Thông tư 29/2016/TT-NHNN

CIRCULAR

PROVIDING FOR OVERDRAFT AND OVERNIGHT LENDING OPERATIONS IN THE INTERBANK ELECTRONIC PAYMENT SYSTEM

Pursuant to the Law on State Bank No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Institutions No. 47/2010/QH12 dated June 16, 2010;

Pursuant to the Government's Decree No. 156/2013/ND-CP dated November 11, 2013 defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

According to the request of the Director of the Monetary Policy Department;

The Governor of the State Bank of Vietnam hereby introduces the Circular on overdraft and overnight lending operations in the interbank electronic payment system.

Article 1. Scope

This Circular provides for overdraft and overnight lending operations in the interbank electronic payment system of the State Bank of Vietnam (hereinafter referred to as State Bank) applied to credit institutions and foreign bank branches.

Article 2. Subjects of application

Credit institutions and foreign bank branches established and operated under the Law on Credit Institutions who have become members of the interbank electronic payment system (hereinafter referred to as credit institution).

Article 3. Definition

For the purpose of this Circular, terms used herein shall be construed as follows:

1. Overdraft in the interbank electronic payment refers to an arrangement where a credit institution is allowed to overdraw money greater than the available balance of a VND checking account opened at a transaction center of the State Bank (hereinafter referred to as VND checking account).

2. Overnight lending in the interbank electronic payment refers to an arrangement in which the State Bank offers a credit institution a loan secured by financial instruments pledged as collateral within a specified time period starting at the end of the previous day and ending on the consecutive business day.

3. Remaining term to maturity of a financial instrument refers to a period of time beginning on the date on which the State Bank determines its value and ending on the date on which its principal payment is due.

Article 4. Principles of overdraft and overnight lending in the interbank electronic payment made at the State Bank

1. Credit institutions shall have access to overdrafts against any fund deficiency that may arise during interbank electronic payment activities.

2. Credit institutions shall have access to the State Bank's overnight loans used for paying off overdrafts at the end of workday.

Article 5. Financial instruments used in overdraft and overnight lending transactions in the interbank electronic payment operation

Financial instruments used in overdraft and overnight lending transactions in the interbank electronic payment operation must meet the following standards:

1. Comply with depository requirements referred to in regulations on depositing and utilization of financial instruments deposited with the State Bank.

2. Negotiable.

3. Have been issued as Vietnam dong-denominated financial instruments.

4. Their minimum remaining term to maturity is 30 days.

5. Have been emplaced in the list of financial instruments that can be used in overdraft and overnight lending transaction in the interbank electronic payment operation, approved by the Governor of the State Bank.

Article 6. Overdraft limit

Overdraft limit refers to the maximum amount of money that a credit institution is allowed to overdraw in excess of the available balance in its VND checking account in the interbank electronic payment operation, and is calculated according to the following formula:

Overdraft limit = ∑ (G_i x R_i) - B - C

Where:

- G_i : Value of financial instrument of type i used by a credit institution in overdraft and overnight lending transactions, and determined according to the Appendix hereto.

- R_i : Percentage rate of overdraft and overnight lending applied to the financial instrument of type i, approved by the Governor of the State Bank over time periods.

- i: The type of financial instrument emplaced in the list of financial instruments that can be used in overdraft and overnight lending transaction in the interbank electronic payment operation, approved by the Governor of the State Bank.

- B: Outstanding overnight balance (including principal balance and interest).

- C: Overdue overnight balance (including overdue principal balance, deferred interest, interest on overdue payment of principal balance, interest on deferred interest).

Article 7. Overnight rate

1. The overnight rate shall be subject to the approval granted by the Governor of the State Bank over time periods.

2. The interest rate applied to the overdue principal balance shall be equal to 150% of the overnight rate stated on the date on which a loan comes into existence; the interest rate applied to the deferred interest on an overnight loan shall be 10%/year.

Article 8. Overdraft and overnight lending procedures in the interbank electronic payment system

1. Overdraft and overnight lending procedures in the interbank electronic payment system shall include the following steps:

a) Credit institutions deposit their financial instruments pledged as collateral for overdrafts and overnight loans;

b) The State Bank notifies overdraft limits to credit institutions;

c) Credit institutions receive overdrafts and overnight loans;

d) Credit institutions repay outstanding loan balance;

dd) The State Bank recovers outstanding loan balance;

e) The State Bank deals with credit institutions’ overdue loan balances and other related issues that may arise.

2. The Governor of the State Bank of Vietnam shall issue the Decision specifically providing for the overdraft and overnight lending procedures in the interbank electronic payment system in accordance with regulations laid down in Clause 1 of this Article.

Article 9. Implementation of overdraft and overnight lending operations

1. Implementation of overdraft operations

a) At 8 am every business day, the State Bank (Transaction Center) shall determine and notify the overdraft limit on interbank electronic payments applied to specific credit institutions. Where there is any (increasing or decreasing) adjustment to overdraft limits within a business day due to any change to value of financial instruments used in overdraft and overnight lending activities or overdue overnight balances, the State Bank (Transaction center) shall determine and notify such adjustment to credit institutions. Credit institutions shall be entitled to a reduction in financial instruments pledged as collateral for overdrafts and overnight loans only if total value of financial instruments which have already been provided meets the adjusted minimum overdraft limit which is equal to overdrawn funds;

b) Once a VND checking account of a credit institution does not have enough money to implement a payment order in the interbank electronic payment system, a maximum amount equal to the overdraft limit approved by the State Bank (Transaction center) shall be automatically overdrawn to pay for that order. Once funds are deposited into a VND checking account of a credit institution, the payment system shall automatically repay amounts overdrawn within a business day by that credit institution.

2. Implementation of overnight lending operations

a) By the end of a business day, if a credit institution has an outstanding overdrawn amount, the State Bank (Transaction center) shall automatically transfer such amount to an overnight lending account, and notify that credit institution of its outstanding overnight balance. The credit institution shall be liable for overnight loan interest as defined in Clause 1 Article 7 hereof;

b) The business day immediately subsequent to the date on which the amount of interest on overnight loan arises, the credit institution shall pay the outstanding overnight principal balance and interest to the State Bank. The credit institution shall not be entitled to use overdraft as payment for the outstanding overnight principal balance. By the end of the business day immediately subsequent to the date on which an overnight loan arises, unless the credit institution pays off the outstanding overnight principal, the State Bank (Transaction center) shall carry forward that outstanding overnight principal to the overdue overnight principal balance and impose the interest rate on it in accordance with Clause 2 Article 7 hereof, and finally send a notification of that overdue overnight principal to the credit institution.

Article 10. Handling of overdue principal balance

1. On the business day immediately subsequent to the date on which an overnight loan arises, the State Bank (Transaction center) shall take action to recover overdue overnight balance (collecting principal first and interest later) and notify such action to the credit institution. Such action is provided for as follows:

a) Withdrawing funds from the VND checking account of the credit institution opened at the State Bank to recover overdue overnight balance;

b) After such withdrawal, if overdue overnight principal balance is not fully recovered, the State Bank (Transaction center) shall be entitled to request the depository of financial instruments to transfer the right to own these financial instruments from the credit institution in order to sell those which are unmatured, or contact issuers of these financial instruments to receive payments due on these financial instruments till full recovery of such balance. Priority order of financial instruments for transfer of ownership right to the State Bank shall be based on the following criteria:

(i) Those with the shorter term to maturity left shall be given higher priority than the others;

(ii) Those with the price at which they are pledged as collateral is higher shall be given higher priority than the others;

If, after the State Bank has sold unmatured financial instruments or has received payments from issuers of matured financial instruments, proceeds therefrom are greater than overdue overnight balances, the difference between such proceeds and overdue overnight balances shall be refunded to the credit institution;

c) In case, after actions referred to in Point a, b of this Clause have been taken, overdue overnight balances have not been fully recovered yet, the State Bank (Transaction center) shall recover these balances by collecting other funds (if any) from the credit institution.

2. With respect to the credit institution whose overnight loan principal is overdue in 03 successive times within 01 month, the State Bank (Transaction center) shall suspend overdraft and overnight lending activities in the interbank electronic payment system for a period of 10 business days after the date on which the State Bank (Transaction center) sends a notification of such suspension, and except otherwise affected by force majeure events, the credit institution shall have to submit a report to the State Bank (Transaction center).

Article 11. Responsibilities of entities involved

1. Responsibilities of affiliates of the State Bank

1.1. The Monetary Policy Department

a) Play its role as the head or counselor in requesting the Governor of the State Bank to approve and announce the overnight loan interest rate as specified In Clause 1 Article 7 hereof;

b) Function as the head or counselor in providing the Governor of the State Bank with the list of financial instruments that can be used in overdraft and overnight lending activities in the interbank electronic payment system as stated in Clause 5 Article 5 hereof, and percentage rates at which overdraft and overnight lending transactions are implemented with respect to financial instruments referred to in Article 6 hereof.

1.2. Transaction center

a) Function as the head in preparing and submitting a report to the Governor of the State Bank for his/her grant of the Decision on overdraft and overnight lending procedures in the interbank electronic payment system in conformance to regulations laid down in this Circular and other relevant ones;

b) Determine the overdraft limit, adjust it and notify it to credit institutions in accordance with this Circular;

c) Implement overdraft and overnight lending operations;

d) Inform credit institutions of outstanding and overdue principal balances;

dd) Recover outstanding overnight principal balances in accordance with this Circular;

e) Recover overdue overnight principal balances in accordance with this Circular;

g) Notify credit institutions of actions to be taken to recover overdue overnight principal balances, and give notification of suspension of overdraft and overnight lending operations in accordance with this Circular;

h) Calculate overnight loan interest, overdue interest on overnight principal balance, and interest on deferred overnight loan interest, in conformity with regulations set out by the State Bank;

i) Act as the head in dealing with difficulties or problems that may arise during implementation of overdraft and overnight lending operations.

1.3. Finance – Accounting Department

Provide guidance on accounting records for overdraft and overnight lending in the interbank electronic payment made at the State Bank.

1.4. Banking Information Technology Administration

Assume responsibility for computer software and other relevant issues to implement overdraft and overnight lending operations in the interbank electronic payment system which take place in a smooth, safe and effective manner.

2. Responsibilities of credit institutions participating in overdraft and overnight lending activities

Observe and take responsibility for implementing regulations laid down in this Circular.

Article 12. Implementation

1. This Circular shall enter into force from March 25, 2017 and replace the Decision No. 04/2007/QD-NHNN dated January 22, 2007 of the Governor of the State Bank on overdraft and overnight lending applied to the interbank electronic payment.

2. Overnight loans of which principal balances are outstanding before the entry into force of this Circular shall be subject to the Decision No. 04/2007/QD-NHNN dated January 22, 2007 of the Governor of the State Bank on overdraft and overnight lending applied to the interbank electronic payment.

3. The Chief of Office, the Director of the Financial Policy Department, Heads of affiliates of the State Bank of Vietnam, Directors of State Bank branches of centrally-affiliated cities and provinces, Presidents of Management Boards, and Presidents of Boards of Directors and General Directors (Directors) of credit institutions and foreign bank branches, shall be responsible for implementing this Circular./.

APPENDIX

(Issued together with the Circular No. 29/2016/TT-NHNN dated October 12, 2016 of the State Bank on overdraft and overnight lending in the interbank electronic payment system)

FORMULA FOR DETERMINATION OF FINANCIAL INSTRUMENT VALUE

1. Short-term financial instruments:

1.1. Short-term financial instrument on which interest is paid in advance:

Where:

G: Value of a financial instrument estimated on the pricing date

MG: Face value of financial instrument

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

t: Remaining term to maturity of financial instrument (the number of days left).

1.2. Short-term financial instrument of which both principal and interest are paid in arrears:

Where:

G: Value of a financial instrument estimated on the pricing date

GT: Value of matured financial instrument, including face value and interest

MG: Face value of financial instrument

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

t: Remaining term to maturity of financial instrument (the number of days left)

Ls: Interest rate for issuance of financial instrument (%/year)

n: Tenor of financial instrument (the number of days left).

2. Long-term financial instruments:

2.1. Long-term financial instrument on which interest is paid in advance:

Where:

G: Value of a financial instrument estimated on the pricing date

MG: Face value of financial instrument

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

t: Remaining term to maturity of financial instrument (the number of days left).

2.2. Long-term financial instrument of which both principal and interest are paid in arrears (interest is not compounded with principal amount):

Where:

GT = MG * [1 + (Ls * n)]

G: Value of a financial instrument estimated on the pricing date

GT: Value of matured financial instrument, including face value and interest

MG: Face value of financial instrument

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

t: Remaining term to maturity of financial instrument (the number of days left)

Ls: Interest rate for issuance of financial instrument (%/year)

n: Tenor of financial instrument (year).

2.3. Long-term financial instrument of which both principal and interest are paid in arrears (interest is compounded with principal amount):

Where:

GT = MG * (1 + Ls)ⁿ

G: Value of a financial instrument estimated on the pricing date

GT: Value of matured financial instrument, including face value and interest;

MG: Face value of financial instrument

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

t: Remaining term to maturity of financial instrument (the number of days left)

Ls: Interest rate for issuance of financial instrument (%/year)

n: Tenor of financial instrument (year).

2.4. Long-term financial instruments on which interest is paid periodically:

Where:

G: Value of a financial instrument estimated on the pricing date

C_i : Amount of interest and principal payment in the instalment i (exclusive of amount of interest and principal payment made on the registered final date prior to the pricing date).

i: Interest and principal payment instalment i

L: Interest rate applied to overnight lending arrangements in the interbank electronic payment system (%/year)

T_i : Time beginning on the pricing date and ending on the maturity date of principal and interest payment in the installment i (the number of days).

k: The number of within-year interest payment installments.