Circular 61/2024/TT-NHNN on bank guarantees, recently issued by the State Bank of Vietnam, introduces many important new regulations. This article will provide a detailed analysis of the new points and specific implementation guidelines for the parties involved.

Overview of Circular 61/2024

Circular 61/2024 establishes a new legal framework for bank guarantee activities, with detailed regulations on guarantee fees, validity periods, and related procedures. This document represents a significant improvement in managing bank guarantee operations.

Notable New Points Regarding Guarantee Fees

Regulations on Public Disclosure (Article 19 of Circular 61/2024)

The most notable new point in the Circular is the requirement for credit institutions (CIs) and foreign bank branches to publicly disclose guarantee fees. This regulation enhances transparency in banking activities, specifically to ensure:

  • Transparency of information: Customers can easily know the fees to choose services proactively.
  • Protection of customer rights: Avoid situations where customers are imposed or charged unclear fees.
  • Fair competition: Helps the financial market become more equitable, limiting monopolies or price manipulation.
  • Increased trust: Builds customer confidence in credit institutions through transparency and public disclosure.

Agreement on Guarantee Fees (Articles 19 and 20 of Circular 61/2024)

  • Credit institutions and foreign bank branches agree on the guarantee fee with customers and related parties.
  • In the case of a guaranteed contract, the participating parties agree on the fee for each party.
  • For guarantees related to a joint liability obligation, credit institutions agree with each customer on the payable fee unless otherwise agreed.
  • Parties may agree to adjust the guarantee fee.

Regulations on Fee Currency (Article 20 of Circular 61/2024)

If the guarantee currency is a foreign currency, the parties may agree to pay the guarantee fee in the same foreign currency or convert it to Vietnamese dong at the selling rate of the guarantor at the time of fee collection or at the time of fee notification.

Regulations on Validity Period (Article 20 of Circular 61/2024)

The Circular provides detailed regulations on the validity period of guarantee commitments:

  • Validity of guarantee commitments: from the issuance date or as agreed by the parties until the guaranteed obligation is terminated according to Article 23 of the Circular.
  • The validity period of guarantee letters in guarantees for future-formed housing: is extended for at least 30 days after the handover deadline (Clause 5, Article 13 of Circular 61/2024).
  • The validity period of guarantee agreements: as agreed by the parties but must be at least equal to the validity period of the guarantee commitment.
  • The validity period of guarantee agreements in guarantees for future-formed housing: from the signing date until the guaranteed obligation is terminated as regulated in Article 23 of the Circular (Clause 3, Article 13 of Circular 61/2024).
  • If the expiry date falls on a weekend, holiday, or Tet holiday, it is extended to the next working day.
  • Extensions of validity periods are agreed upon by the parties following legal regulations.

Article 23 of Circular 61/2024 specifies that guarantee obligations terminate in the following cases:

  • The obligation of the guaranteed party is terminated.
  • The guarantee obligation has been fulfilled.
  • The guarantee is canceled or replaced by another security measure.
  • The guarantee commitment becomes invalid.
  • The guarantee recipient waives the obligation of the guarantor.
  • As agreed upon by the parties.
  • Other cases as prescribed by law.

Implementation Guidelines

4.1. Guarantee Execution Process

Agreement and Signing of Guarantee Contracts (Articles 15 and 17 of Circular 61/2024)
This is the first and essential step to clearly define the rights and obligations between the credit institution, foreign bank branch, and the customer. The contract must include basic contents such as party information, guarantee amount, execution conditions, fees, interest rates, and dispute resolution methods.
The allowance for the use of electronic signatures or legal authorization modernizes the process, increasing flexibility and efficiency.

Public Disclosure of Fees (Article 19 of Circular 61/2024)
Ensures transparency, enabling customers to understand the costs before using the service, thereby avoiding unreasonable fee impositions. Agreement and public disclosure of fees before guarantee execution ensure that the parties clearly understand and agree on financial obligations.
Enhances fair competition in the market, creating opportunities for customers to compare and choose suitable services.

Monitoring and Managing Validity Periods (Article 20 of Circular 61/2024)
Managing the validity periods of guarantees ensures that obligations are fully and timely fulfilled.
The validity period covers the entire process from the issuance of the guarantee to the termination of the guarantee obligation.
The process must be flexible, including handling expiry dates that fall on non-working days or extending time when necessary, ensuring the rights of the parties are not disrupted.

4.2. Important Notes

When implementing guarantees, the parties need to pay attention to:

  • Ensure transparency in fee disclosure
  • Article 19 of the Circular stipulates that credit institutions and foreign bank branches must agree on guarantee fees with customers and publicly disclose these fees. Public disclosure helps customers clearly understand the fees to be paid, preventing potential disputes later on.
  • Transparency in guarantee fees is a key factor in ensuring customer rights and establishing a healthy business environment.

  • Comply with validity period regulations
  • Article 20 of the Circular clearly defines the validity period of guarantee commitments and guarantee agreements to ensure that the parties fulfill their obligations on time, avoiding legal risks due to non-compliance with deadlines.
  • Monitoring and managing the validity period is the responsibility of both the guarantor and the guarantee recipient. Regular review and updating of information are necessary to avoid errors and confusion.

  • Properly store related records and documents
  • Although Circular 61/2024/TT-NHNN does not specify the storage of records, Article 92 clearly states that the guarantor must “keep guarantee records following legal regulations.”
  • Proper storage of records is crucial as it serves as important legal evidence in case of disputes or complaints. Records should be stored in an organized, complete, accurate, and secure manner, in compliance with legal requirements.

Impact on the Market

Increase Transparency in Bank Guarantee Operations

  • Clear Regulations on Information and Processes: The Circular mandates credit institutions to publicly disclose guarantee fees, contract terms, and associated conditions, making it easier for customers and beneficiaries to understand and track transactions.
  • Reduces Transaction Discrepancies: By requiring the public disclosure of information, the risk of fraud, fee manipulation, and unclear guarantee conditions is minimized.
  • Builds Trust in the Banking System: Enhanced transparency in guarantee transactions fosters greater customer trust in financial institutions.

Better Protect Customer Rights

  • Publicly Disclosed Fees and Clear Conditions: Customers can easily compare and choose guarantee services that meet their needs and budget, preventing the imposition of unexpected or unclear fees.
  • Legal Responsibility Binding: Credit institutions must adhere to proper procedures, ensuring that customers’ rights are protected throughout the guarantee’s validity period.
  • Reduces Dispute Risks: When all terms are clearly agreed upon and executed in accordance with the law, customers are less likely to face conflicts or unnecessary risks during service use.

Create a Healthier Business Environment

  • Encourages Fair Competition: Publicly disclosing fees and guarantee conditions compels financial institutions to compete based on service quality rather than short-term advantages such as price manipulation or concealing information.
  • Improves Operational Standards: The Circular establishes a clear legal framework, pushing credit institutions to enhance management capacity and improve compliance. This promotes professionalism and efficiency in financial operations.
  • Contributes to Financial Market Stability: Transparent operations and adherence to regulations by credit institutions help prevent market instability caused by fraud or loss of trust.

Conclusion

Circular 61/2024 has brought important improvements in regulations concerning bank guarantees. Adhering to the new regulations will make bank guarantee operations more transparent and efficient.

Harley Miller Law Firm “HMLF”

Address: 14th floor, HM Town Building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone: +84 937215585

Website: hmlf.vn

Email: [email protected]

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