DECISION

ON THE ISSUANCE OF THE REGULATION ON THE IMPLEMENTATION OF INTEREST SWAP TRANSACTION

THE GOVERNOR OF THE STATE BANK

- Pursuant to the Law on the State Bank of Vietnam dated 12 December, 1997 and the Law on the amendment, supplement of several Articles of the Law on the State Bank of Vietnam dated 17 June, 2003;
- Pursuant to the Law on Credit Institutions dated 12 December, 1997;
- Pursuant to the Decree No. 86/2002/ND-CP dated 5 November, 2002 of the Government providing for the function, assignment, authority and organizational structure of Ministries and ministerial level agencies;
- Pursuant to Paragraph 3, Article 2 of the Decree No. 90/1998/ND-CP dated 7 November, 1998 of the Government on the issuance of the regulation on the management of the foreign borrowings and repayments;
- Upon the proposal of the Director of the Monetary and Policy Department,

DECIDES:

Article 1. To issue in conjunction with this Decision the Regulation on the implementation of interest swap transaction.

Article 2. This Decision shall be effective as from 1 November, 2003.

Article 3. In respect of contracts of interest swap entered prior to the effectiveness of this Decision according to a written approval of the State Bank of Vietnam, parties concerned shall continue to comply with signed clauses until the liquidation of respective contracts or they shall agree on the amendment, supplement of their interest swap in accordance with provisions of the Regulation issued in conjunction with this Decision.

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FOR THE GOVERNOR OF THE STATE BANK
DEPUTY GOVERNOR




Phung Khac Ke

REGULATION

ON THE IMPLEMENTATION OF INTEREST SWAP TRANSACTION
(Issued in conjunction with the Decision No. 1133/2003/QD-NHNN dated 30 September, 2003 of the Governor of the State Bank)

Article 1. Scope and subjects of application

1. This Regulation shall stipulate the implementation of interest swap transaction between commercial banks, foreign banks' branches operating in Vietnam, joint-venture banks (hereinafter referred to as banks) with enterprises that are established and operating in accordance with Vietnam's laws (hereinafter referred to as enterprises), between banks, between banks and credit institutions in foreign countries. Transactions of interest swap shall be performed in accordance with provisions stated in this Regulation, in line with international customs but not in contrary to Vietnam's laws.

2. Enterprises that borrow funds from foreign countries under provisions in the Decree No. 90/1998/ND-CP dated 7 November, 1998 of the Government on the issuance of the Regulation on the management of the foreign borrowings and repayments shall carry out interest swap transactions with foreign lenders, other foreign organizations in accordance with international customs and foreign laws but not in contrary to applicable provisions of Vietnam's laws.

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Banks and enterprises carry out the interest swap transactions with the aim of preventing and limiting risks, which are caused by developments in the market interest rates.

Article 3. Interpretation

Following terms in this Regulation shall be construed as follows:

1. Credit institutions in foreign countries shall include commercial banks, finance companies, finance leasing companies, investment banks, development banks and other financial, credit institutions that are established and operating under foreign laws, or established by international organizations and recognized by Vietnam's laws.

2. Interest swap transaction shall be the entering into contract by parties, under which each party undertakes to make payment to the other an interest amount calculated on floating or fixed rate of the same principal for the same period of time.

3. Principal of an interest swap transaction shall be an amount used as the basis for the calculation of floating interest amount, fixed interest amount and net interest amount of interest swap as agreed upon by parties to the interest swap transaction.

4. Floating interest rate shall be the interest rate that changes during the term of the interest swap contract in line with the market interest rates and agreed upon by parties.

5. Fixed interest rates shall be the interest rate that does not change during the term of the interest swap contract upon the agreement made by parties.

6. Floating interest amount shall be the interest amount calculated on the basis of the principal and floating interest rate, which a party to the contract undertakes to make payment to the other.

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8. The periodical net interest amount of a contract of interest swap shall be the difference between receivable interest and payable one of each payment period of that contract.

9. Repayment period of net interest amount shall be a period within the effective term of interest swap contract agreed upon by parties and at the end of which the payment of net interest amount shall be made by them to each other.

Article 4. Cases of implementation of interest swap transactions

1. The swap of VND or foreign currency interest between banks and enterprises that borrow funds from those banks.

2. The swap of VND or foreign currency interest between banks and enterprises that borrow funds from other credit institutions, from foreign countries.

3. The swap of VND or foreign currency interest between banks.

4. The swap of foreign currency interest by banks with credit institutions in foreign countries.

Article 5. Conditions for carrying out interest swap transaction

1. In respect of banks, following conditions must be satisfied:

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b. Availability of a technical process of interest swap, which includes also measures of risk prevention.

c. Their total net interests from interest swap transactions must be positive, in case of being negative, they should not be more than 5% of the own capital of that bank.

d. In case of foreign currency interest swap, the acceptance from the State Bank of Vietnam for foreign exchange activity must be available.

2. In respect of enterprises, following conditions must be satisfied:

a. Being engaged in transactions of funds borrowing, finance release or goods purchase in form of late payment.

b. Having full financial capability or undertaking secure measures agreed upon by two parties to perform the payment of payable net interest amount to banks.

Article 6. The limit of term and principal amount swapped interest rates for an enterprise

1. Term of an interest swap contract shall be consistent with the term of a principal loan and 5 years at the maximum from the effectiveness of the contract. After this term, parties shall base on market forces and conditions to extend the contract, or amend agreements by contract appendix, or liquidate the contract in order to make a new swap contract.

2. The principal amount of interest swap contracts for an enterprise shall not be in exceed of 30% of a bank's own capital.

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Parties shall agree on the fixed and floating rate for interest swap transactions.

Article 8. Determination of periodical net interests and total net interests

1. Periodical net interests of an interest swap contract shall be the difference between the interest receivable and payable within each period of the contract and determined under following formula:

Periodical net interest amount

=

Periodical interest amount receivable

-

Periodical interest amount payable

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=

Outstanding principal debt

x

Fixed or floating interest rate

x

The number of interest calculation days in the period

2. Total net interests from interest swap transactions of a bank at a certain time shall be the total of net interest amounts of all interest swap contracts effective at that time.

The net interest amount of an interest swap contract at a certain time shall be the total of periodical net interest amount of effective periods of that contract calculated under the agreed fixed interest rate and floating interest rate at that time.

Article 9. The payment of periodical net interest amount

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2. Repayment period of net interests shall be agreed upon by parties and be 1 year at the maximum.

3. When the payment of net interests is made in foreign currency, parties shall perform in accordance with provisions of applicable laws on foreign exchange control.

4. When the payment of net interests is made to foreign countries, parties shall comply with provisions of applicable laws on funds repatriation.

Article 10. Interest swap contract

Interest swap transactions shall be made in interest swap contract. Interest swap contract shall be agreed upon by parties in compliance with provisions of this Regulation, other related laws and international customs (Sample contract of International Association of Swap and Derivatives) and contain following main contents:

1. Name, address, Tel No., fax No., and representatives of parties to the contract.

2. Principal amount, interest rate,

3. Effective time of the contract

4. Fixed interest rate and floating interest rate

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6. Calculation of periodical net interest and mode of payment

7. Margin deposit, down-payment of enterprise (if any) to secure the payment of net interest

8. Cases of early termination of contract

9. Procedures of contract liquidation

Article 11. Accounting and risk provisions

1. Banks shall perform the accounting for interest swap transactions and make provisions for risks in accordance with applicable provisions of the State Bank of Vietnam.

2. Enterprises shall perform the accounting for interest swap transactions and make provisions for risks in accordance with related applicable provisions for financial accounting of enterprises.

Article 12. Registration and reporting of the performance of interest swap transactions

1. Banks, which satisfy fully conditions as provided for in paragraph 1 Article 5 of this Regulation, shall, in their first interest swap transaction, be obliged to submit the written registration for the performance of interest swap transactions to the State Bank of Vietnam (the Monetary - Policy Department).

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Article 13. Organization of implementation

1. Banks shall, based on provisions of related applicable laws and international customs, issue the process of interest swap transactions in line with their conditions, characteristics and financial capability.

2. Any amendment, supplement of this Regulation shall be made by the Governor of the State Bank.

APPENDIX

 OF THE REGULATION ON THE IMPLEMENTATION OF INTEREST SWAP TRANSACTION ISSUED IN CONJUNCTION WITH THE DECISION NO. 1133/2003/QD-NHNN DATED 30 SEPTEMBER, 2003 OF THE GOVERNOR OF THE STATE BANK

Name of reporting commercial bank: ........................

Receiver: The Monetary - Policy Department of the State Bank

49 Ly Thai To - Hanoi; Tel No.: 04-824 6955; Fax No.: 04-824 0132

Receiving date: prior to the 10th of following month

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REPORT OF EFFECTIVE INTEREST SWAP TRANSACTIONS

Month.............. Year 200............

Interest swap contract

Name of customers

Principal of the contract

Swapped interest

Term of the contract

Signing date of the contract

Effective date of the contract

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Accumulated net interests payable (-) receivable (+)

interest receivable

interest payable

I. Interest swap contract with enterprises

- Contract 1

- Contract 2

- Contract ...

Sum I

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II. Interest swap contract with other commercial banks

- Contract 1

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- Contract ...

Sum II

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Total

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..............., Date.............

GENERAL MANAGER (MANAGER)
(Sign, seal)