On October 25, 2024, the State Bank of Vietnam issued Circular No. 49/2024/TT-NHNN on amendments and supplements to a number of provisions of Circular No. 11/2022/TT-NHNN regarding bank guarantees (takes effect from December 10, 2024) (“Circular 49”). This new circular resolves limitations in the previous regulations by addressing gaps and providing clearer guidelines for bank guarantees related to off-plan housing projects. The following are key changes of this regulation:
- Open Approach for Foreign Bank Branches
The entities authorized to issue guarantees now include commercial banks and foreign bank branches. Allowing foreign bank branches to participate in the guarantee for off-plan housing projects complies with the scope of businesses permitted to foreign bank branches set out under the law on credit institutions. Also, the update has numerous positive effects on developers and buyers or lessee-buyers, amongst others, the expansion of resources and cost saving.
- Tighter Regulations on Guarantee Conditions
Previously, developers only needed to meet the requirements specified in Article 11 of Circular No. 11/2022/TT-NHNN to apply for a guarantee. Under Circular 49, the developer must provide a confirmation letter from the provincial competent authorities that the housing is eligible for sale or lease purchase. This new regulation adds one more step before making the future houses available for sale or lease purchase which aims to protect the rights of banks and foreign bank branches (“Guarantors”), and buyers or lease purchasers, preventing “fraudulent projects” fabricated by the developers.
- Update the Procedure for Issuing Off-plan Housing Guarantee
The procedure for applying for the guarantee for off-plan housing projects has been revised and is now implemented as follows:
Step 1: The developer or counter-guarantor submits their request for guarantees. The Guarantor shall review, assess, and decide whether to grant the guarantee.
Step 2: The Guarantor and the developer sign a guarantee agreement.
Step 3: The Guarantor issues a letter committing the issuance of the guarantee letter, and then the developer shall send a copy of the letter to each buyer/ lease-purchaser when signing the sale or lease agreement.
Step 4: After signing the sale or lease agreements, the developer submits the agreement to the Guarantor to request the issuance of the guarantee letter.
Step 5: The Guarantor, based on the sale or lease agreements, the guarantee agreement, and the commitment letter, issues the guarantee letter and sends it to the developer for delivery to the buyer/lease-purchaser.
These changes enhance transparency and clarity in the guarantee issuance process while creating a mechanism to protect the interests of all parties involved in the transactions. The inclusion of commitment steps and clearer procedures will minimize legal and financial risks while establishing a more efficient guarantee system for off-plan housing projects.
