THE LEGAL REGULATIONS ON CONDITIONS FOR BORROWING BY COMMERCIAL BANKS

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF LAW COMMERCIAL LAW FALCUTY  DO THI ANH THU THE LEGAL REGULATIONS ON CONDITIONS FOR BORROWING BY COMMERCIAL BANKS BACHELOR’S THESIS Major: Commercial Law HO CHI MINH CITY – 2011 HO CHI MINH CITY UNIVERSITY OF LAW COMMERCIAL LAW FALCUTY  BACHELOR’S THESIS THE LEGAL REGULATIONS ON CONDITIONS FOR BORROWING BY COMMERCIAL BANKS Student: Đỗ Thị Anh Thư Course: 32 MSSV: 3220175 Guide teacher: Phan Thị Thành Dương HO CHI MINH CITY - 2011 COMMITMENT Author declares this thesis is the study of individual author All information, data, and arguments raised in this thesis is completely honest from author’s synthesis, analysis with the instruction of Dr Phan Thi Thanh Duong- lecturer in Faculty of commercial law, not completely copy from any precious works The author is responsible for this commitment ABBREVIATION Asia Commercial Bank ACB Civil Code 2005 CC 2005 Credit Information Center CIC East Asia Bank DongABank Law on Credit Institutions 2010 LOCI 2010 Mekong Housing Bank MHB Military Bank MB Private Credit Information Center PCIC Regulations on lending ROL Saigon Commercial Bank SCB Technology Commercial Bank TechcomBank Vietnam Joint Stock Commercial bank For Industry And Trade VietinBank TABLE OF CONTENTS COMMITMENT ABBREVIATION PREFACE CHAPTER 1: THE LEGAL INSTITUTIONS ON THE CONDITIONS FOR BORROWING BY COMMERCIAL BANK • Overview of commercial bank and lending activity of commercial bank • The general of commercial bank • Lending activity of commercial bank • The concept of lending activity • The principles of lending activity • Classification of lending activity 12 • The risks in lending activity and the need to build conditions for borrowing 13 • Conditions for borrowing by commercial bank 15 • The concept and meanings of conditions for borrowing 15 • The concept of conditions for borrowing 15 • The meanings of conditions for borrowing 17 • The contents of statutory conditions for borrowing 17 • The required conditions 19 • The capacity of clients 19 • Financial capacity to repay loans 24 • Lawful purpose for utilizing the loan capital 25 • The optional conditions 30 • Effect of using loans 30 • Implementation of security for loans 32 CHAPTER 2: APPLICATION OF THE LEGAL REGULATIONS ON CONDITIONS FOR BORROWING BY COMMERCIAL BANK AND SOME RECOMMENDATIONS 39 2.1 Application of conditions for borrowing 39 2.1.1 Situation of loan at present commercial bank 39 2.1.2 The implementation of conditions for borrowing 41 2.1.2.1 Conditions for borrowing formed by commercial bank 41 2.1.2.1.1 Group of conditions of borrowers 41 2.1.2.1.2 Group of conditions of security for loans 43 2.1.2.2 Statutory conditions for borrowing 47 2.2 Recommendations for improving the law 57 2.2.1 Strengthen credit information 58 2.2.2 Strengthen monitor of use borrowed funds activities 60 2.2.3 Improving regulations on security for loans 61 CONCLUSION PREFACE Urgency of the subject For more than 20 years of innovation, from XIth National Party Congress, our country’s economy has made great progresses from a backward centralized economy level move to a dynamic market one Along with economic progresses, the financial intermediary institutions are introduced to serve the growth Commercial bank is a kind of them As a financial intermediary, commercial bank raises the idle capital and redistributes to areas in need through using many forms of credit, satisfy the capital demands for production and business of organizations and individuals in society Today credit activities have had developments both in quality and quantity Lending is the most exciting and crucial activity It is playing an important role in providing timely funds for organization and individuals to serve the demands of production and consumption Othewise this work contains many risks when borrowers cannot repay principal and interest at maturity Conditions for borrowing are the rules that borrowers must satisfy when they want to borrow money from commercial banks As a “first gate” that the borrowers must “pass” when they want to access to bank loans, and the period before signing credit agreement, conditions for borrowing are really the factor that may promote or limit lending activity of banks Having such a significant role, but now the law of conditions for borrowing does not promote totally its role which is to identify customers as those who can use loans effectively, pay principal and interest on time, form which commercial banks can prevent credit risks and contribute to economic development The conditions for borrowing which are not appropriate with the actual situation have restricted capital accessibility of forces of production and consumption while there are careless implementations of conditions lead to loss of capital of banks Therefore author has chosen the theme “THE LEGAL REGULATIONS ON CONDITIONS FOR BORROWING BY COMMERCIAL BANKS” as my thesis with desire that the studying and understanding will be able to reflect the implementation of law on conditions for borrowing by the commercial banks, thereby contributing some small measures to improve the processing of these legal regulations and efficiency of lending activity of commercial banks Research situation The legal regulations on conditions for borrowing by commercial banks include conditions: the capacity of clients, financial capacity to repay loans, lawful purpose, effect of using loans, and implementation of security for loans in accordance with law At the present the legal regulations on conditions for borrowing by commercial banks have not been studied systematically and deeply in view of legal aspect through thesises, dissertations as well as reference books or academic journals Works now stop at the study of each specific issue in the conditions for borrowing, also studied them in many different aspects, and not focus on legal aspect Namely the problems of financial capacity to repay, lawful purpose, and effect of using loans (investment projects and business and production plans) are mainly studied under economic aspects Only the condition of security for loans is quite specific researched in view of the law Author can cite to research projects such as bachelor’s thesis “The security measures in bank loans Current status and solution to complete” by Huynh Tuong Long (1998); bachelor’s thesis “The legal regulations on mortgage in lending activities of credit institutions” by Doan Thi Kieu Oanh (2009)… These articles and academic journals also spent a lot of “land” to discuss about security for loans such as “Risks of mortgage savings” by lawyer Truong Thanh Duc in Banking Review out of Dec 23th, 2008, or article “The mortgage assets in ensuring the implementation of credit activities by Nguyen Van Hoat in The State and Law Review No 126 May 10/1998 ,and many studies of other authors cannot be described here on security measures for loans But in all the works mentioned above, the condition of the security measures for loans is considered independently as measures to ensure the implementation of civil obligations, not be considered as a condition for borrowing by commercial banks Thus it can be seen that conditions for borrowing by commercial banks have not been studied adequately as a system of conditions through independent and fully comprehensive view with its significance in view of the law In the thesis, author will attempt to clarify the legal provisions on this subject based on personal knowledge as well as reviewing the relevant precious works, compared to practical applications of the law to make an overall picture about the conditions for borrowing by commercial banks today The scientific meanings and practical applications Studying deeply and systematically the subject “The legal regulations on conditions for borrowing by commercial banks” will allow us to thoroughly discuss this issue This thesis is to clarify contents and meanings of legal provisions on conditions for borrowing by commercial banks, figure out how to correctly understand and apply the provisions of this law in real situations At the same time the thesis also reviewed the applications of the provisions on the conditions for borrowing by banks It considered the effect of lending activities of banks and the borrower’s accessibility to the loans prescribed through the performance of conditions for borrowing, from which recognized whether the legal regulation on conditions for borrowing were appropriate or not, the provisitions should be specified differently or in greater detail or not, found problems if any, and think given towards improving the conditions for borrowing by commercial banks This thesis can also be a document for review to appreciate the system of conditions for borrowing set out by law in practice, which banks have been basing on to determine whether a borrower is lent money Research is necessary to devise criteria and other mechanisms for how lending activity by commercial banks is still able to avoid the risk efficiently but customers can access to the loans timely Other than materials has been cited, this thesis is studied in a systematic way of conditions for borrowing in the commercial banks The contents of the thesis focus on analyzing the conditions for borrowing in view of legal and practical application aspect It can be useful for anyone wanting to study the lending operations of commercial banks The aims and tasks of research The purpose of this thesis is to study deeply law provisions on conditions for loans of commercial banks, which provides solutions to improving the legal regulations on conditions for borrowing For that purpose, the tasks of this thesis are: - Research and evaluate the contents prescribed by the law on conditions for borrowing by commercial banks with the relevant legal documents, clarify how to understand correctly these regulations Also indicate the meanings of the law on conditions for borrowing of banks today - Study conditions for borrowing which a number of commercial banks now form to apply in its lending activity, compared with provisions of law to consider the differences - Identify the current status of implementation of regulations on conditions for borrowing of banks today and propose recommendations to perfect the legal regulations on conditions for borrowing of banks The scope of research In this thesis, the author only focused on contents relating to regulations on conditions for borrowing by commercial banks For specific conditions for borrowing, the author studied only law aspect, how to understand the law, not study economic aspects of conditions through specified in detailed data In addition, the author also studied the conditions for borrowing by represented commercial banks in the area of Ho Chi Minh City to compare bank’s application of legal provisions on conditions for borrowing with others’s Research methods In this thesis, the author mainly used methods such as: statistics, analysis, comprison - In chapter one, statistics and analysis were used to clarify contents of conditions for borrowing described by the law - In chapter two, comparison was used essentially to specify the status of implementation of legal provisions on conditions for borrowing Lay out thesis Besides the preface, list of references, list of acronyms, this thesis consists of two chapters: Chapter 1: The legal institution of conditions for borrowing by commercial banks Chapter 2: Application of legal regulations on conditions for borrowing by commercial banks and recommendations CHAPTER THE LEGAL INSTITUTION OF CONDITIONS FOR BORROWING BY COMMERCIAL BANK 1.1 OVERVIEW OF COMMERCIAL BANK AND LENDING ACTIVITY OF COMMERCIAL BANK 1.1.1 The general of commercial bank In economy of any nations, the credit institution has always played as an important role In society there are always organizations and individuals owning an amount of idle capital but for some reason they don’t use in profit-making business Besides, there are organizations and individuals engaging in production, business and consumption demand for capital However, these two entities hardly see each other directly Even despite having seen each other, it is very difficult to form their borrowing relationship because of lack of belief and capacity to draft a close credit contract to protect the interest of both parties, thus contributing to stabilization of the economy The credit institutions which are financial intermediaries have raised idle capital in the society and redistributed into the sectors needing capital for development The concepts of commercial bank are stipulated as follows: “Commercial bank shall mean a credit institution to conduct all banking activities and other related business operations in accordance with this law for profit-making purpose.” Following this provision, the commercial bank is a kind of credit institutions, so it must ensure to complying with all legal provisions which impose on credit institutions on the establishment, registration, activities, reporting… A very specific feature of the commercial banks is that commercial banks operate for profit-making purposes This is the factor to distinguish commercial banks with other Prof, Dr Le Van Tu (1997), Monetary, Credit and Bank, Statistics Publishing House, Ha Noi, page194 Vietnam Law on Credit Institutions 2010, Art.4 (3) 10 assets used to secure the loan These provisions have limited to somewhat loan accessibility of entities in society From this analysis above, generally these conditions for borrowing are done very closely through requesting files, papers that are more complex and detailed In some cases it is difficult for customers to access to loans as analyzed above But in fact there is a series of bank fraud with the money from several hundred million to tens of billion just with those tricks which are not too sophisticated It should be thought that problem is the implementation of conditions for borrowing of the bank There are some banks’ faults when lending as follows: - First banks did not verify the status of clients For example in the case of three teachers in Tam Nong district, they had borrowed 54 identity cards of other people to borrow 540 millon from branches Agribank at Tam Nong district when the State laid down as a policy lending to teachers who are on the payroll 10 million for living support 50 The problem here is that the three teachers had borrowed identity cards of the others, they had depended on lenders for signing on loan files for nothing, and they also had faked the signature of principal When the bank received loan files, it did not ascertain whether asking bank for loans of 54 teachers is true or not and whether they had financial capacity All transactions were done only through the three teachers and 54 sets of loan files It is clear that this is a serious violation to the implementation of conditions for borrowing by banks - 50 Second banks did not consider and investigate the actual operations of clients Some banks when dealing with customers particularly business customers often only focus on considering loan files without understanding headquarters, manufacturing facilities and business operations of enterprises leading to lend to virtual businesses based on loan files which is sufficient but completely fake There is symbolic case of Nguyen Trong Quy (Bac Ninh Bar Association) relied on others for establishing of six companies in Ho Chi Minh City Then he entered into collusion with bank officials to appropriate 35 billion of Vietinbank Or there are many cases of establishing faked companies which http://www.tin247.com/3_co_giao_di%E2%80%A6_lua_dao-6-84696.html 54 not have address, seal, and making faked contract of sale for bank loans arrogation 51 - Third commercial banks did not check and verify the secured propertyies, and not carry out legal procedures by themselves, which create weak spot for bank frauds Typical for this is the case of that in 2006, Tran Thai Vu (born in 1970, lives at 126 Tong Phuoc Pho, Da Nang City) by faking certificates of right of land use (“Red book”), faking ownership certificates of housing (“Pink book”), he consecutively defrauded banks of money through mortgage assets 52 “Red book” and “Pink book” are the papers managed quite closely by state agencies authorized with many procedures However Tran Thai Vu forged signatures of leaders of Da Nang People's Committee, Department of Natural Resources and Environment By using his “Red book” and “Pink book” he easily escaped bank’s notice because the bank had not made the check whether the “Red book” and “Pink book” that was true or not through the body having managerial function of land and housing More seriously, in the principle the banks had to appoint credit officials to go along with the customer when notarizing the “Red book” for mortgage assets, but they skipped this step, and enabled the object to forge signature and seal of the notary Tran Thai Vu was detected when there had been10 bank branches in Da Nang and Quang Nam appropriated with over 20 billion - Fourth banks did not monitor secured properties seriously Poor management of security assets, especially housing and land use right also causes banks fooled hundreds of billion Typically, the case of that Tran Thi Hong Hanh, Director of Corporation International General Trading D&T and Nguyen Thi Phuong, Director of Cao Cuong Co., Ltd set up many different companies, but they were actually managed by a moderator, operated as a family company Hanh, Phuong signed faked contracts to purchase goods, set up business plans, loan files, performed procedures for bank loans to appropriate more than 84 billion of banks and nearly 104 billion from other individuals Tran Thi Hong 51 http://vietbao.vn/An-ninh-Phap-luat/4-thu-doan-lua-dao-chiem-doat-tien-cua-nganhang/10832016/218/ 52 http://tintuc.xalo.vn/001238319215/Lam_gia_so_do_lua_hang_chuc_ti_dong_tu_ngan_hang htm 55 Hanh had used 47 mansions as secured assets for bank loans at Global Petroleum Bank (GP Bank), and then she voluntarily sold to 42 people collecting 91.3 billion without the bank’s agreement Nguyen Thi Phuong had set up faked contract of purchase 2,100 tons of sugar as secured assets for bank loans, had set up 13 loan files and arrogated for nearly 74.5 billion of GP Bank This women director also voluntarily sold more than 8,500 tons of sugar and sold 216 tons of resin but not repay to the banks, which lead to loss of solvency53 In some cases of bank fraud the author cannot but mention are that the abetment of degenerate credit officers who enter into collusion with customers to ignore the loan file evaluation steps as conditions for borrowing, even abetting falsify loan files to appropriate a lot of money of banks But these are violations of criminal law, not subject of the thesis so author does not consider here These are just few of many banking frauds in recent times While it is difficult for enterprises which business genuinely to access to bank loans, the swindle objects defraud bank of hundreds of billion simply only by few subsidiaries with simple tricks like using faked contract of capital contribution, faked shares, faked documents of housing and land to trick hundreds of billions The strict implementation of conditions for borrowing is at a truly alarming level The main reason is that banks are subjective in evaluation in accordance with process of consideration and approval of lending and provisions of law Some banks offerred loans to customers only based on the familiar relationship between customers and those who have authority at banks, or the appearance of luxury, affluence of customers Credit officials take these customers for profitable business so commercial banks decide to lend to customers skipping the loan file evaluation step They did not base on credit scoring of customers In addition because the banks attached much importance to implementing conditions of security for bank loan, they were subjective not evaluate financial capacity and effect of utilizing loan capital when secured assets had great value such as housing, right of land use Cheater identifying this fact focused on faking certificates of ownership of these properties to escape banks’ notice 53 http://dantri.com.vn/c21/s20-399936/de-nghi-truy-to-vu-lua-dao-ngan-hang-tien-tram-ty.htm 56 In summary though these regulations have contributed greatly to preserve loan capital of commercial banks, in many cases they inhibited the growth of credit The clients due to inadequacy of conditions of secured assets cannot access to bank loans It will lead to difficulties for business and society Individuals who want to borrow for consumption and activities must satisfy several conditions on income, secured assets, guaranty of company where they work at, and complicated and unreasonable documents to prove ownership Although small and medium-sized enterprises are the major elements in the productive forces of society, because of the small scale, no suitable secured property and weak capacity to build the financial statements, plans of production and business, they cannot persuade banks to lend But banks have detailed and specified conditions for borrowing, there are still the situations that many banks were cheated tens of billion when lending as analyzed above The main reason of this situation is that apart from condition for borrowing, commercial banks have no other effective means to identify customers who likely use loan capital effectively and perform timely repayment of principal and interest, which can reduce risks for banks For this reason banks identified conditions for borrowing as the only effective tool to limit risks in their lending activities Otherwise the law empowers commercial bank to specify the conditions for borrowing, so commercial banks often tend to regulate close conditions for borrowing This thing limited loan accessibility of true customers, especially small and medium-sized enterprises When commercial banks identified conditions for borrowing as an effective tool to manage risk, they not often focus on monitoring the use of loans, which lead to that the risk of capital loss is very high In addition some banks now not implement conditions for borrowing seriously When considering loan files of customers, some commercial banks only focus on forms, papers, without considering other factors, which lead to that fraudulent objects can easily cheat banks out of money by forging required documents and papers From the causes mentioned above, suppose to solve this situation, the authors focused on proposing some solutions as follows: First strengthen other methods for commercial banks to identify potential customers rather than focusing on conditions for borrowing as before Second the law should detail a number of conditions for borrowing for banks to apply, and not hand over authority to banks a lot as before to prevent that the banks presume on specifying conditions for borrowing without considering other factors when lending The law should regulate close provisions on banks’ accepting assets to secure bank loans especially the assets to be formed in the future, which will help banks to avoid risks in the examples above According to the 57 authors, good implementation of the recommendations would help bank to limit the risks of lending activities, enable the customer really needing to access bank loans more easily 2.2 RECOMMENDATIONS FOR IMPROVING THE LAW Despite having different credit process, all banks in the world have the same common purpose which is to determine customers using loans effectively and repaying principal and interest at maturity Conditions for borrowing by banks are the tool to perform this purpose The problem which must be solved to remove obstacles in the conditions for borrowing is to find other mechanisms defining bank’s confidence for customers, reducing the complicated and overlapped procedures as well as eliminating customers having non-transparent business operations and inefficient use of capital from the beginning An information channel like this which actually exists in Vietnam long ago but does not still work really effectively is central credit information 2.2.1 Strengthen credit information Now credit information is the most common exploited through Credit Information Center (CIC) which is a non-business organization under the State Bank It was established under Decision 68/1999/QD-NHNN9 dated 27/02/1999 of the Governor, which have the function of collection storage, analysis and information forecast for the management operation of the State and implementation of banking information services The credit information products of CIC now used mainly are analysis products and business credit rating products namely that business credit rating reports (S50) 54 The business credit rating report is the overall assessment including business situation of enterprises, legal information, the situation of import and export business, network of branches, Board of directors, repayment situation for three consecutive years, scores of financial targets, non-financial and financial ability to pay interest, bad debt of the business It also offers indicator the classification of enterprises Credit information and credit rating are very important for banks They are the basis for selection and classification of customers, since then banks will set a reasonable credit 54 http://webnganhang.com/forum/tai-chinh-ngan-hang/218-trung-tam-thong-tin-tin-dung.html 58 policy to reduce bad debts and risks However whether present activities of CIC are effective or not is worthy to discuss Under the law, all credit relationship between customers who are individuals and business and banks must be reported on database of CIC When receiving loan files of clients, banks will network with CIC to exchange updated information on credit history of customers Based on this information and other factors, the banks will make lending decision If the information provided is updated and reliable, the banks will be very quick in their decisions, and restrict the prolix procedure which such as documentary proof of financial ability, requirement for security assets This also means that banks will lend on the pledge of trust more than before, the lending will be simpler and the expenses will decrease But now, operations of CIC are not really effective There are customers paying off bank debt from years ago, but when looking up credit information, they have been being still in debt According to statistics of the banking industry, Vietnam currently has 500,000 small and medium-sized enterprises 55 This is a very large number of enterprises with their extremely diverse and abundant activities This fact has led to the establishment of first private credit information center (PCIC) in Vietnam which operates under Decree 10/2010/ND-CP dated 12/2/2010 having provisions on the operation credit information center The appearance of the PCIC will help to improve national credit database because although at the present database of CIC is very huge, it is mostly about remained debts and history of credit relationship, the status of secured assets, the financial statements of clients’ business, which supplied by the credit institutions Information on commercial credit, purchase goods on deferred payments, installment payment, situation of debt payment, bills of electricity or water or other transaction having conditions on interest rate, term, rentals are rather limited while these may be viewed as strengths of the PCIC Now there is only one PCIC called PCB because the conditions of establishment are quite difficult According to Decree 10/2010/ND-CP, PCIC must have at least 20 banks committing to provide information and not to provide the information for the others, and the minimum capital charter is 30 billion This Decree has not specified on the channel that the PCIC was allowed to search for private information apart from the banks which have already committed The author 55 http://www.vtca.vn/TabId/70/ArticleId/4933/PreTabId/66/Default.aspx 59 should think government bodies needs to stipulate quickly in writing specific instructions on the following issues: - Sources of information that PCIC can be exploited The instructional documents must clearly detail that apart from the credit institutions committing, what sources of information PCIC can get information The author proposed that instructional documents should provide one of information sources to be the tax authorities Through whether customers have performed seriously and fully tax liability or not, banks can identify the business activities of enterprises and attitudes of performing obligation of the enterprises The tax offices only provide information for PCIC when the PCIC is asked to provide credit information of clients by a credit institution Tax agencies have the right to collect money when providing information The charge is decided by the State Agency Information about the tax obligations of an object is granted only once for one PCIC All proposals are to help the banks to have updated information on the activities of customers, help the PCIC to have additional information channels At the same time the tax agencies have additional revenues to implement their activities Effective operations of PCIC will create a favorable environment for lending activity of commercial banks Since then banks will not have to apply many procedures to determine the financial ability of customers Their major task is the appraisal of investment projects, production and business plans Thus completing regulations on the activities of PCIC and enhancing the participation of other State Agencies such as the tax authorities in the accomodation of information of clients will give banks initiative when making lending decisions because they have reliable sources of clients’ information Borrowers also will voluntarily implement transparent financial statement throughout the business process rather than implement under deal type when asking bank for loans Since then conditions for borrowing by commercial bank are easier and actually serve to reduce risks for banks and credit activities 2.2.2 Strengthen monitor of use borrowed funds activities Now the law has stipulated that the commercial banks have the right to ask customers to report the use of loans throughout the lending process But actually the rule has not promoted its role yet Now commercial banks often focus on the appraisal of loan file when lending Because conditions for borrowing have been identified as the only tool to limit credit risk, commercial banks often tend to stipulate complex conditions for borrowing, which make difficulty for customers This fact led to that the conditions 60 for borrowing are applied more rigorously When customers had satisfied the conditions for borrowing, the bank ignored in monitoring the use of loans, which led to risks of utilizing the loan capital To implement this provision well, the law on banks’ lending has to specify period of time which banks require customers to report the use of loan capital and provide documents to prove true statements Banks must keep these documents in customer files Banks have not right to decide themselves this issue any more 2.2.3 Improving regulations on security for loans The law on security for the performance of civil obligations in particular the obligation of repaying the loan capital is stipulated quite adequately When asking customers to carry out security for bank loans, banks will apply the provisions of the law The problem is that the procedures of accepting secured assets to be formed in the future have not been uniformly applied The law does not specify on the issue, which easily lead to disputes To solve this problem, according to the authors, the legislation should specify as follows: The first proposal: prescribing papers and documents relating to the assets to be formed in the future, which commercial banks should require customers to provide These documents must be suitable for the time that the customers ask banks for capital loans Now this issue is stipulated by commercial banks, so in many cases banks required unreasonable documents as analyzed above The second proposal: At present when clients put the assets to be formed in the future in mortgage, banks have problems regarding registration procedures, and this is one of the causes of risk of lending activities This problem is expressed as follows: Point a of Article 91 of Housing Law 2005 stipulated that housing which is used to put in mortgage must have a certificate of ownership There is no law which prescribes registration procedure on mortgage transaction in which mortgaged assets to be formed in the future, i.e., when the mortgagor have not had the certificate of ownership yet, the National Registration of Secured Transaction Department refuses to register To solve this problem, the National Registration of Secured Transaction Department has promulgated Official Dispatch 232/DKGDBD on resolving requirement of registering the mortgaged transaction of housing which has not had certificate of ownership yet Accordingly the Department guided that in this case both parties (commercial bank and client) should sign a contract with each other on 61 mortgaging property rights arising from housing purchase contract, and register mortgaged transaction in the Registration of Secured Transaction Center For this reason the banks instead of asking the borrowers to sign secured transaction on mortgaging assets to be formed in the future, following to the guidance of the National Registration of Secured Transaction Department, required customers to mortgage property rights arising from housing purchase contracts To preserve banks’ rights, in terms of mortgage contracts, the banks required that mortgaged assets are the property rights arising from housing purchase contract even including ownership of housing and land use right The Registration of Secured Transaction Center refused to register again because of thought that there are land use right and ownership of housing, so registration of this secured transaction did not come within the jurisdiction of the Center Otherwise banks could not register secured transaction because Point c of Article 28 of Decree 83/2010/ND-CP dated 27/07/2010 on the registering secured transactions prescribed that when registering secured transaction in which secured assets are right of land use and assets attached to land, mortgagor must have certificate of land use right and assets attached to land If mortgagor put housing ownership in mortgage, they must have the certificate of housing ownership If commercial banks not require clients to given land use rights and housing ownership into term of secured assets, when the client take stock of purchase contract, the banks will have no thing In summary when the law is defined as Article 91 of housing Law and Article 28 of Decree 83/2010/ND-CP, the banks will be unable to register this secured transaction Therefore this will affect on the possibility of borrowing and risk management of banks The author thought that Article 91 housing Law should not change because it is prescribed to ensure transactions comply with housing Law The author proposed addition of specific regulations on the registration procedures of mortgaged transactions in which secured assets is housing to be formed in the future According to this, the law on registration secured transaction should be defined as follows: when commercial banks accept housing to be formed in the future as mortgaged assets, they can still register the secured transaction at Right of land use Registry under the Department of Natural Resources and Environment and Right of land use Registry under the Natural Resources and Environment Chamber in districts, towns, and cities, which under the jurisdiction of provinces But the registering is only recognized It has not had effect until customers had already registered housing ownership at the office above The time customer has already done registration of housing ownership is also the time that registering mortgaged transactions in which mortgaged assets to be formed in the future has effect The order of priority for 62 payment upon realization of secured property shall be determined in accordance with the time when secured transaction is recognized by the office mentioned above The author referred to this proposal because the agency implementing procedures on registering the mortgaged transaction also is the agency registering housing, that are Right of land use Registry under the Department of Natural Resources and Environment and Right of land use Registry under the Natural Resources and Environment Chamber in districts, towns, and cities, which under the jurisdiction of provinces where this housing is located Therefore these agencies easily updated legal changes of housing If this proposal is added to the law, this will make banks brave to receive assets to be formed in the future as secured assets, thereby increasing the ability to meet conditions for borrowing of the customers, and the banks’ risk are also reduced Conclusion chapter 2: The banks have applied the conditions for borrowing prescribed by the law differently Conditions for borrowing are specified in accordance with the characteristics of bank’s business activities Besides, commercial banks also have prescribed the extra conditions for risk management activities and preventing credit risks Extra conditions for borrowing of commercial banks are completely reasonable especially when banks are recognized as independent economic entities However due to the risk management needs and enhancing security of credit, banks have stipulated conditions for borrowing which are difficult for most customers really needing loans to grow business and improve high life to satisfy Otherwise the evaluation of the conditions for borrowing of banks in some cases is very loosely, since then it enable some objects to forge documents for bank fraud Because of that, the suggestions on the PCIC, control activities of use loans are other channels that can satisfy the purpose of efficient risk management of commercial banks Commercial banks are not necessary to give prominence to conditions for borrowing and make them difficult They also improve the evaluation of loan file to avoid cases of bank fraud 63 CONCLUSION The legal regulations on conditions for borrowing by commercial bank is one of the important factors affecting the growth of credit and avoiding credit risk of banks The regulations on conditions for borrowing are now built by law generally They are required basis for banks to build their internal conditions for borrowing Currently when lending, the banks often identify conditions for borrowing as the only tool to prevent risks So conditions for borrowing tend to be strict, which lead to limitation of loan accessibility of true clients However some banks when considering loan files of clients, they only focus on the form, papers without considering other factors such as practical operations of clients…Based on the status, cheater faked documents in order to satisfy conditions for borrowing to overcome the record evaluation step Stemming from the fact, the author proposed that legislation should have more detailed provisions on conditions for borrowing, not give full rights to the banks as before At the same time legislation should perfect other institutions to make rich and accurate basis for banks to assess customers such as PCIC Therefore banks can enable potential customers to access to capital while still limiting the objects of bank fraud 64 LIST OF REFENRENCES LEGAL DOCUMENTS • Civil Code 2005 • Circular No 02/2009/TT-NHNN detailing the interest rate support for organizations and individuals lending capital of banks for production and business • Circular No 07/2011/TT-NHNN dated 24/03/2011 having provisions of the foreign currency loans to Credit institutions for resident borrowers • Decision No.1627/2001/QD-NHNM of the Governor of the State Bank dated 31/12/ 2001of issuing Regulations on lending by credit institutions to clients • Decision No.127/2005/QD-NHNN dated 03/02/2005 by the Governor of the State Bank of amending and supplementing some articles of the Regulations on lending issued together with the Decision 1627/2001/QD-NHNN • Decision No.966/2003/QD-NHNN dated 22/08/2003 on foreign currency loan for resident clients • Decision No.67/1999/QD-TTg on a number of bank credit policies for agriculture and rural development • Decree No 41/2010/ND-CP dated 12/04/2010 on a number of bank credit policies for agriculture and rural development • Decision No.92/2009/QD-TTg dated 08/07/2009 on credit for business who trade in difficult areas • Decree No.83/2010 dated 23/07/2010 on Registration of Secured Transactions • Decision no 284/2000/QD-NHNN on issuing regulations on lending by credit institutions to clients • Housing Law 2005 • Law on Credit Institutions 2010 • Law on Land 2003 BOOKS • Prof Truong Quoc Cuong–Prof Dao Minh Phuc–Prof Nguyen Duc Thang (2010), Risks of Commercial Banks’ Credit – Theory and Practice, National Politics Publishing Housing 65 • AProf, Dr Phan thi Thu Ha (2007), Commercial Banks, Hanoi National Economy University Publishing House • Institute of Banking Science (1996), Bank Credit for Businesses, Hanoi Statistics Publishing House • Ngo Quoc Ki (1995), Some basic legal issues on banking activities, National Politics Publishing Housing • Dr Nguyen Duc Thang (2009), Improve the quality of appraising investment projects of commercial banks – Experience in Bank For Investment And Develoment Of Vietnam, National Politics Publishing Housing, Hanoi • Prof, Dr Le Van Tu (1997), Monetary, Credit and Bank, Statistics Publishing House, Hanoi • Nguyen Van Tuyen (2000), Learning about Banking Law-theory and practical exercises, The People’s Public Security Publishing House • Ho Chi Minh City University of law, Faculty of commercial law (2007), Banking Law Curriculum, Vietnam National University Publishing House, Ho Chi Minh City MAGAZINES • Prof Le Thi Thu Thuy (2004), “Pledged assets when borrowing capital from banks”, Legal Sciences Journal, (04), pp 4-11 • Prof Nguyen Van Tuyen (2010), “Legal characteristics and effect relationship between contract of mortgaging property and credit contract”, The Baking Review,(17),pp 15-18 • Le Duy Khanh (2009), “The risks from getting the mortgage of real estate and solutions to prevent in the banking system in Vietnam”, The Banking Review,(15), pp 23-27 • Truong Thanh Duc (2005), “10 legal issues in getting mortgage or guaranty of land use right”, The Banking Review, (04), pp 8-14 • Truong Thanh Duc (2008), “Risks from pledge of savings”, The Banking Review, (23), pp 5-8 • Truong Thanh Duc (2009), “ Mortgage of housing to be formed in the futureVagueness between right and wrong”, Journal of Democracy and Law, (10), pp 15-19 66 WEBSITES • www.VIBonline.com.vn • http://binhphuoc.gov.vn • www.vnedoc.com.vn • www.sbv.gov.vn • http://www.tapchitaichinh.vn/Quảntrịnộidung/ViewArticleDetail/tabid/56/Key/ ViewArticleContent/ArticleId/887/Default.aspx • http://www.sbv.gov.vn/vn/home/tinnghiencuu.jsp?tin=403 • http://www.nclp.org.vn/thuc_tien_phap_luat/cac-bat-hop-ly-trong-quy-111inhve-giao-dich-bao-111am • http://www.nclp.org.vn/kinh_nghiem_quoc_te/111ang-ky-giao-dich-bat111ong-san-trong-luat-dan-su-phap-va-so-sanh-voi-111ang-ky-giao-dich-bao111am-o-viet-nam • http://www.moj.gov.vn/p/tag.idempotent.render.userLayoutRootNode.target.n4 14.uP?uP_root=me&cmd=item&ID=13481 • http://news.VIBOnline.com.vn/Home/xdpl/2010/01/5439.aspx • http://www.nclp.org.vn/kinh_te_xa_hoi/thuc-tien-co-che-bao-111am-tien-vay111oi-voi-cac-doanh-nghiep-nho-va-vua • www.thongtinphapluatdansu.wordpress.com • Essay on analysis of the consumer lending in Asia Bank, Da Nang on website http://namnguyenft.vn/pages/viewtopic.php?f=82&t=2168 • http://tintuc.xalo.vn/00430402844/7447_DN_muon_tiep_can_nguon_von_vay _ngan_hang.html • http://www.taybacuniversity.edu.vn/elib/Kinh te/Thong tin bat can xung hoat dong tin dung tai Viet Nam (TS Huynh The Du - DH Kinh te TP HCM).pdf • http://vn.360plus.yahoo.com/lehoang_0176/article?mid=89 • http://www.scb.com.vn/vietnam/default.aspx • http://www.acb.com.vn/ • http://mbbank.com.vn/ 67 • http://www.mhb.com.vn/vi/ • http://www.eab.com.vn/ • https://www.techcombank.com.vn/ • http://www.hsbc.com.vn/ • http://www.tin247.com/3_co_giao_di%E2%80%A6_lua_dao-6-84696.html • http://vietbao.vn/An-ninh-Phap-luat/4-thu-doan-lua-dao-chiem-doat-tien-cuangan-hang/10832016/218/ • http://tintuc.xalo.vn/001238319215/Lam_gia_so_do_lua_hang_chuc_ti_dong_t u_ngan_hang.html • http://dantri.com.vn/c21/s20-399936/de-nghi-truy-to-vu-lua-dao-ngan-hangtien-tram-ty.htm • http://webnganhang.com/forum/tai-chinh-ngan-hang/218-trung-tam-thong-tintin-dung.html • http://www.vtca.vn/TabId/70/ArticleId/4933/PreTabId/66/Default.aspx 68 ... provisions of law on conditions for borrowing and extra conditions formed more by commercial banks 2.1.2.1 Conditions for borrowing formed by commercial bank 42 In addition to the conditions for borrowing. .. 1.2 CONDITIONS FOR BORROWING BY COMMERCIAL BANK 1.2.1 The concept and meanings of conditions for borrowing 1.2.1.1 The concept of conditions for borrowing The conditions for borrowing of the commercial. .. legal regulations on conditions for borrowing of banks The scope of research In this thesis, the author only focused on contents relating to regulations on conditions for borrowing by commercial banks