DECREE

PROMULGATING THE PROVISIONAL REGULATIONS ON ORGANIZATION AND OPERATION OF FINANCIAL LEASING COMPANIES IN VIETNAM

THE GOVERNMENT

Pursuant to the Law on Organization of the Government of September 30, 1992;
Pursuant to the Ordinance on the State Bank, the Ordinance on Banks, Credit Cooperatives and Financial Companies of May 24, 1990;
At the proposal of the Governor of the State Bank,

DECREES:

Article 1.- To promulgate, attached to this Decree, the Provisional Regulations on Organization and Operation of Financial Leasing Companies in Vietnam.

Article 2.- These Regulations apply only to financial leasing activities and take effect from the date of their signing.

Article 3.- The Governor of the State Bank has the responsibility to provide detailed guidance for the implementation of the Regulations and shall after a period of time draw experiences, amend and complete them for official promulagion.

Article 4.- The Ministers, the Heads of the ministerial-level agencies, the Heads of the agencies attached to the Government, the Presidents of the People's Committees of the provinces and cities directly under the Central Government shall have to implement this Decree.

PROVISIONAL REGULATIONS

ON ORGANIZATION AND OPERATION OF FINANCIAL LEASING COMPANIES IN VIETNAM

(issued attached to Decree No.64-CP of October 9, 1995 of the Government)

Chapter I

GENERAL PROVISIONS

Article 1.- Financial leasing is a kind of short-term or medium-term credit activity in the form of leasing machinery, equipment and other movables. The lessor shall undertake to buy machinery, equipment and other movables at the request of the lessee, and hold the ownership of the leased assets. The lessee shall use the leased assets and pay rent during the whole leasing term as agreed upon by the two parties, shall not unilaterally cancel the leasing contract before the end of the leasing term. Upon expiry of the leasing term, the lessee is entitled to the ownership of the leased assets transferred to it, to re-purchase or continue to lease such assets in accordance with the conditions agreed upon in the leasing contract.

Article 2.- In these Regulations, the following terms shall be understood as follows:

1/ Lessor: is a Financial Leasing Company having the legal person status and the license for operation in accordance with these Regulations;

2/ Lessee: is a business established under Vietnamese law, and directly uses the leased assets for its legal business purposes during the leasing term;

3/ Leased assets: are machinery, equipment and other movables of advanced technology having a utility period of more than one year, and domestically produced or imported;

4/ Leasing term: is the period during which the lessee uses the leased assets and pays rent as agreed upon by the lessor and the lessee in the leasing contract.

Article 3.- A financial leasing transaction must satisfy one of the following conditions:

1/ Upon the expiry of the leasing term as stated in the leasing contract, the lessee is entitled to transfer the ownership of leased assets or to continue to lease such assets as agreed upon by the two parties;

2/ The leasing contract shall contain the following provision: upon the expiry of the leasing term, the lessee is entitled to opt for the purchase of the leased assets at a nominal price lower than the real value of the leased assets at the time of re-purchase;

3/ The leasing term applicable to one type of assets shall at least equal 60% of the time required for its depreciation;

4/ Total rent for each type of assets stated in the leasing contract shall be at least equivalent to the market value of the assets at the time the leasing contract is signed.

Article 4.- The Vietnam State Bank, hereinafter referred to as the State Bank, is the agency exercising State management of the financial leasing activities, shall have to issue and withdraw operating licenses, promulgate the legal documents on professional practice, management, supervision and inspection of the operations of Financial Leasing Companies in Vietnam.

Chapter II

FINANCIAL LEASING COMPANY

Part I: FINANCIAL LEASING COMPANY

Article 5.- A Financial Leasing Company is a type of financial company, whose principal operation is leasing of machinery, equipment and other movables.

A Financial Leasing Company may be established and operate in Vietnam under the following forms:

1/ Financial Leasing Company: established by Vietnamese banks, financial companies, or jointly by Vietnamese banks, financial companies and other Vietnamese enterprises;

2/ Joint venture Financial Leasing Company: established between a Vietnamese partner consisting of one or more banks, financial companies/or, other enterprises, and a foreign partner consisting of one or more banks, financial companies, financial leasing companies and international financial institutions;

3/ Financial Leasing Company with 100% foreign-owned capital established by foreign banks, financial companies, foreign financial leasing companies.

Article 6.- Following are the required levels of the prescribed capital of Financial Leasing Companies:

1/ 55 billion VND for a Financial Leasing Company mentioned in Point 1, Article 5 of these Regulations;

2/ 5 million USD for a joint venture Financial Leasing Company mentioned in Point 2, Article 5 and a Financial Leasing Company with 100% foreign-owned capital mentioned in Point 3, Article 5 of these Regulations.

Article 7.- The duration of operation of a Financial Leasing Company shall be no more than 70 years. In case an extension is needed, it must be approved by the State Bank. Each extension shall not exceed the period defined in the initial operating license.

Part II: CONDITIONS AND PROCEDURES FOR THE ISSUE OF OPERATING LICENSE

Article 8.- The banks, financial companies and other enterprises wishing to conduct financial leasing activities must have enough credibility and three consecutive years in profitable business, and establish an independent Financial Leasing Company as prescribed by law.

Article 9.- Procedures and applications for operating licenses of Financial Leasing Companies mentioned in Point 1, Article 5 of these Regulations are similar to those applied to Credit Institutions in Vietnam.

Article 10.-

1/ Partners to a joint venture Financial Leasing Company mentioned in Point 2, Article 5 of these Regulations, and a Financial Leasing Company with 100% foreign-owned capital mentioned in Point 3, Article 5 of these Regulations must submit an application and supporting documents to the State Bank for approval in principle ( the "Approval in Principle") as directed by the State Bank;

2/ The Approval in Principle is valid for 12 months from the dat_e of its issue. During this period, the partners must complete the application file as directed by the State Bank;

Article 11.- Within 3 months from the receipt of a complete application file, the State Bank shall consider whether or not to grant an Operating License to the Financial Leasing Company (hereafter referred to as an "Operating License")

Article 12.- After receiving the Operating License, the Financial Leasing Company shall have to:

1/ Pay the operating license fee equal to 0.1% of its statutory capital to the State Bank within 15 days from the date written on the Operating License;

2/ Register its business in accordance with the regulations in force;

3/ Generate 100% of the statutory capital;

4/ Publicize its operating license, business registration and details of its operations in five consecutive issues of a Vietnamese newspaper before the inauguration of its operation as directed by the State Bank;

5/ Fulfill all the above stipulations before commencing its operation, and the inauguration shall not be later than 6 months from the date written on the Operating License.

Article 13.- The Operating License of the Financial Leasing Company shall not be transferable.

Part III: CONTENT AND SCOPE OF OPERATION

Article 14.- Sources of capital:

1/ Self-procured capital: statutory capital, funds and undivided profits;

2/ Loan capital: loans from domestic and foreign financial or credit institutions; bonds and other valuable papers issued with the State Bank's permission;

3/ A Financial Leasing Company shall not receive deposits in any form;

4/ A Financial Leasing Company is entitled to open deposit accounts in the State Bank or other banks operating on the territory of Vietnam. In case it wishes to open deposit accounts in banks located outside the territory of Vietnam, permission from the State Bank shall be required.

Article 15.- With respect to the utilization of capital sources, the Financial Leasing Company shall comply with the following regulations:

1/ The company shall not use more than 25% of its statutory capital to purchase fixed assets for itself;

2/ The loan capital shall not exceed its self-procured capital by 20 times;

3/ The total value of assets leased to one client shall not exceed 30% of its self-procured capital. In case this limit is exceeded, a written approval from the State Bank shall be required;

4/ Other provisions of existing laws and the State Bank's regulations.

Article 16.- A Financial Leasing Company is entitled to carry out the following activities:

1/ Financial leasing;

2/ Providing consultancy and guarantee for clients on services relating to financial leasing;

3/ Carrying out other activities when permitted by the State Bank and other competent State agencies.

Article 17.- A Financial Leasing Company is entitled to collect leasing fees as directed by the State Bank.

Chapter III

FINANCIAL LEASING CONTRACT

Article 18.- A financial leasing contract (hereafter referred to as contract) is a type of economic contract signed between the lessor and the lessee on leasing one or more machinery, equipment or other movables for a specific period (leasing term) in accordance with the conditions provided for in Article 3 of these Regulations.

Article 19.- The contract must meet the following requirements:

1/ Made in writing;

2/ Registered at the State Bank and the contract-managing agency where the head office of the Financial Leasing Company is located in accordance with the provisions of law;

3/ It cannot be canceled prior to the expiry of the leasing term (cancelment before term) as provided for in the contract.

Article 20.- The contract must include the basic contents set forth in Chapter IV of these Regulations and the contents in the model contract issued by the State Bank.

Article 21.- The contract shall take effect from the date agreed upon by parties to the contract.

Chapter IV

RIGHTS AND OBLIGATIONS OF THE PARTIES

Article 22.- Rights and obligations of a Financial Leasing Company:

1/ To be entitled to require the lessee to fully and completely provide quarterly and annual reports on production and business operations and matters related to the leased assets;

2/ To be entitled to the ownership and to attach the ownership sign to the leased assets during the whole leasing term;

3/ To be entitled to require the lessee to pay compensation for all losses caused by the lessee's failure or improper discharge of its responsibility to maintain, repair, and pay insurance for the leased assets during the leasing term;

4/ To be entitled to transfer its rights under the agreement to another financial leasing company without the need to obtain the lessee's consent. In such case, the Financial Leasing

Company must give an advance written notice to the lessee;

5/ To be entitled to require the lessee to make a deposit as security for the contract, or require a guarantor to secure the obligations of the lessee;

6/ To be obligated to register the contract and abide by the procedures to buy insurance for the leased assets;

7/ To be obligated to sign the purchase contract, pay for the leased assets to the supplier in accordance with the terms and conditions of the purchase contract. The Financial Leasing Company shall not be responsible for assets which are not delivered or delivered not in accordance with the terms and conditions agreed upon by the lessee and the supplier. In case the leased assets are imported, the Financial Leasing Company shall have to complete all necessary import procedures;

8/ To fulfill its responsibilities and to pay compensation for all losses incurred by the lessee in case the leased assets are not delivered on time to the lessee due to the violation of the purchase contract by the Financial Leasing Company.

Article 23.- Rights and obligations of the lessee:

1/ To be entitled to select, negotiate and agree with the supplier the technical specifications, type, price, insurance coverage, mode and time of delivery, installation and guarantee of the leased assets;

2/ To be entitled to receive the leased assets directly from the supplier;

3/ In case the contract is canceled before the delivery of the leased assets to the lessee due to the lessee's fault, the lessee shall have to pay compensation for all losses incurred by the Financial Leasing Company;

4/ To be obligated to use the leased assets in comformity with the purposes agreed upon in the contract;

5/ To bear all risks relating to the loss, damage of the leased assets and risks caused to a third party by the leased assets;

6/ To have the responsibility to maintain and repair the leased assets during the leasing term;

7/ Not to transfer the right to use the leased assets to a third party without prior written consent of the Financial Leasing Company;

8/ Not to use the leased assets as collateral or mortgage;

9/ The lessee shall have to duly pay the leasing rental as provided for in the contract and shall, in principle, bear the costs and expenses related to the leased assets such as: import expenditures, tax, expenditures to register the contract and buy insurance for the leased assets;

10/ To have the responsibility to return the leased assets to the Financial Leasing Company upon expiry of the leasing term, and to bear all costs and expenses in connection with the return of the leased assets, except when the lessee is entitled to own or to buy the leased assets, or continue to lease as provided for in the contract.

Article 24.- Termination of the contract prior to the expiry

1/ A Financial Leasing Company may terminate the contract prior to its expiry in the following cases:

- The lessee fails to pay the rent as agreed upon in the contract;

- The lessee breaches any provision of the contract;

- The lessee is insolvent, goes bankrupt, or is dissolved;

- In case a guarantor is required for the lessee but the latter cannot find an alternative guarantor acceptable to the Financial Leasing Company when the guarantor is insolvent, goes bankrupt, or is dissolved;

2/ The lessee may terminate the contract prior to expiry in the following cases:

- The leased asset is not delivered on time as result of the Financial Leasing Company's fault;

- The lessor violates any provision of the contract;

3/ The contract shall be terminated prior to expiry in the event the leased assets were lost or irreparably damaged.

Article 25.- Handling of cases in which the contract is terminated prior to its expiry:

1/ In case the contract is terminated prior to expiry as stipulated in Point 1, Article 24, the lessee is obligated to pay immediately to the Financial Leasing Company the total rent due under the contract.

The Financial Leasing Company is then entitled to recover immediately the leased assets without having to bring the case to any Court or any agency of jurisdiction;

2/ The Financial Leasing Company's ownership over the leased assets shall not be affected, if the lessee is insolvent, goes bankrupt or is dissolved. The leased assets shall not be considered the lessee's assets when these assets are liquidated to pay other creditors;

3/ In case the contract is terminated under Point 3, Article 24, the lessee is obligated to pay immediately the total rent payable under the contract, or if the contract does not allow the lessee to own the leased assets, the lessee shall pay the residual value of the leased assets to the Financial Leasing Company. If the lessee has fully paid the rent due to the Financial Leasing Company, the lessor has the responsibility to refund to the lessee the insurance of the leased assets which has been paid by the insurance company;

4/ In case the contract is terminated prior to expiry due to the Financial Leasing Company's violation of the agreement, the Financial Leasing Company shall have to pay the compensation for all damages incurred by the lessee.

Chapter V

FINANCIAL MATTERS, COST ACCOUNTING

Article 26.- Leased assets which are imported machinery, equipment and other movables shall be subject to import tax applied to businesses eligible for direct importation.

In the event the contract is terminated, re-exportation of the leased assets shall not be subject to export tax.

Article 27.- The activities of a Financial Leasing Company are subject to tax applied to banks and credit organizations in accordance with the regulations in force.

Article 28.- A Financial Leasing Company is entitled to deduct fees to establish reserve funds for risk compensation. Reserve funds for risk compensation shall be stipulated by the State Bank from time to time under concrete situations, but shall not exceed 5% of the unpaid rent.

Article 29.- The transfer abroad of profits of a foreign party shall be carried out in accordance with the Law on Foreign Investment in Vietnam.

Article 30.- The fiscal year of a Financial Leasing Company commences on the 1st of January and ends on the 31st of December of each year.

Article 31.- Cost accounting:

1/ A Financial Leasing Company shall have to observe the accountancy in accordance with the system of cost accounting issued by the State Bank.

2/ A Financial Leasing Company has to make accurate and adequate accounts and keep its books of accounts related to its operations in accordance with the Ordinance on Accounting and Statistics.

Article 32.- Reporting regime:

1/ A Financial Leasing Company shall implement the periodical reporting regime in accordance with the State Bank's regulations. Any violations of the system of periodical reporting shall be penalized in accordance with the regulations in force;

2/ The assets inventory, the annual financial reports of the Financial Leasing Company shall be certified by an audit company. The selection of an audit company shall be approved by the State Bank.

Chapter VI

SUPERVISION, INSPECTION, HANDLING OF VIOLATIONS AND DISPUTES

Article 33.- A Financial Leasing Company is subject to the supervision and inspection of the State Bank with regard to all its business activities and its compliance with the current prescriptions of law.

Article 34.- All violations by a Financial Leasing Company shall be handled in accordance with the Ordinance on Banks, Credit Cooperatives and Financial Companies, and other relevant regulations.

Article 35.- Disputes between a Financial Leasing Company and Vietnamese legal entities shall be resolved at the Economic Courts of Vietnam.

Disputes among partners of a joint venture Financial Leasing Company shall be resolved through negotiation and conciliation. In case these disputes can not be resolved through conciliation, the agreements laid down in the joint venture contract shall be used as basis to settle such disputes.

Chapter VII

AMENDMENT, EXTENSION, TERMINATION OF OPERATION AND LIQUIDATION

Article 36.-

1/ In case there is a need to change its location, scope of activities and provisions in the operating license, a Financial Leasing Company must submit an application to the State Bank for approval.

2/ In case an extension of its term of operations is needed, the Financial Leasing Company must submit an application to the State Bank 6 months prior to the expiry date provided for in the operating license or the previous extension approval.

Article 37.- The State Bank shall specify circumstances in which the operating license of a Financial Leasing Company may be withdrawn in accordance with the Ordinance on Banks, Credit Cooperatives and Financial Companies.

Article 38.-

1/ In case of suspension of operations, license withdrawal, or voluntary dissolution, termination of operation due to license expiration, the Financial Leasing Company shall fill the procedures for liquidation and dissolution in accordance with the provisions of Vietnamese law.

2/ In case of voluntary dissolution prior to the license's term, the Financial Leasing Company shall submit a written request to the State Bank for approval, and a dissolution thereof shall be permitted only upon a written approval from the State Bank.

3/ The State Bank shall provide detailed guidance on the order and procedures for dissolution of the Financial Leasing Company under current Vietnamese law.

Article 39.- A Financial Leasing Company faces difficulties or losses in its operations resulting in insolvency shall be declared bankrupt; the order and procedures to settle bankruptcy shall be implemented in accordance with the provisions of the Law on Bankruptcy.

Chapter VIII

FINAL PROVISIONS

Article 40.- Organizations conducting financial leasing activities shall have to, within 12 months from the effective date of these Regulations, readjust their organizations and operations in compliance with these Regulations.

Article 41.- Any amendment of, or supplement to, these Regulations shall be decided by the Government.