At present, bank guarantees have become a bridge between trust and responsibility. For non-resident individuals and organizations, despite geographical distance, obligations must still be secured in a clear and reliable manner. Accordingly, a guarantee is not only a financial instrument but also a declaration of the competence, credibility, and vision of credit institutions in an increasingly open market.
1. Definition of Bank Guarantee
Clause 1, Article 3 defines bank guarantee activities as a form of credit extension to customers, ensuring the fulfillment of financial obligations on behalf of the customer when the customer fails to perform, or inadequately performs, its committed obligations to the other contracting party.
However, once a guarantee is issued, the customer is deemed to incur a compulsory debt obligation and must repay the credit institution in accordance with the agreement under the guarantee contract.
2. Applicable Entities
– Pursuant to Article 2 of Circular No. 61/2024/TT-NHNN, the following entities are subject to regulation:
- Credit institutions, including commercial banks, cooperative banks, and finance companies.
- Branches of foreign banks.
- Individuals and organizations related to guarantee transactions, including both resident and non-resident individuals and organizations.
– This represents an expansion compared to Circular No. 11/2022/TT-NHNN, which only permitted guarantees for institutional customers, as it now allows guarantees for both resident and non-resident individuals and organizations.
3. Eligibility Criteria for Guarantees
Clause 1, Article 12 permits guarantees for non-resident customers subject to strict conditions, including:
- Only licensed credit institutions and branches of foreign banks may issue guarantees.
- The customer must be a foreign economic organization established and operating abroad with capital contribution from Vietnamese enterprises under the Law on Investment, through activities such as:
- Establishment of an economic organization;
- Capital contribution, share purchase, or acquisition of equity in foreign economic organizations;
- Other forms of investment.
- The customer must meet the following requirements under Clauses 1 and 2, Article 11:
- Possess full legal capacity and civil act capacity.
- Have a legitimate financial obligation subject to guarantee.
- Be assessed as having the ability to repay the amount advanced by the guarantor.
- Provide cash collateral equivalent to 100% of the guarantee value or assets equivalent to 100% of the guarantee value (such as account balances or certificates of deposit at the guarantor).
- The guarantee beneficiary must be a resident.
4. Guarantees in Foreign Currency
Pursuant to Clauses 2 and 3, branches of foreign banks are not permitted to issue guarantees in foreign currency to non-resident organizational customers.
EXCEPT: where the guarantee beneficiary is a lawful resident of Vietnam. Determination of residency status shall comply with Clause 2, Article 4 of the Consolidated Ordinance on Foreign Exchange.
In addition, credit institutions and foreign bank branches must ensure the following requirements when issuing foreign currency guarantees to non-resident customers:
- Compliance with State Bank of Vietnam regulations on foreign exchange management for offshore lending and recovery of guarantee obligations.
- Consistency with the scope of foreign exchange operations in both domestic and international markets.
- Implementation of processes for credit risk assessment and management in relation to guarantees for non-resident customers.
- Guarantees shall only apply to financial obligations denominated in foreign currency.
5. Guarantee Documentation and Procedures
5.1 Application Dossier
Under Clause 1, Article 14, the dossier shall include the following key documents:
- Guarantee application (specifying the obligation, duration, amount, type of guarantee, etc.);
- Contract or commitment establishing the guaranteed obligation with the beneficiary;
- Legal documents of the customer (name, identity card or passport, etc.);
- Documents concerning the resident guarantee beneficiary (including information on legal status, registered head office address, business registration certificate, legal representative, and relationship with the customer);
- Documents evidencing collateral or cash deposit (such as ownership or usage rights to assets);
- Other supplementary documents as required (account balance confirmation, income verification, financial statements, etc.).
5.2 Guarantee Procedure
– Step 1: The non-resident customer prepares the application dossier in accordance with law and submits it to the credit institution or foreign bank branch (Article 14).
– Step 2: The guarantor conducts due diligence on the customer (assessing reputation, financial capacity, repayment ability, credit risks, etc.).
– Step 3: The guarantor issues a notice of approval or refusal of the guarantee.
– Step 4: The parties sign the guarantee contract, and the bank issues a letter of guarantee, committing to fulfill obligations on behalf of the customer in favor of the beneficiary (Article 16).
– Step 5: If the beneficiary requests performance of the obligation, it must submit a dossier (including request for obligation fulfillment and supporting documents) to the guarantor.
– Step 6: The guarantor reviews and verifies compliance with the terms of the guarantee.
+ Time limit: 05 business days from the date of receipt of the dossier.
+ If the request dossier is invalid, the guarantor shall issue a written refusal stating the reasons within 05 subsequent business days.
+ The guarantor shall fulfill its obligation and record the amount advanced as a debt, notifying the customer accordingly. The customer must fully reimburse the amount advanced together with interest as provided by law.
– Step 7: The guarantor shall issue internal regulations on guarantee operations for non-resident customers and submit them to the State Bank of Vietnam or its provincial branch for review (Article 26).
Bank guarantees for non-resident customers not only broaden the service scope of credit institutions and foreign bank branches but also impose higher requirements for risk management capacity, transparency, and legal compliance. In the financial market, proper implementation of guarantee regulations not only safeguards the rights and interests of the parties involved but also reinforces institutional standing in the process of international integration.
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