_{Can foreigners take out loans at Vietnamese banks?}

According to Clause 3, Article 2 of Circular 39/2016/TT-NHNN, which provides regulations on borrowers from credit institutions (hereafter referred to as borrowers), the eligible borrowers include both legal entities and individuals, specifically:

• Legal entities established and operating in Vietnam, as well as legal entities established abroad but legally operating in Vietnam;
• Individuals who hold Vietnamese nationality, as well as individuals holding foreign nationalities.

Thus, based on the aforementioned regulations, foreigners who meet the necessary legal requirements are eligible to apply for loans at Vietnamese banks, provided they fulfill the set conditions.

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What types of loans can foreigners obtain from Vietnamese banks?

According to Article 10 of Circular 39/2016/TT-NHNN, there are specific types of loans that can be extended to borrowers, including foreigners, as follows:

• Short-term loans, which have a maximum loan period of up to one year.
• Medium-term loans, which are provided for a period exceeding one year but not more than five years.
• Long-term loans, which have a loan period extending beyond five years.

These categories provide flexibility in loan durations, depending on the borrower's financial needs and the bank's terms.

What are the conditions for foreigners to obtain loans from Vietnamese banks?

According to Article 7 of Circular 39/2016/TT-NHNN (as amended and supplemented by Circular 06/2023/TT-NHNN), credit institutions may consider and decide to grant loans to customers when the following conditions are met:

• The customer must be a legal entity with full civil legal capacity under the law. For individual borrowers, they must be at least 18 years old with full civil act capacity, or between 15 and 18 years old without being deprived or restricted of civil act capacity under the law.
• The loan must be sought for a legitimate and lawful purpose.
•  There must be a feasible plan for the use of the borrowed funds.
•  The borrower must have the financial capability to repay the loan.

Thus, foreign individuals may be considered and approved for loans if they meet these specified conditions.

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What types of financial needs are not eligible for loans from Vietnamese banks?

According to Article 8 of Circular 39/2016/TT-NHNN (as amended by Circular 06/2023/TT-NHNN and Circular 10/2023/TT-NHNN), foreigners are not eligible to borrow from Vietnamese banks for the following purposes:

•  To engage in business investment activities in industries or professions that are prohibited under the Law on Investment 2020.
•  To pay expenses or meet financial needs related to business investment activities in prohibited sectors under the Law on Investment 2020, or for other transactions and activities prohibited by law.
•  To purchase or use goods and services belonging to sectors or professions that are banned under the Law on Investment 2020.
•  To purchase gold bars.
•  To repay debts related to loans from the same lending institution, except in cases where the loan is used to pay interest on loans incurred during the construction phase of a project, and the interest is included in the total construction investment approved by authorities.
•  To repay foreign loans (except foreign loans in the form of deferred payment for goods), or to repay credit granted by other credit institutions, except when the loan is used to repay an early debt, meeting the following conditions:

  + The new loan term does not exceed the remaining term of the old loan;

  + The old loan has not been restructured for repayment.

•  To deposit money into a savings account. 

These restrictions ensure that loans are only granted for lawful and productive purposes, in alignment with Vietnamese regulations.

Regulations on loan interest rates for foreigners

Loan interest rates are specifically outlined in Article 13 of Circular 39/2016/TT-NHNN (amended by Circular 06/2023/TT-NHNN) as follows: Credit institutions and borrowers negotiate the loan interest rates based on the market demand and supply of capital, the borrower’s financial needs, and their creditworthiness, except when the State Bank of Vietnam sets a maximum interest rate.

If a borrower is assessed by the credit institution as having a transparent and sound financial situation, both parties may agree on a short-term loan interest rate in Vietnamese dong. However, the rate must not exceed the maximum lending rate set by the Governor of the State Bank of Vietnam at any given time for specific purposes such as:

•  Loans for agricultural and rural development as per government policies.
•  Loans for export business plans according to the 2005 Commercial Law.
• Loans for small and medium-sized enterprises (SMEs) as per the 2017 Law on Supporting SMEs and government guidelines.
• Loans for the development of supporting industries as per government regulations.
• Loans for high-tech enterprises that apply priority technologies as approved by the Prime Minister, and other high-tech companies under the 2008 Law on High Technology.

The agreement on the loan interest rate must include both the rate and the method of interest calculation. If the interest rate is not defined as a percentage per year and/or the interest is not calculated on the actual outstanding loan balance and the period it is maintained, the agreement must include a converted interest rate expressed as a percentage per year (with one year being 365 days) based on the actual loan balance and the time the balance is held.

If the borrower fails to repay the loan principal and/or interest on time, the borrower must pay interest as follows:

• Interest on the principal at the agreed-upon loan interest rate for the overdue period.
• In case of late payment of interest, the borrower must pay late interest at a rate not exceeding 10% per year on the overdue interest, calculated based on the overdue period.
• If the loan becomes overdue, the borrower must pay interest on the overdue principal at a rate not exceeding 150% of the on-time loan interest rate at the time the loan became overdue.

When an adjustable loan interest rate is applied, the credit institution and borrower will agree on the principles and factors determining the adjusted interest rate, as well as the timing of its application. If multiple loan interest rates are determined based on various factors, the credit institution must apply the lowest rate.

This framework ensures flexibility in loan agreements while maintaining adherence to legal limits on interest rates.

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Conclusion

Obtaining a loan as a foreign national in Vietnam has become more feasible in recent years, but there are still several challenges that need to be addressed. Although the Vietnamese banking system has undergone significant reforms, foreign borrowers typically encounter stricter conditions than domestic citizens. To enhance the likelihood of loan approval, it is crucial to approach the application process strategically. Key factors such as establishing a reliable credit history, offering adequate collateral, and reviewing loan options from various banks should be prioritized.

By thoroughly understanding the necessary requirements and considering alternative financing solutions, foreign individuals can navigate the lending process with greater efficiency. This careful approach will help improve the chances of obtaining the funds they need for personal or business purposes in Vietnam. If you require more detailed information or assistance on this topic, feel free to contact NVCS Law Firm. 

Lawyer: Mr. Tony 

Phone: +84 919 195 939

Email: tuulawyer@nvcs.vn

Website: nvcs.vn