THE STATE BANK
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SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No. 62/2006/QD-NHNN
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Hanoi, December 29, 2006
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DECISION
PROMULGATING THE REGULATION ON
EXECUTION OF INTEREST-RATE SWAP TRANSACTIONS
THE STATE BANK GOVERNOR
Pursuant to the
1997 Law on the State Bank of Vietnam and the 2003 Law Amending and
Supplementing a Number of Articles of the Law on the State Bank of Vietnam;
Pursuant to the 1997 Law on Credit Institutions and the 2004 Law Amending and
Supplementing a Number of Articles of the Law on Credit Institutions;
Pursuant to the Government's Decree No. 52/2003/ND-CP of May 19, 2003, defining
the functions, tasks, powers and organizational structure of the State Bank of
Vietnam;
At the proposal of the director of the Monetary Policy Department,
DECIDES:
Article 1.- To promulgate together
with this Decision the Regulation on execution of interest-rate swap
transactions.
Article 2.- This
Decision takes effect fifteen days after its publication in "CONG
BAO" and replaces the State Bank Governor's Decision No. 1133/2003/QD-NHNN
of September 30, 2003, promulgating the Regulation on execution of
interest-rate swap transactions.
Article 3.- The
director of the Office, the director of the Monetary Policy Department and heads
of units under the State Bank, directors of the State Bank's
provincial/municipal branches, chairmen of management boards and general
directors (directors) of commercial banks, joint-venture banks and banks with
100% foreign capital, general directors (directors) of foreign bank branches,
chairmen of management boards and general directors (directors) of enterprises
executing interest-rate swap transactions with banks shall implement this
Decision.
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FOR THE STATE
BANK GOVERNOR
DEPUTY GOVERNOR
Nguyen Dong Tien
REGULATION
ON EXECUTION OF INTEREST-RATE
SWAP TRANSACTIONS
(Promulgated together with the State Bank
Governor's Decision No. 62/2006/QD-NHNN of December 29, 2006)
Article 1.- Scope and subjects of application
This Regulation
provides for the execution of interest-rate swap transactions between
commercial banks, joint-venture banks, banks with 100% foreign capital and
foreign banks' branches operating in Vietnam (below referred to as banks for
short) and non-bank enterprises which are established and operate under
Vietnamese law (below referred to as enterprises for short), between banks, and
between banks and foreign-based credit institutions. Interest-rate swap
transactions shall be executed in accordance with this Regulation and
international practice that is not against Vietnamese law.
Article 2.- Purpose of interest rate swaps
Banks and enterprises
shall execute interest-rate swap transactions to prevent and limit risks caused
by market interest-rate fluctuations.
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A number of terms used
in this Regulation are construed as follows:
1. Foreign-based
credit institutions include commercial banks, financial companies, financial
leasing companies, investment banks, development banks, and other
financial-credit institutions which are established and operate under foreign
laws or are established by international organizations and recognized under
Vietnamese law (except for foreign bank branches operating in Vietnam).
2. Interest-rate swap
transaction means the entry into a contract by parties whereby one party
commits to pay the other an interest sum calculated at the committed swap
interest rate on a certain principal in a certain period of time.
3. Principal of an
interest-rate swap transaction means a sum of money which, as agreed by the
parties in the interest-rate swap transaction, will serve as a basis for the
calculation of the payable interest amount, the receivable interest amount and
the net interest amount from the interest rate swap.
4. Net interest amount
in each period of an interest-rate swap contract means the difference between
the receivable interest amount and the payable interest amount in each payment
period of that contract.
5. Term for payment of
the net interest amount means a period of time within the validity duration of
an interest-rate swap contract agreed upon by the parties, at the end of which
the parties shall pay each other the net interest amount.
Article 4.-
Interest-rate swap transactions allowed to be executed
1. Interest rate swap for
single currency (Vietnam dong or a foreign currency).
2. Interest rate swap
between two currencies or cross currency swap, whereby the parties may agree to
exchange or not to exchange the principal at the beginning of a period but they
must exchange the principal at the end of the period at the agreed exchange
rate from the effective date of the contract.
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4. Daily range
accrual, whereby the payable and receivable interest amounts shall be
calculated at the agreed interest rates, enclosed with the conditions based on
market exchange rate and interest rate fluctuations.
Article 5.-
Conditions for execution of interest-rate swap transactions
1. A bank that
executes interest-rate swap transactions to prevent interest rate risks for its
clients must fully meet the following conditions:
a/ Having its own
capital of VND 1,000 billion or an equivalent value or more.
b/ Ensuring capital
safety ratios in business activities according to regulations of the State Bank
of Vietnam.
c/ Having adopted
procedures for executing interest-rate swap transactions, including risk
prevention measures.
d/ Having a positive
total net interest of interest-rate swap transactions; if this total is
negative, it must not exceed 5% of the own capital of that bank.
e/ Obtaining the
Vietnam State Bank's permission for foreign exchange operations, with regard to
the execution of foreign-currency interest-rate swap transactions.
f/ Observing
regulations on foreign exchange management related to the exchange of
principal, with regard to the execution of cross currency swap transactions.
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a/ Having original
transactions executed in accordance with Vietnamese law. Such an original
transaction may be one of the following: deposit, issuance of or investment in
valuable papers, capital borrowing, financial leasing, or purchase of goods on
deferred payment.
b/ Having financial
capability or taking guarantee measures as agreed by the two parties for the
fulfillment of the obligation to pay the net interest amount to the bank.
Article 6.- Limits on the term and principal for an enterprise's
interest rate swap
1. The term of an
interest-rate swap contract shall be agreed by the parties but must not exceed
the remaining term of the principal transaction contract.
2. The principal under
interest-rate swap contracts of an enterprise must not exceed 30% of the own
capital of the bank.
Article 7.- Swap
interest rates
The parties shall
agree and commit in the interest-rate swap contract the interest rates for
execution of interest-rate swap transactions.
Article 8.- Determination
of total net interest
A bank's total net
interest of interest-rate swap transactions at a point of time is the total of
net interest amounts of all interest-rate swap contracts which remain valid at
that point of time.
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Article 9.-
Payment of net interest amount in each period
1. The parties shall
pay each other the net interest in each period which arises from the signed
interest-rate swap contract.
2. The term for payment
of the net interest shall be agreed by the parties but must not exceed one
year.
3. When the net
interest is paid in a foreign currency, the parties shall abide by the
provisions of law on foreign exchange management.
4. When the net
interest is paid abroad, the parties shall abide by the provisions of law on
the transfer of money abroad.
Article 10.-
Interest-rate swap contract
Interest-rate swap
transactions must be established through interest-rate swap contracts. Based on
the model contract of the International Swaps and Derivatives Association
(ISDA), the parties shall agree on the interest-rate swap contract in
accordance with Article 1 of this Regulation. An interest-rate swap contract
must comprise the following principal contents:
1. Names, addresses,
telephone and fax numbers of representatives of the contractual parties.
2. Principal, interest
rate, and schedule for payment of the principal and interest.
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4. Interest rates
agreed to serve as swap interest rates.
5. Period for payment
of the net interest amount.
6. Method of
calculation of the net interest amount in each period and mode of payment.
7. Level of the
enterprise's collateral or deposit (if any) to secure payment of the net
interest.
8. Rights and obligations
of the contractual parties.
9. Cases of
termination of the contract ahead of time.
10. Procedures for
settlement of disputes, if any, and for liquidation of the contract.
Article 11.-
Accounting and risk provision
1. Banks shall conduct
accounting of interest-rate swap transactions and set up risk provisions
according to the regulations of the State Bank of Vietnam.
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Article 12.- Registration
of and reporting on execution of interest-rate swap transactions
1. Banks that fully
meet the conditions set in Clause 1, Article 5 of this Regulation shall, when
executing interest-rate swap transactions for the first time, notify in writing
the State Bank of Vietnam (the Monetary Policy Department) for registration of
their execution of interest-rate swap transactions.
2. By the tenth day of
every month at the latest, banks that have registered with the State Bank of
Vietnam the execution of interest-rate swap transactions shall send the
preceding month's reports, made according to a set form, to the State Bank of
Vietnam (the Monetary Policy Department).
Article 13.-
Organization of implementation
Based
on the provisions of this Regulation and relevant legal documents as well as
international practice, banks shall promulgate procedures for executing
interest-rate swap transactions suitable to their conditions, characteristics
and financial capability.