Drafting credit contracts in Vietnam

Credit institutions are a special type of business in today’s modern economy. Lending is one of the basic activities of credit institutions. This activity plays an important role, in connecting those who need capital with those who have excess capital, ensuring capital needs for different uses of subjects, promoting production, reproduction, and regulating the macro economy. For this activity to be recognized and have legal value, a credit contract is required. Viet An Law hereby offers an article on drafting credit contracts in Vietnam below.

Legal basis

• Civil Code 2015.
• Law on Credit Institutions 2010.

What is a credit contract?

A contract is an agreement between parties to establish, change, and terminate the rights and obligations of the participating entities.

Credit activity is understood as an agreement for an organization or individual to use a sum of money or a commitment to allow the use of a sum of money on the principle of repayment by lending, discounting, or leasing assets. financing, factoring, bank guarantees, and other credit granting activities.

A credit contract is in fact a type of asset lending contract specified in the Civil Code 2015, with the lender being a credit institution. A credit contract can be understood as a written agreement between a credit institution and clients who are individuals or legal entities that meet all conditions prescribed by law. Accordingly, the credit institution will lend the client a certain amount of money. When the loan is due, the borrower must pay both principal and interest according to the interest rate that the parties have agreed upon.

Characteristics of credit contracts

With the above concept, credit contracts have some basic characteristics as follows:

• Firstly, the form of the credit contract: must be expressed in writing, which can be a handwritten document or an electronic document in the form of an electronic data message, depending on the agreement of the parties. This is an important and prerequisite basis to protect the rights of the parties when a dispute occurs.
• Second, the lender in the credit contract must be a credit institution, legally established and operating. The borrower can be an individual or a legal entity that meets the conditions.
• Third, the object of the credit contract is currency, which can be Vietnamese dong or foreign currency, which is specifically determined, and agreed upon by the parties and must be clearly stated in the credit contract. This is one of the characteristics that distinguishes credit contracts from other common types of asset loan contracts because, in asset loan contracts, the object can be money or objects.
• Fourth, credit contracts have terms: short-term (up to 1 year), medium-term (from 1-5 years), and long-term (from 5 years or more).
• Fifth, credit contracts are made for profit purposes.

Some contents in the credit contract

In addition to information about the time and place of signing the contract, information about the lender and the borrower in the credit contract also includes the following content:

• Terms of the loan amount: clearly state the loan amount (in numbers and words), loan currency;
• Terms of loan purpose: loan purpose must be clearly stated in the contract, and the content of the purpose must not be unethical or violate the provisions of law;
• Loan interest rate terms: clearly state how interest rates are calculated, and applicable interest rates, which may include within-term interest rates, debt restructuring interest rates, and overdue interest rates. Lending interest rates are agreed upon by the parties according to the capital needs of the market and depend on the credit level of clients, except in cases where the Governor of the State Bank of Vietnam has regulations on maximum lending interest rates for some fields;
• Terms of contract performance guarantee: the parties agree on measures to ensure contract performance such as pledge, mortgage, or other collateral measures (if any);
• Terms on the rights and obligations of the lender, on the rights and obligations of the borrower: the content of these terms is agreed upon by the parties, the lender may have rights such as the right to refuse disbursement if the borrower does not meet all requirements, conditions, and the right to request the borrower to pay debts in full and on time. The borrower may have rights such as the right to receive and use loan capital, and the right to request the borrower to release assets when the borrower has fulfilled its obligations to the lender. Corresponding to the rights of the lender are the obligations of the borrower and vice versa.
• Dispute resolution clause: the parties agree on measures to resolve credit contract disputes, such as agreeing to use arbitration to resolve disputes;
• Implementation clause: determines the validity period of the contract. Normally, the parties will agree that the contract will be effective from the date of signing until the borrower completes the agreed obligations with the lender. get a loan. The implementation clause also recognizes that the parties enter into a contract on the principles of voluntariness, good faith, honesty, and without coercion or deception. The parties have read the contract and agreed, demonstrated by signing and stamping at the end of the contract.

Some notes when drafting credit contracts in Vietnam

Does the credit contract require security measures?

Credit contracts do not require security measures, depending on the agreement of the parties, unless otherwise prescribed by law. In case there is a guarantee, the guarantee contract is usually established separately from the credit contract (pledge contract, mortgage contract, guarantee contract).

What is the term of capital use in different types of credit contracts?

Based on the time of capital use, credit contracts include short-term and long-term credit contracts. In particular, short-term credit contracts have a loan period of up to one year, often meeting the business needs of clients in a short period of time. Medium and long-term credit contracts, with a capital usage period of one year or more, usually meet the fixed shopping, consumption, and business needs of clients.

Can all individuals and legal entities participate in credit contracts?

Credit institutions are not allowed to lend capital to commit illegal acts, or lend money in cases where lending is prohibited.

For example: Credit institutions and foreign bank branches are not allowed to lend to parents, spouses, or children of members of the Board of Directors, members of the Board of Members, or members of the Supervisory Board, General Director, Deputy General Director and equivalent positions of credit institutions and foreign bank branches.

Clients who need advice on drafting credit contracts in Vietnam in particular and drafting civil and economic contracts, please contact Viet An Law for the best support.