productive purposes. For foreign-invested enterprises, the circular introduces both opportunities and responsibilities: while avenues for borrowing remain open, compliance now requires a more disciplined and transparent financial structure. As global interest rates remain uncertain and capital costs fluctuate, Vietnam’s new framework offers a timely mechanism to mitigate risk while aligning with global financial governance practices.