CIRCULAR

AMENDMENTS TO SOME ARTICLES OF THE CIRCULAR NO. 01/2015/TT-NHNN DATED JANUARY 06, 2015 PRESCRIBING TRADING AND PROVISION OF INTEREST RATE DERIVATIVES BY COMMERCIAL BANKS AND FOREIGN BRANCH BANKS

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010 and Law dated November 20, 2017 on Amendments to some Articles of the Law on Credit Institutions;

Pursuant to the Government’s Decree No. 16/2017/ND-CP dated February 17, 2017 defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the request of the Director of the Monetary Policy Department;

The Governor of the State Bank of Vietnam hereby promulgates a Circular on amendments to some Articles of the Circular No. 01/2015/TT-NHNN dated January 06, 2015 prescribing trading and provision of interest rate derivatives by commercial banks and foreign branch banks.

Article 1. Amendments to some Articles of Circular No. 01/2015/TT-NHNN

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 “c) Foreign investors that are organizations holding government bonds issued in Vietnamese dong in the domestic market.”

2. Clause 8 is amended and clauses 13, 14, 15 and 16 are added to Article 3 as follows:

a) Clause 8 is amended as follows:

“8. “net interest or net loss” of an interest rate derivative (IRD) contract of a commercial bank or foreign bank branch (FBB) at a certain time means the cumulative net interest or net loss of all payment periods of the IRD contract by that time.”

b) Clauses 13, 14, 15 and 16 are added to Article 3 as follows:

“13. “date of conclusion of an IRD contract” means the date on which both parties sign the IRD contract.

14. “effective date of an IRD contract as agreed upon by both parties” means the date on which both parties begin to execute the IRD contract; it may be the same date as the date of concluding the IRD or the following date.

15. “duration of an IRD contract” means the period beginning from the effective date of IRD contract to its expiry date. Duration of an IRD contract shall be equal to or shorter than the remaining duration of the principal transaction.

16. “net settlement” means the determination and payment of a net amount calculated according to the current market value or value calculated according to the prices of IRD contracts terminated at or prior to their expiry date as agreed upon by both parties, after offsetting amounts payable of IRD contracts between parties to the contract to determine an amount receivable or payable of one party on the expiry date or the termination date before its expiry date.”

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“6. If a customer does not have foreign currencies or has insufficient foreign currencies to discharge their payment obligations arising when executing an IRD contract, they are entitled to buy foreign currencies at a commercial bank or FBB trading in and providing interest rate derivatives or at other credit institutions permitted to make foreign currency transactions. The trading of foreign currencies shall comply with the State Bank of Vietnam (SBV)'s regulations on guidelines for foreign exchange transactions in the foreign currency market of credit institutions permitted to make foreign currency transactions. If the customer buys a foreign currency through a currency forward transaction, the duration of this transaction shall be equal to or shorter than the remaining duration of the IRD contract.

7. Commercial banks and FBBs may reach an agreement on net settlement of IRD contracts concluded with customers, reciprocal transactions with other commercial banks, FBBs or foreign financial institutions.”

4. Article 4a is added as follows:

“Article 4a. Trading and provision of interest rate derivatives by electronic means

1. Commercial banks and FBBs trading and providing interest rate derivatives by electronic means must establish a procedure for trading and providing interest rate derivatives by electronic means in conformity with this Circular, regulations of law on anti-money laundering and law on e-transactions, and relevant regulations of laws, ensuring customer confidentiality and safety of commercial banks’ and FBBs’ operations.

2. Commercial banks and FBBs must fully store information on the trading and provision of interest rate derivatives by electronic means to serve the inspection, comparison and handling of tracing requests, complaints, disputes and provide information at request of the competent state agencies.”

5. Point b clause 2 and point b clause 3 of Article 6 are amended as follows:

a) Point b of clause 2 is amended as follows:

“b) Accrual interest rate swap means an interest rate swap in which a commercial bank or FBB and a customer reach an agreement on the interest received or payable that is calculated according to the interest rate accompanied by such certain conditions as exchange rate fluctuations, interest rates, prices of goods (except for prices of golds and goods banned from trading, import and export in accordance with regulations of law) and accrues during the agreed payment period on the same nominal capital value.”

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“b) Accrual Cross Currency Swap means a cross currency swap in which a commercial bank or FBB and a customer reach an agreement on the interest received or payable that is calculated according to the interest rate accompanied by such certain conditions as exchange rate fluctuations, interest rates, prices of goods (except for prices of golds and goods banned from trading, import and export in accordance with regulations of law) and accrues during the agreed payment period on the same nominal capital value. The two parties shall agree upon whether to exchange the value of the nominal capital; in case of exchanging the value of the initial or last nominal capital or part of the nominal value in each period, the fixed exchange rate shall be agreed upon in accordance with the SBV’s regulations on exchange rate at the time of concluding the IRD contract.”

6. Point b of clause 1 is amended; point dd is added to clause 1; points a and b clause 2 of Article 7 are amended as follows:

a) Point b of clause 1 is amended as follows:

“b) The principal transaction must remain valid and be compliant with regulations of law. For foreign investors, the principal transaction is the transaction of investing in government bonds issued in Vietnamese dong in the domestic market;”

b) Point dd is added to clause 1 as follows:

“dd) If the customer is entitled to receive foreign currencies from the interests arising from the IRD transaction or receive foreign currencies from the exchange of nominal capital, such foreign currencies shall be used to pay for the obligations arising from the customer’s principal transaction or the customer must sell such foreign currencies to commercial banks and FBBs trading and providing these IRDs.

c) Points a and b of clause 2 are amended as follows:

“a) IRDs are used for the purposes of preventing and minimizing interest rate risks to the principal transactions or preventing and minimizing interest rate risks to items of the balance sheet (including the off-balance sheet items) of such credit institutions and FBBs;

b) Their principal transactions shall remain valid within the scope of operation under regulations of the Law on Credit Institutions and relevant regulations of law. For a credit institution other than a commercial bank or FBB, in case of preventing and minimizing interest rate risks to items of the balance sheet (including the off-balance sheet items), the credit institution must formulate a plan to prevent and minimize interest rate risks which must be approved by its competent authority;”

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“a) Where one or more reciprocal transactions are conducted for an ongoing IRD contract with the commercial bank or foreign bank branch, the duration of each reciprocal transaction and total remaining value (calculated by each currency) of principal swap amounts of reciprocal transactions after offsetting each other must not exceed the remaining duration and the value of the nominal capital of the IRD contract;”

8. Point b clause 1 of Article 9 is amended as follows:

“b) Prevent and minimize interest rate risks to items of the balance sheet (including off-balance sheet items) of commercial banks and FBBs.”

9. Article 12 is amended as follows:

“Article 12. Limits on trading, provision and use of IRDs

1. Commercial banks and FBBs trading, providing and using IRDs must comply with SBV’s Circular No. 41/2016/TT-NHNN dated December 30, 2016 prescribing the capital adequacy ratio for operations of banks and FBBs and its amending documents.

2. Any credit institution or FBB that has yet to apply SBV’s Circular No. 41/2016/TT-NHNN and its amending documents shall control the limit of net loss on the trading, provision and use of IRDs so that it does not exceed 5% of the charter capital, allocated capital of such commercial bank or FBB . If the net loss exceeds 5% of the charter capital, allocated capital, the credit institution or FBB shall suspend the conclusion of new IRD contracts, report to SBV (the Banking Supervision Agency) causes of loss, measures and time limit for remediation.

If a commercial bank or FBB wishes to conclude a new IRD contract, it shall determine the limit of net loss on trading, provision and use of IRDs in compliance with this Circular. The limit of net loss on the use of IRDs equals the total net interest and net loss of valid IRD contracts plus (+) total net interest and net loss of interest IRD contracts already settled in the fiscal year.

3. A credit institution or FBB (excluding commercial banks and FBBs specified in clauses 1 and 2 of this Article) is entitled to use IRDs if it satisfies one of the two following conditions:

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b) It has controlled the limit of net loss the use of IRDs in accordance with clause 2 of this Article.”

10. Title and points b and d clause 1 of Article 14 are amended as follows:

a) Title of clause 1 is amended as follows:

“1. An IRD contract shall be made in writing (including an electronic one) as agreed upon by the parties in accordance with this Circular and relevant regulations of law, containing at least the following contents:”

b) Points b and d of clause 1 are amended as follows:

“b) Principal transactions, value of the principal amount, interest rate applied to principal transactions, schedule for payment of principal and interest of principal transactions (applicable to customers being juridical persons, foreign investors);”

“d) Effective date of an IRD contract, payment term, date of payment, method of payment of net interest/loss; agreement on net settlement of IRD contracts (if any);”

11. Article 18 is amended as follows:

“Article 18. Reporting

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12. Clauses 4 and 7 are amended; clause 9 is added to Article 19 as follows:

a) Clause 4 is amended as follows:

“4. Request customers being juridical persons and foreign investors to provide information and documents proving their eligibility for using IRDs in accordance with this Circular and internal regulations of commercial banks and foreign bank branches on trading and provision of IRDs.”

b) Clause 7 is amended as follows:

“7. Report their trading and provision of IRDs in accordance with SBV’s statistical reporting regime.”

c) Clause 9 is added as follows:

“9. Introduce the process for trading and provision of IRDs by electronic means, specifying measures for management and control of risks (if any).”

13. Point a of clause 2 is amended; point a, b, c and dd clause 3 of Article 20 are amended as follows:

a) Point a of clause 2 is amended as follows:

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b) Points a, b, c and dd of clause 3 are amended as follows:

“a) Commit to commercial banks and FBBs in the IRD contract or a separate document on the use of IRDs for the purposes of preventing and minimizing interest rate risks; providing certified true copies or extracted copies of contracts of principal transactions or plan to prevent and minimize interest rate risks to items of the balance sheet (including off-balance sheet items) at the request of SBV and competent authorities;

b) Taking legal responsibility for the accuracy and truthfulness of information and documents provided to commercial banks and FBBs providing IRDs;

c) Formulate and approve, within their power, the plan to prevent and minimize interest rate risks to items of the balance sheet (including off-balance sheet items), including analysis of interest rate risks;”

“dd) Fulfill the responsibilities prescribed in points b and c clause 2 of this Article.”

Article 2. Replacement and removal of several words, phrases, clauses and Articles of Circular No. 01/2015/TT-NHNN

1. The phrase “phát sinh từ bảng cân đối kế toán” (“arising from the balance sheet”) in clause 5 of Article 3 and clause 2 of Article 5 is replaced with the phrase “cho các khoản mục của bảng cân đối kế toán (bao gồm cả các khoản mục ngoại bảng)” (“to items of the balance sheet (including the off-balance sheet items)”).

2. The phrase “pháp nhân” (“juridical persons”) in clause 5 of Article 4, clause 1 of Article 5, title and point a clause 1 of Article 7, title of clause 2 of Article 20 is replaced with the phrase “pháp nhân và nhà đầu tư nước ngoài” (“juridical persons and foreign investors”).

3. The phrase “thời hạn hiệu lực” (“validity period”) in clause 4 of Article 6 is replaced with the phrase “thời hạn thực hiện” (“duration of”).

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5. Article 16, Form No. 01 and Form No. 02 promulgated together with the Circular No. 01/2015/TT-NHNN are annulled.

Article 3. Responsibility for implementation

Chief of Office, Director of Monetary Policy Department, heads of units affiliated to SBV, credit institutions and foreign branch banks are responsible for the implementation of this Circular.

Article 4. Implementation clause

1. This Circular comes into force from February 14, 2022.

2. For the IRD contracts concluded before the effective date of this Circular, commercial banks and FBBs shall keep performing such IRD contracts under the regulations in force at the time of conclusion or agreement on amendments to such IRD contracts in accordance with this Circular./.

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