Vietnam: Foreign bank guarantees

Author: | Published: 22 Feb 2016
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Vu Le Bang

The new Law on Real Estate Business (LOREB) stipulates that before selling or hire-purchasing houses to be built in the future, investors in real estate projects (investors) must have their financial obligations for clients guaranteed by eligible commercial banks when the investors fail to hand over houses according to the schedule committed to clients. The purpose of this is to protect the interests of house buyers to promote the real estate market. Under the Law on Credit Institutions, a commercial bank is defined as a type of bank that may conduct all banking operations and other business activities for profit and has legal entity status. A foreign bank branch (FBB) is defined as a foreign bank's subsidiary without legal entity status and the foreign bank is liable for all of the branch's obligations and commitments in Vietnam. Therefore, if such definitions are applied to the house bank guarantee, an FBB should not be permitted to provide the house bank guarantee.

The State Bank of Vietnam (SBV) recently issued Circular 07 /2015/TT-NHNN guiding, among others, the implementation of the house bank guarantee. It also provides further guidance in a question and answer format on house bank guarantees. The SBV explicitly confirmed that an FBB is not permitted to issue the house bank guarantee. This has put an end to the hope that FBBs can participate in providing products regarding the house bank guarantee. This means that the house bank guarantee has become an exclusive product of eligible commercial banks. Consequently, investors can only ask eligible banks to issue the house bank guarantee.

The prohibition on FBBs from issuing house bank guarantees discourages not only FBBs but also a number of foreign investors of real estate projects that have maintained a good business partnership with FBBs from their home countries. It is reported that the Ho Chi Minh Real Estate Association requested the Standing Committee of the National Assembly to revise the LOREB to allow FBBs to issue the house bank guarantee. Separately, many FBBs appeared to make the same inquiry to the SBV. It is expected that such amendment of the law will be accepted soon so that FBBs may issue the house bank guarantee.

Vu Le Bang