FX Risk and Governing Law in Cross-Border Credit Agreements

Choosing the governing law for a cross-border credit agreement is one of the highest-stakes decisions a lender or borrower makes before signing. For Vietnamese entities raising capital offshore, this clause interacts directly with Vietnam’s foreign exchange control regime, its rules on recognising foreign judgments, and its own Civil Code conflict-of-laws provisions.

Get the underlying analysis wrong, and even a technically valid English-law or New York-law facility can become difficult to enforce, collateralise, or repay lawfully inside Vietnam.

This article sets out what a properly negotiated governing law clause must cover, how FX risk allocation works alongside it, and what has changed in Vietnam’s foreign loan registration rules that every cross-border lender needs to build into 2026 documentation.

Table of Contents

• 1. Why Governing Law Is Not a Formality in Cross-Border Credit Agreements
• 2. FX Risk Clauses: Currency Indemnity and Judgment Currency Provisions
• 3. Vietnam’s Foreign Exchange Controls: The Practical Limit on Governing Law
• 4. Choice of Governing Law Under Vietnam’s Civil Code 2015
• 5. Enforcing Foreign Judgments and Arbitral Awards in Vietnam
• 6. Pre-Signing Checklist for Lenders and Vietnamese Borrowers
• 7. Drafting Notes for the Governing Law and FX Risk Clauses
• Frequently Asked Questions

1. Why Governing Law Is Not a Formality in Cross-Border Credit Agreements

Philip Wood’s comparative legal-risk framework remains the reference point international lenders use when negotiating this clause of a cross-border facility. His analysis ranks legal systems by how “creditor-friendly” they are — measured by how security interests are treated on insolvency, how fast a secured creditor can enforce, and how predictably a court or arbitral tribunal will uphold contractual bargains.

English law and New York law consistently rank as strongly creditor-friendly because they allow out-of-court enforcement of security, recognise contractual freedom broadly, and give secured creditors priority that is rarely disturbed by an insolvency moratorium.

Vietnamese civil law, by contrast, sits closer to the debtor-protective end of Wood’s spectrum. Secured enforcement typically requires a court process or, at minimum, cooperation from the debtor and relevant registration authorities, and insolvency proceedings under the Law on Bankruptcy can delay a secured creditor’s recovery.

This does not make Vietnamese law unsuitable for domestic financings — it simply means this choice for the credit agreement itself, as distinct from the law governing Vietnam-based collateral, has real economic consequences for recovery timing and cost.

The Governing Law Clause Cannot Override Vietnam’s Territorial Rules

A foreign governing law clause validly chosen for the credit agreement does not automatically extend to security interests over assets located in Vietnam. Under Vietnamese private international law, the law of the place where an asset is situated (lex situs) governs the validity, perfection, and enforcement of security over that asset, regardless of which law the parties selected for the underlying loan.

Lenders who assume that an English-law-governed facility agreement carries an English-law security package into Vietnam are exposed to a real enforceability gap.

Mitigation: obtain a Vietnamese legal opinion confirming that the intended security package is valid and enforceable under Vietnamese law before disbursement, and factor realistic enforcement timelines — often 12 to 24 months through the Vietnamese courts — into the credit committee’s recovery assumptions.

2. FX Risk Clauses: Currency Indemnity and Judgment Currency Provisions

Two clauses sit alongside this provision to manage currency exposure in a cross-border facility, and both deserve more negotiating attention than they typically receive from Vietnamese borrowers.

Currency Indemnity Clauses

A currency indemnity clause requires the borrower to compensate the lender for any shortfall that arises because the currency used to satisfy a judgment or enforce an award differs from the currency the loan was denominated in. If a Vietnamese borrower’s obligations are denominated in US dollars but a domestic court orders payment in Vietnamese dong at the judgment date, exchange-rate movement between the date the obligation arose and the date of actual payment can leave the lender significantly under-recovered.

The currency indemnity clause shifts that shortfall risk back onto the borrower as a separate contractual obligation, independent of the underlying debt.

Judgment Currency Clauses

A judgment currency clause fixes the currency and conversion date used to calculate any award, so that a Vietnamese court or arbitral tribunal cannot default to converting the debt at the judgment date rather than at the date payment was originally due.

Without this clause, a depreciating dong between default and judgment can quietly erode the lender’s real recovery even where the underlying credit agreement is fully performing on paper.

Both clauses should be drafted to survive termination of the credit agreement and to operate as independent, freestanding obligations enforceable even if the principal obligations are held unenforceable for some other reason.

3. Vietnam’s Foreign Exchange Controls: The Practical Limit on Governing Law

No governing law clause, however carefully drafted, displaces Vietnam’s foreign exchange control regime. Vietnam’s foreign exchange rules — grounded in the Ordinance on Foreign Exchange (Ordinance No.

28/2005/UBTVQH11, as amended by Ordinance No. 06/2013/UBTVQH13) — apply to any offshore borrowing by a Vietnamese resident regardless of what law the parties chose to govern the credit agreement.

That choice controls interpretation and remedies between the parties; it does not exempt the transaction from Vietnam’s currency, disbursement, and repayment controls, which are treated as matters of Vietnamese public order.

Offshore Loan Registration Requirements

Self-borrowing, self-repaying offshore loans that are not government-guaranteed are currently governed by Circular No. 08/2023/TT-NHNN, which amended Circular No. 12/2022/TT-NHNN and took effect on 15 August 2023. Under the current regime:

• Medium- and long-term offshore loans (original term exceeding one year) must be registered with the State Bank of Vietnam (SBV) before disbursement, together with a capital-use plan describing the borrower, purpose, and risk-management arrangements.
• Short-term offshore loans that remain outstanding beyond one year from drawdown must be registered with the SBV within 30 working days of the anniversary date, or the loan is treated as improperly disbursed for FX compliance purposes.
• Refinancing of existing offshore debt is permitted up to the aggregate of outstanding principal, interest, and fees on the refinanced debt, plus reasonable refinancing costs — a relaxation from the prior rule that refinancing could not increase the borrower’s overall cost of funds.
• An authorised commercial bank must be used for drawdown and repayment remittances, and the loan account structure must match the registered loan terms exactly, or remittance can be refused at the banking-counter level.

Lenders should verify SBV registration status — not merely contractual compliance — as a condition precedent to disbursement. An unregistered medium- or long-term offshore loan cannot lawfully remit principal or interest out of Vietnam, which in practice suspends the borrower’s ability to service the debt however favourable the chosen governing law otherwise is.

4. Choice of Governing Law Under Vietnam’s Civil Code 2015

Where a Vietnamese court or a Vietnam-seated arbitral tribunal is asked to apply Vietnamese conflict-of-laws rules, Article 683 of the Civil Code 2015 governs the parties’ choice of governing law for a contract with foreign elements. Article 683.1 confirms party autonomy: contracting parties may agree on the law applicable to their contract, provided the chosen law is a substantive body of law (not itself a set of conflict rules) and the choice is permitted by an applicable treaty or by Vietnamese law.

Limits on the Chosen Governing Law

Article 683.4 carves out categories where this party choice is displaced, most importantly for contracts concerning immovable property located in Vietnam, which must be governed by Vietnamese law regardless of what the parties selected. More generally, Article 5 and Article 3 of the Civil Code prevent the application of a chosen foreign law where doing so would contravene the “fundamental principles of Vietnamese law” — a standard Vietnamese courts apply narrowly in practice but that lenders should not assume is merely decorative.

Where no governing law has been agreed, Vietnamese conflict rules apply the law “most closely associated with the contract,” which for many service and financing arrangements defaults to the law of the party providing the principal performance.

Factor	English / New York Governing Law	Vietnamese Governing Law
Security enforcement speed	Often out-of-court; weeks to months	Court-driven; typically 12–24 months
Recognition of party autonomy	Broad, well-established case law	Permitted under Article 683, subject to public-order limits
Governs security over Vietnam-based assets?	No — lex situs (Vietnamese law) applies	Yes, directly
Judgment/award enforcement in Vietnam	Requires separate recognition procedure	Directly enforceable domestically
FX control and loan registration exposure	Unaffected by governing law choice — applies regardless	Unaffected by governing law choice — applies regardless

The practical takeaway: the governing law clause optimises the interpretation, remedies, and creditor-friendliness of the credit agreement itself, but it cannot substitute for a Vietnam-law-compliant security package or for SBV foreign loan registration.

Sophisticated cross-border facilities typically combine a foreign-law-governed facility agreement with Vietnamese-law-governed security documents executed locally — a structure that requires the two document sets to be drafted so they interlock rather than conflict.

Term sheets should record this split expressly, so neither the arranger’s counsel nor local counsel assumes the other has covered the gap between contractual choice of law and asset-location law.

Considering a cross-border facility into Vietnam or reviewing an existing credit agreement? IVLF offers a confidential preliminary risk review of the governing law clause, FX risk allocation, and SBV registration exposure before you finalise term sheets or disbursement conditions. Reach out through our IVLF banking & finance advisory team to scope the review — all discussions are handled under NDA.

5. Enforcing Foreign Judgments and Arbitral Awards in Vietnam

A creditor-friendly governing law is only as useful as the borrower’s ability to enforce a resulting judgment or award inside Vietnam, since most Vietnamese borrowers’ recoverable assets sit onshore. Vietnam is a party to the 1958 New York Convention, and foreign arbitral awards are, in principle, recognised and enforced under Part Seven of the Civil Procedure Code 2015 and the Law on Commercial Arbitration 2010, subject to the limited refusal grounds the Convention allows (improper notice, awards beyond the arbitration agreement’s scope, or conflict with Vietnamese public order).

Recognition of a foreign court judgment is considerably narrower: Vietnam only recognises and enforces a foreign court judgment where a bilateral treaty with the relevant country provides for reciprocal recognition, or on a case-by-case reciprocity basis that Vietnamese courts apply inconsistently.

Why Arbitration Clauses Usually Outperform Foreign Court Jurisdiction Clauses

Because arbitral award recognition rests on a multilateral treaty Vietnam has ratified, while foreign judgment recognition depends on a patchwork of bilateral treaties, cross-border credit agreements governed by English or New York law are markedly easier to enforce in Vietnam when paired with an institutional arbitration clause (SIAC, HKIAC, or ICC, for example) than with an exclusive foreign court jurisdiction clause.

This is one of the most common drafting gaps IVLF sees in facility agreements prepared outside Vietnam: a well-chosen creditor-friendly law paired with a dispute-resolution clause that, in practice, cannot be enforced against the borrower’s Vietnamese assets.

6. Pre-Signing Checklist for Lenders and Vietnamese Borrowers

Before executing a cross-border credit agreement touching Vietnam, both sides should confirm the following:

• Governing law fit: Confirm the chosen law is appropriate for the facility agreement and understand that it will not extend to Vietnam-based security or displace Vietnamese FX controls.
• Security law mapping: Identify which security documents must be governed by Vietnamese law because the collateral is located in Vietnam, and align execution and registration timelines accordingly.
• SBV registration pathway: Confirm whether the facility is medium/long-term (registration before disbursement) or short-term (registration triggered only if outstanding beyond one year), and build registration lead time into the disbursement schedule.
• Currency indemnity and judgment currency clauses: Confirm both are drafted as freestanding obligations that survive termination of the principal facility.
• Dispute resolution mechanism: Favour institutional arbitration over exclusive foreign court jurisdiction where the borrower’s principal assets are in Vietnam.
• Authorised bank account structure: Confirm the disbursement and repayment account matches the SBV-registered loan terms exactly before the first drawdown.

Working through this checklist with Vietnamese counsel before signing — rather than after a registration or remittance problem surfaces — remains the single most effective way to protect the value of a carefully negotiated credit agreement. IVLF’s international arbitration & dispute resolution practice regularly runs this pre-signing review alongside our banking and finance team, for both international lenders and Vietnamese corporate borrowers.

7. Drafting Notes for the Governing Law and FX Risk Clauses

Beyond the headline choice of legal system, three drafting points consistently separate a well-protected credit agreement from one that looks robust on paper but performs poorly on enforcement. First, the governing law clause should expressly state whether it extends to non-contractual obligations arising from the facility, since some jurisdictions otherwise apply a different conflict-of-laws test to tort or restitution claims connected to the loan.

Second, severability language should confirm that the currency indemnity and judgment currency clauses survive even if a court or tribunal holds another part of the agreement unenforceable — this is what allows the FX risk allocation to function as a standalone protection rather than falling away with the primary obligations.

Third, the agreement should nominate a specific authorised bank and account structure for disbursement and repayment, cross-referenced to the SBV registration certificate, so that a change of receiving bank does not inadvertently break FX compliance mid-facility.

Vietnamese borrowers negotiating these terms should also confirm, before signing, how the lender’s choice of governing law interacts with any existing onshore facilities that carry Vietnamese-law governing law clauses and Vietnamese-law security — inconsistent cross-default and intercreditor provisions across a foreign-law facility and a domestic facility are a frequent source of disputes that have little to do with the credit risk itself and everything to do with drafting alignment.

Frequently Asked Questions

Does choosing English or New York governing law guarantee enforceability in Vietnam?

No. A foreign governing law clause is valid for the credit agreement itself, but security over Vietnam-based assets and any resulting judgment or award still require separate validity and recognition steps under Vietnamese law.

Is a currency indemnity clause legally required in Vietnam-related facilities?

No, but it is strongly recommended market practice. Without it, exchange-rate movement between default and enforcement can significantly reduce the lender’s real recovery.

Do Vietnam’s foreign exchange controls apply even if the credit agreement is governed by foreign law?

Yes. FX control and offshore loan registration rules apply to any Vietnamese-resident borrower regardless of the law chosen to govern the credit agreement, and cannot be contracted out of.

What happens if an offshore loan is not registered with the State Bank of Vietnam?

An unregistered medium- or long-term offshore loan cannot lawfully remit principal or interest out of Vietnam through an authorised bank, effectively blocking debt service regardless of the governing law clause.

Should lenders prefer arbitration over foreign court jurisdiction clauses for Vietnamese borrowers?

Generally yes. Vietnam’s treaty-based recognition of arbitral awards under the New York Convention is broader and more predictable than its bilateral-treaty-dependent recognition of foreign court judgments.

Conclusion

Governing law, FX risk allocation, and Vietnam’s foreign exchange control regime are three separate but interlocking layers of risk in any cross-border credit agreement involving a Vietnamese borrower.

A creditor-friendly choice of law protects the parties’ bargain, but it cannot replace Vietnamese-law-compliant security, SBV loan registration, or an enforceable dispute-resolution mechanism.

The practical next step for any lender or borrower structuring a new facility, or reviewing one already in place, is a documentary review that tests the governing law clause against Vietnam’s current FX control and enforcement framework before signing or before the next disbursement.