The content of internal regulations on lending is relatively broad, not simply stopping at the lending process as often seen in internal decisions of credit institutions. It is also a decision to assign tasks to each unit and individual of the credit institution to clarify the scope and responsibility for implementing this process. 170 Up to now, banking studies have not yet gone into depth to clarify the responsibility of credit officers, employees, managers and operators of credit institutions who conduct transactions contrary to the internal regulations on lending of credit institutions. Because the scope of application and responsibility of the subjects according to this regulation are still new in practice. However, it can be seen that in general business, regulations on the charter and internal regulations of an enterprise always have mandatory compliance value for members of that enterprise.
The common point of internal regulations in business activities of enterprises is the benefit of investors. However, internal regulations on lending in the banking sector have much broader content, in which the interests of depositors are guaranteed by clearly defining the scope of regulation for loan transactions (in corporate law, internal regulations on signing economic contracts are limited to the authority according to the enterprise's asset limit).
With the regulation that credit institutions must report to the State Bank within 10 (ten) working days from the date of new issuance or amendment, supplement (Clause 3, Article 22 of Circular No. 39/2016/TT-NHNN), banking law affirms, enhances the legal value of internal bank regulations in general, internal regulations on lending in particular, demonstrating the advantages when lending, which are: Creating opportunities for credit institutions to proactively organize and carry out lending transactions, while also enhancing the responsibility of bank officers and employees in this activity.
Internal regulations of a credit institution include: internal regulations on lending of the credit institution; regulations on organization and operation of the credit council, which has the authority to approve and decide on lending. However, the legal responsibility of the individual members of this council, according to the author, needs to be concerned and specified by the credit institution. This responsibility cannot be based on general internal regulations, the lack of a specific legal enforcement mechanism will lead to arbitrariness in application, making it difficult to determine the scope and specific level of responsibility.
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For example : In the case of " Pham Cong D and accomplices " that has just been tried, the courts at all levels have imposed criminal liability on individuals who are members of the Bank's Credit Council in approving illegal loans. Accordingly, on December 28, 2012, the Credit Council of DT Joint Stock Commercial Bank (now XDVN Commercial Bank) agreed to lend 370 billion VND to TQ Construction Service Trading Company Limited and DHP Service Trading Company Limited to lend 280 billion VND according to business plans and repayment plans, with a term of 12 months.
170 See more: Decision No. 4257/QD-VP dated August 28, 2008 of BIDV Bank on procedures for granting credit to corporate customers
The loan term was 12 months, the interest rate was 15%/year, but the loan capital was not recovered afterwards, and the company was prosecuted for criminal liability for the crime of "Violating regulations on lending in the operations of credit institutions" according to Article 179 of the 1999 Penal Code, amended and supplemented in 2009 (now Article 206 of the 2015 Penal Code, "Crime of violating regulations in the operations of credit institutions and foreign bank branches"). 171
In the trial of the above criminal case, the First Instance Judgment No. 332/2016/HSST dated September 9, 2016 of the People's Court of Ho Chi Minh City stated: The Bank's Credit Council participated in approving and granting credit for 02 loan applications of DHP Company and TQ Company, accepting the use of collateral based on an inappropriate valuation certificate, causing damage of VND 470,000,000,000. After the members of the Bank's Credit Council appealed, at the appeal trial (from December 27, 2017 to January 24, 2017), the Court upheld the judgment, continued to prosecute and bring the members of the Credit Council to trial.
Commenting on this criminal case, the author did not go into detail and analyze the rights and wrongs of the act of approving the two loans. Because after the trial in court, the members of the Credit Council complained on the grounds that: they did not have the function of lending; did not interview or contact the borrower but only relied on documents and certificates submitted by the bank branch for review; the internal regulations on bank lending did not regulate the behavior of the Credit Council of DT Bank, etc. But it can be seen that the viewpoint of the prosecution agencies based on the act of approving loans without properly evaluating the illegal appraisal documents and certificates with the subsequent result of losing capital (causal relationship), to prosecute criminal responsibility is well-founded. 172
In terms of operations, at credit institutions, loans are often decided by the credit council (members are leaders in key positions of the credit institution). If the roles and functions of the council members are not defined as at present, it is easy to attribute responsibility to all members participating in reviewing loans that have lost capital. This is not consistent with the principles of management and control of lending, because each member of this council is only responsible within the scope of his or her professional and technical expertise if there is a violation. Therefore, the internal regulations of the credit institution need to clearly show this scope of responsibility.
In compliance with the internal lending regulations of credit institutions, credit officers and employees have the right to refuse to approve or refuse to make a loan decision if the customer does not meet the loan conditions. Therefore, they have the right to complain to competent authorities about internal lending regulations that are inappropriate, illegal, imposing, and have the potential to cause risks and must bear responsibility if applied.
171 First Instance Criminal Judgment No. 332/2016/HSST dated September 9, 2016 of the People's Court of Ho Chi Minh City, pp. 52-56; 202; 231
172 See also: Ministry of Public Security, Conclusion of investigation of criminal case No. 02/C46 (P10), dated January 10, 2018 , p. 17. The case was then tried at first instance from May 2-4, 2018, sentencing all members of the Credit Council of this bank to prison terms ranging from 3 years with a suspended sentence to 7 years in prison.
For the bank's credit council, the approval of loans that do not meet the loan conditions, based only on documents submitted by the bank branch without seriously conducting inspection, evaluation, and comparison with legal regulations, leading to violations, must of course be handled with responsibility. The level of responsibility depends on the nature, extent of the violation, capacity, authority, and responsibility of each member of the council, clearly stated in internal regulations and legal regulations.
In summary, credit institutions need to implement solutions to develop internal regulations on standard lending, in which the scope and responsibility of each member participating in credit granting are specifically defined to ensure implementation and application to bank officers and employees. This solution will promote positive aspects, affirm the significance of internal regulations on lending, enhance the responsibility of each credit officer, those working in management in the bank, clarify loopholes in the lending process, and future responsibilities if individuals or groups commit violations.
4.2.3. Some solutions to overcome the fragmentation and lack of binding in the relationship between loan contracts and security contracts
The legal regulations on the relationship between the contract of credit and the guarantee contract are still fragmented and inconsistent in practical application as the thesis has identified (section 3.2.2.2). If this situation continues to occur, it will create risks for credit institutions when lending, causing unsafe loans, so the author proposes the following solutions to overcome it:
First, the solution to overcome the situation where the borrower signs many loan agreements, but only guarantees one type of fixed asset.
As the thesis mentioned, this situation occurs commonly, the reason is that the awareness and understanding of the law of credit officers are limited and subjective. In addition, the procedures for secured transactions are complicated and cumbersome, so when the borrower changes the credit needs, the credit institution often does not check, review, and re-evaluate the legal relationship between these two contracts, leading to errors.
Therefore, right from the time of signing the loan agreement, the credit institution must anticipate the conditions and borrowing capacity of the borrower, establish a guarantee contract for the same asset in the direction of expanding the scope of the guarantee, not just confining a contract with a credit granted at that time. The scope of the guarantee must include debts arising from the contract and loan contract appendices signed after the date of signing the guarantee contract. Even if the borrower changes the credit needs, signs many loan contract appendices, but still within the allowable credit balance limit, then the debt repayment obligation of the guarantor is still binding. Thus, with this solution, the scope of the guarantee is expanded instead of being fixed to a specific agreement, regardless of whether the debt arises after signing the loan contract at any credit time.
However, it is necessary to distinguish and clarify the scope and responsibility of guarantee for different loan contracts. In this case, if there is a change in the subject signing the contract,
If the contract, or the parties have an agreement on the scope of the obligation guarantee, excluding loan contracts arising outside the will of the guarantor, contrary to this law, of course the credit institution is not entitled to request the guarantor to perform the guarantee obligation.
With these strict conditions, the solution will overcome the situation where the borrower applies for credit multiple times. In this case, the bank only needs to clarify the scope and limit of the guarantee not exceeding the permitted level stated in the guarantee contract, then the loan is still guaranteed and safe even if the bank lends many times or signs many appendices after the time of signing the guarantee commitment.
Second, to ensure the bank's interests as a bona fide party when receiving secured assets, even if the assets are of criminal origin.
The act of creating fake, illegal loan transactions, receiving illegal transfer of secured assets to legalize them into secured assets with sufficient legal documents and certificates is associated with the responsibility of handling crimes according to criminal procedures. On the "path" of misappropriated assets, cash flow transactions are usually quite complicated. Criminals do not simply use borrowed capital for business and investment of enterprises, but also use misappropriated money, disperse it in other forms of transactions, even just to pay personal debts.
In this litigation procedure, the recovery of misappropriated assets (assets used as loan collateral, with the characteristics of "evidence" of the criminal case) needs to be considered based on the characteristics of the lending relationship, in which the safety factor of the credit system is the top priority factor as mentioned and analyzed in depth in the thesis.
Banks, as public companies, operate for many different economic and social purposes, with a large number of customers, so they do not have the time and conditions to verify the origin of assets for prevention. Therefore, criminal proceedings agencies cannot rely on cash flow to evaluate the misappropriated assets to handle and return them to the legal owner, thereby arbitrarily canceling the security contract, recovering the secured assets of criminal origin, causing damage to credit institutions.
In this case, the factor of good faith and legality recognized by law (Clause 2, Article 133 of the 2015 Civil Code) needs to be applied to the banking sector differently from other civil and business sectors, to ensure that obligations arising from loan contracts are legally, stably and safely concluded.
Similarly, even if the subjects (borrowers, guarantors) use the criminally-sourced money to pay off a specific loan, this amount has been absorbed into the bank's capital to continue lending to other customers. In this case, the amount of money disbursed by the bank should be considered the basis for law enforcement agencies to recover the misappropriated assets and remedy the consequences, even if the assets are used by the borrower to establish other economic and civil relations.
In summary, the above legal solutions are specified in the resolutions of the court sector, case law, forming habits when lending to credit institutions; contributing positively and effectively, creating connections and binding loan collateral. Through these solutions, credit institutions proactively build legal contract models, minimizing possible risks. It is also a solution to help prosecution agencies assess crimes and handle evidence in lending transactions in the banking sector.
4.2.4. Identify and handle cases of incorrect application of regulations on sanctions due to breach of loan contracts to protect the rights of borrowers.
The practice of signing credit contracts and resolving credit disputes in court shows that: Courts at all levels often misapply the provisions on sanctions for violations of loan payment obligations and interest rates. Many court decisions calculate overlapping interest in the same violation, causing damage to the borrower. The thesis identifies 03 (three) violations when applying sanctions for violations of credit contracts, and proposes specific solutions to overcome this situation as follows:
First, both penalties for late interest payment and overdue debt transfer
The act of imposing both a penalty for late payment of interest and transferring overdue debt is quite common in practice, and was pointed out by the Supreme People's Court's Civil Court in its Decision No. 156/GDT-DS dated July 31, 2012, stating that the violation was caused by the following reasons: The courts at all levels ordered the defendant (borrower) to bear the overdue interest and to pay the penalty interest that was not properly prescribed. 173 Indeed, the act of imposing a penalty for late payment of interest only applies to the interest that must be paid according to the signed contract schedule. This interest rate is agreed upon by the credit institution and the customer but does not exceed 10%/year calculated on the balance of late interest, corresponding to the period of late payment (Clause 4, Article 13 of Circular No. 39/2016/TT-NHNN).
Applying the penalty for late payment of interest is usually only when the credit institution continues to lend to customers who have the conditions to continue performing the contract. In the case of transferring overdue debt, this action is only applied when the borrower reaches the due date to perform the obligation to pay the principal but does not repay the debt. In the case that the credit institution has transferred overdue debt, the credit institution is not allowed to apply additional sanctions for late payment of interest. If the credit institution, during the process of implementing the contract, or the court, imposes a penalty for late payment of interest and simultaneously transfers overdue debt, it is illegal.
Second, both fine for breach of loan contract and transfer of overdue debt
Penalties for breach of loan contracts, applied when one party breaches the contract according to the agreement between the parties (credit institution and customer) or
173 According to the judgment of the Appeal Judgment No. 105/2013/KDTM-PT dated January 18, 2013, Ho Chi Minh City People's Court. The decision of this level court on overdue interest is: 32,632.29 USD; penalty interest is 2,441.57 USD (US dollars). The Final Appeal Decision No. 32/2014/KDTM-GDT dated July 31, 2014 of the Economic Court of the Supreme People's Court later annulled the above judgment. See at: Appendix 03 - Summary of typical dispute cases of the Contract for Construction (Case 06)
According to the law. In principle, the agreement on sanctions for breach of contract must also be in accordance with the provisions of law, only then will the responsibility of the breaching party arise. It is the lack of clarity and specificity between the provisions on contractual obligations according to the agreement or according to the law that leads to the situation where the courts make decisions and issue incorrect judgments, causing damage to the interests of the borrower.
For example : In a lawsuit over a credit contract dispute, the court ruled as follows: " LA Textile Joint Stock Company is required to pay KTVN Joint Stock Commercial Bank as of May 16, 2013 129,921,366,138 VND, of which... interest debt within the term is 83,388,899 VND, overdue interest debt is 21,127,928,821 VND, fine is 34,396,255,603 VND... " 174 .
In this legal situation, the court accepts a fine along with the decision to transfer the overdue debt of the credit institution. However, according to the author, the interest on overdue debt is considered a penalty for breach of contract with the subject of monetary capital, including the material damages of the credit institution (which is the missed profit due to not collecting interest from the loan amount that is late to be collected), so even if the parties have agreed and recorded in the contract a penalty clause for breach of contract based on the amount of principal that is late to be paid, this must still be considered an illegal agreement.
Third, both punish violations and compensate for damages to the lender.
Contractual provisions allowing credit institutions to claim damages against borrowers are not common. However, in reality, they are mentioned sporadically in signed credit contracts.
For example : Credit contract No. 10/2010/HDTD 1-OCEANBANK03 signed between DD Joint Stock Commercial Bank (Saigon Branch) and NY Production, Trade and Service Limited Liability Company, 175 point g, clause 9.1, Article 9 states: " Must compensate all damages to Party B if violating this contract " ("Party B" in this contract is the "lender"). Another contract also specifically states the compensation for damages: " interest, costs paid or payable for loans to cover unpaid amounts of customers " 176 .
The agreement on compensation for damages stated in the above loan contract terms is illegal. The damage to the credit institution for the slow recovery of principal as explained in the thesis is the interest instead of having to lend to other customers. The agreement of the credit institution to apply the sanction of compensation for damages in addition to the overdue debt interest is incorrect. In these cases, if the credit institution requests compensation for damages, the court must declare it invalid. This issue has been recognized and resolved by current banking law and specifically regulated in Clause 1, Article 25 of Circular No. 39/2016/TT-NHNN.
174 Judgment No. 04/2013/KDTM-ST dated May 16, 2013 of the People's Court of TT district, LA province. The appeal judgment No. 25/2013/KDTM-PT of the People's Court of LA province, which was later tried, upheld the entire content of this first instance judgment.
175 This contract was drafted by the bank and has not been officially signed by both parties.
176 See: Section 11, Appendix to Credit Contract No. 2000-LAV-201101382 dated March 14, 2011 between Vietnam Export Import Commercial Joint Stock Bank and TC Rubber Production and Trading Company Limited
From the above-mentioned observations evidenced by trial practice, the thesis proposes solutions to overcome this situation as follows:
Firstly , it is necessary to identify and strictly prohibit credit institutions from proactively drafting loan contracts with illegal provisions that are disadvantageous to the borrower similar to the above-mentioned behavior, and at the same time, have measures to regularly inspect and impose administrative sanctions on credit institutions that intentionally violate;
Second , the amount the borrower pays in excess of the amount that should have been paid will be deducted from the principal, and the surplus, if any, must be returned to the borrower. This must be a solution to limit the borrower from claiming back the money, significantly reducing the amount of debt they have to pay.
Third , the judiciary needs to issue many precedents to create consensus when applying and resolving disputes. This is also an orientation for credit institutions to refer to and apply, avoiding violations like those that have occurred.
Clarifying the principles of interest calculation not only ensures consistency in implementation. If these solutions are implemented, they will also help limit the situation where credit institutions abuse the contract agreement mechanism to issue illegal framework provisions; protect the rights of borrowers; and create trust for organizations and individuals seeking credit institutions when facing difficulties in borrowing capital.
4.2.5. Guarantee the right to request repayment of principal and interest of loan in court or arbitration
Based on the provisions of the Constitution and the law on property rights, Article 18 of Circular No. 39/2016/TT-NHNN specifies the obligation to "repay principal and interest on loans" as a specific and fundamental factor in the relationship between credit institutions and individuals, to protect the property rights of organizations and individuals. In theory, credit institutions must recover the loan in full to repay depositors and investors. However, when applying the provisions on the time limit for filing a lawsuit when credit institutions require customers to fulfill this obligation, there are still different opinions.
Up to now, there has been no sufficient theoretical basis to affirm: The right to request the repayment of principal and interest on a loan is subject to the regulation on the statute of limitations for initiating a lawsuit to resolve a contract dispute of 03 (three) years, from the date the person with the right to request (the credit institution) knows or should know that his/her legitimate rights and interests have been violated (Article 429 of the 2015 Civil Code). From the practice of a number of contract dispute cases that were annulled by higher courts due to incorrect application of the provisions on the statute of limitations for initiating a lawsuit, the thesis analyzes and makes recommendations on this issue as follows:
Current law continues to recognize the statute of limitations for filing lawsuits to resolve contract disputes in order to stabilize business order and prevent disputes from prolonging and causing social instability. Contract disputes are a form of civil or business contract disputes, and commerce is no exception.
Loan contract disputes are understood in a broad sense as conflicts and disagreements of interests between the parties before and after signing the loan contract. Therefore, loan contract disputes include:
includes many different requirements, which need to be distinguished and specifically determined by credit institutions before proceeding with the steps of filing a lawsuit in court or arbitration (for example: disputes over disbursement conditions, credit fee disputes, requests to continue implementing the service contract, etc.).
Normally, the obligation to repay the debt (including principal and interest) is the natural obligation of the borrower. If the borrower fails to repay the debt, the debt will be transferred to overdue debt (the borrower must pay additional penalty interest) until the borrower pays off the debt. 177 Therefore, if the plaintiff's lawsuit (the credit institution) does not clearly state the content and scope of the lawsuit, only generally stating in the lawsuit that it is a dispute over a "loan contract" or "credit contract", then the court can apply the statute of limitations of 03 (three) years to refuse to accept the request to resolve the dispute (Applicable within a period of 03 (three) years, no transaction occurs between the parties that changes the statute of limitations. For example: The bank ignores the debt regardless of whether the borrower has the conditions to pay the debt or not).
In the case where the credit institution only files a lawsuit to request the borrower to repay the principal and interest of the loan, the court will not apply the provisions on the statute of limitations to dismiss the lawsuit (on the grounds that the statute of limitations has expired) because the specialized banking law clearly stipulates: The customer has the obligation to " repay the principal and interest of the loan on time ", along with that, the credit institution has the right to " convert the outstanding debt to overdue debt " until the debt is fully paid. Even if the 03 (three) year period has expired, from the time the payment obligation arises under the contract, or the last time the parties agree to repay the debt, the credit institution still has the right to request and file a lawsuit against the borrower to fulfill the obligation to repay the loan and interest until the debt is paid off.
There is a current view that: Credit institutions can only reclaim the principal without interest, thereby increasing the burden on credit institutions when handling bad debts, 178 which is not consistent with the regulations on debt handling. Indeed, in the author's opinion, current procedural law has provided for cases where the statute of limitations does not apply to ensure the property rights and interests of the parties participating in civil transactions. Article 155 of the 2015 Civil Code stipulates that the statute of limitations does not apply in the following cases: requests to protect personal rights not attached to property; requests to protect ownership rights, except in cases where this Code or other relevant laws provide otherwise; disputes over land use rights according to the provisions of the Land Law; other cases prescribed by law. According to the author, it is necessary to rely on the specific characteristics of the lending relationship to clarify. In particular, the obligation to repay the loan and interest is a mandatory requirement that the borrower must perform, even if the time period for exercising this right exceeds the legal time limit as in other normal civil and business transactions.
In practice, many courts still apply the above provisions to declare the rejection of decisions of lower courts that have declared the statute of limitations for dispute resolution expired.
177 The authors who researched this issue also agree that “ these obligations of the borrower will terminate when they have been actually performed by the borrower ”. See the document: Hanoi Law University (2014), op. cit. (42), p.171
178 Vien The Giang (2016), New regulations on statute of limitations for filing lawsuits and the risk of increasing bad debt . Source: https://www.sbv.gov.vn, accessed on March 11, 2018