A ship mortgage is the backbone of vessel lending, and for Vietnamese shipowners and the foreign banks that fund them, the quality of that security decides whether a loan is bankable. Vietnam’s maritime sector is growing, yet lenders still ask the same questions: how is a ship mortgage registered, who ranks ahead of it, and what happens when the borrower defaults?
This guide explains the Vietnam Maritime Code 2015 framework, the covenants and collateral that surround a ship mortgage, and the practical risks for domestic and cross-border lenders.
Table of Contents
- The Vietnamese Ship Finance Landscape
- Ship Mortgage Registration under the Vietnam Maritime Code 2015
- Priority: Ship Mortgage versus Maritime Liens
- Loan-to-Value Covenants and the Security Package
- Charter-Backed Financing and Earnings Assignment
- Insurance Assignment, Flag and Class Requirements
- Enforcement: Vessel Arrest and Judicial Sale
- Treaty Position and the Cross-Border Lender Perspective
- A Practical Ship Mortgage Checklist
- Frequently Asked Questions
The Vietnamese Ship Finance Landscape
Who borrows and who lends
Vietnamese borrowers are typically privately owned dry bulk, tanker, container feeder and offshore support operators, often holding each vessel through a single-purpose company. Lenders include domestic commercial banks, foreign bank branches, regional shipping lenders and, increasingly, leasing and debt funds. Each lender type applies different credit appetite, but all of them start with a first-ranking ship mortgage as the core security.
Typical facility structures
The common ship mortgage structure is a term loan for an acquisition or newbuilding, secured by a ship mortgage, an assignment of earnings and insurances, a pledge over operating accounts and a parent or sponsor guarantee. Newbuilding loans add refund guarantees from the yard’s bank and progress-payment controls. Second-hand tonnage is financed at lower advance rates because age, class status and resale liquidity directly affect recoveries.
Vietnamese banks also operate under the Law on Credit Institutions 2024 and State Bank of Vietnam prudential limits, which affect single-borrower exposure and sector concentration.
Ship Mortgage Registration under the Vietnam Maritime Code 2015
The Vietnam Maritime Code 2015 (Law No. 95/2015/QH13, in force since 1 July 2017) governs ship mortgages over Vietnamese-registered ships, supported by the Civil Code 2015, Decree 21/2021/ND-CP on security measures and Decree 171/2016/ND-CP on ship registration. Lenders should always check the current consolidated texts before signing.
What can be mortgaged
A registered seagoing ship may be mortgaged, and the Code also recognises a mortgage over a ship under construction. The mortgage must be in writing, identify the secured obligation and the vessel, and be signed by the owner. Because a Vietnamese ship mortgage binds third parties only through registration, a lender should treat the mortgage deed as incomplete until the registry entry is made. Common practice is to mortgage the whole ship, including its equipment, rather than individual shares.
Ship mortgage registration steps
Registration is made with the Vietnam Maritime Administration’s ship registry, which maintains the national ship register. The lender or owner files the mortgage contract, evidence of title and any required consents, and the registry records the mortgage and issues proof of registration. The sequence matters: the ship’s own registration must be clean, existing encumbrances must be searched, and the registry extract should be reviewed before drawdown.
Deregistration or change of flag is normally blocked while a registered ship mortgage remains outstanding unless the mortgagee consents, which is a key protection to preserve in the loan agreement.
Disposals and consent
Under the general security framework, the owner should not sell, transfer or further encumber the vessel without the mortgagee’s consent. Lenders still draft negative pledges, change-of-control and sale-proceeds sweeps into the facility, because registry protection alone does not stop operational leakage of cash.
Priority: Ship Mortgage versus Maritime Liens
Priority is where ship finance diverges most from ordinary secured lending. The Code recognises maritime liens, privileged claims that attach to the ship itself and can outrank a registered ship mortgage. The categories follow international practice and generally include crew wages, claims for loss of life and personal injury connected with the ship’s operation, salvage rewards, port, canal and pilotage dues, and tort damages from ship operation.
Their statutory order of ranking, and their short limitation periods, should be confirmed against the current Code text.
How maritime liens affect recoveries
In a forced sale, proceeds are applied first to enforcement costs, then to maritime liens in their statutory order, and only then to the mortgagee. A lender that discovers unpaid crew wages or a collision claim late in the process can see a meaningful share of the sale price absorbed. Maritime liens also follow the vessel into a new owner’s hands, which is why buyers and lenders both run lien searches.
Priority among mortgagees
Between competing mortgages over the same ship, rank follows the order of registration. A first-ranking ship mortgage therefore needs to be registered promptly, and the loan agreement should prohibit any junior mortgage without intercreditor terms. Vietnamese law does not create the same long-standing statutory “preferred mortgage” regime found in some flag states, so lenders typically describe their security as a registered first mortgage and test its priority against the maritime lien list instead of relying on a label.
| Claim or security | Legal basis | How it arises | Ranking in a sale |
|---|---|---|---|
| Maritime liens | Vietnam Maritime Code 2015 | By operation of law, no registration | Ahead of registered mortgages, in statutory order |
| Registered ship mortgage | Maritime Code, Civil Code, Decree 21/2021 | Written contract plus registry entry | After liens; among mortgages by registration date |
| Earnings and insurance assignment | Contract, Civil Code assignment rules | Agreement plus notice and acknowledgement | Depends on notice and account control |
| Unsecured creditors | Civil and bankruptcy law | Judgment or claim | After secured creditors |
Loan-to-Value Covenants and the Security Package
Loan-to-value and valuation mechanics
Because vessel values move with freight cycles and a ship mortgage is only as good as the vessel behind it, loan-to-value covenants are the principal early-warning device. A typical facility sets an initial advance rate against market value and requires the borrower to maintain a minimum security cover ratio, tested against valuations from independent brokers on a semi-annual or annual basis.
If the ratio falls below the threshold, the borrower must prepay, post additional collateral or add a further vessel within a cure period. Well-drafted loan-to-value covenants specify who selects the valuers, whether the lender may order extra valuations at the borrower’s cost, and how a charter in place affects the valuation basis.
Other financial covenants
Alongside loan-to-value covenants, lenders usually take minimum liquidity, debt service coverage and gearing tests at borrower or guarantor level, plus restrictions on dividends and affiliate loans. For Vietnamese borrowers, covenants should be calibrated to dong and foreign-currency cash flows, since hire is often paid in US dollars while some costs are in dong.
The wider security package
Beyond the ship mortgage itself, lenders take share pledges over the owning company, a pledge of earnings and operating accounts, an insurance assignment, a manager’s undertaking and sponsor guarantees. Each element needs its own perfection step under Vietnamese law, such as notarisation, registration of pledged shares or account control agreements, so the closing agenda should list them one by one.
Charter-Backed Financing and Earnings Assignment
Why charters matter to credit
Charter-backed financing links repayment of the ship mortgage loan to contracted hire rather than to spot-market earnings. A time charter or bareboat charter with a creditworthy charterer, particularly one with a remaining term that covers a large part of the loan, can justify a higher advance rate and a longer tenor. The lender therefore underwrites the charterer as much as the vessel and examines off-hire, early termination, sub-letting and redelivery clauses.
Assignment mechanics
The borrower assigns its rights to hire and other earnings to the lender, who should give notice to the charterer and obtain a signed acknowledgement agreeing to pay into a designated account. Under the Civil Code 2015, assignment of a right to payment is effective between the parties by agreement, but a charterer who is not notified can still pay the borrower and obtain a good discharge. A notice and acknowledgement is therefore not optional in charter-backed financing.
Earnings accounts and cash control
Where the account sits in Vietnam, banks can apply account control and set-off rights under domestic foreign-exchange rules. Where the account sits offshore, the structure must also fit State Bank of Vietnam foreign-exchange requirements for Vietnamese residents. Either way, a waterfall that routes hire through the earnings account, services debt first and releases the balance to the owner only if covenants are met gives the lender early control.
Insurance Assignment, Flag and Class Requirements
Insurances and the insurance assignment
Lenders require hull and machinery cover, war risks, protection and indemnity entry and, for newbuilds, builder’s risk. The insurance assignment gives the lender rights over claims proceeds, with the lender named as loss payee or co-assured, and a notice of assignment and loss payable clause acknowledged by the insurers or brokers. Insured values should normally exceed the loan amount by a set margin.
Where cover is placed with foreign insurers, the Law on Insurance Business 2022 and its implementing rules on cross-border placement should be reviewed, as should the P&I club’s rules on mortgagee interest.
Flag and registry requirements
A Vietnam-flag ship must be registered under Vietnamese law, and the Code and implementing decrees restrict who may own a Vietnamese-flag ship and set age limits for imported second-hand ships. Lenders therefore verify the owner’s eligibility, the ship’s registry certificate, nationality documents and any foreign-ownership limits. Where the ship flies a foreign flag, the ship mortgage is typically registered with that flag state under its law, and Vietnamese security is limited to shares, accounts and guarantees.
Classification and statutory certificates
The ship should be classed with Vietnam Register or an IACS member and hold valid statutory certificates under SOLAS, MARPOL and related conventions, with no overdue surveys or conditions of class. Class and flag compliance protect the ship mortgage and are standing covenants and typical events of default.
Enforcement: Vessel Arrest and Judicial Sale
Vessel arrest in Vietnam
Vessel arrest is the lender’s first practical lever against a defaulting owner. The Code permits arrest of a ship by court order to secure certain maritime claims, which are listed in the Code and, in practice, are understood to cover claims connected with a ship mortgage. Applications are filed with the competent provincial People’s Court under the Civil Procedure Code 2015 rules on provisional measures, usually supported by security for wrongful arrest.
Because the court’s discretion and local practice matter, lenders should confirm the list of arrestable claims against the current Code before relying on it.
Judicial sale and distribution
Enforcement of a ship mortgage proceeds either by agreed sale under the security contract and Decree 21/2021, or through court judgment and civil judgment enforcement under the Law on Enforcement of Civil Judgments, with sale by auction under the Law on Property Auction 2016. Judicial sale gives the buyer clean title in principle, and proceeds are distributed in the priority order described above.
Delay is the main commercial risk: crew claims, maintenance costs and deterioration while the ship is detained erode value, so lenders should budget for custodial costs and plan an early commercial sale if a consensual route exists.
Foreign judgments and arbitration
Loan agreements with foreign lenders are often governed by English or Singapore law with arbitration. Vietnam acceded to the 1958 New York Convention in 1995, so foreign arbitral awards can be recognised through the Civil Procedure Code process, although the Ministry of Justice and the courts apply public-policy grounds. Recognition of foreign court judgments is harder and should not be assumed.
Treaty Position and the Cross-Border Lender Perspective
Convention status (to be verified)
To our knowledge, Vietnam has acceded to key safety, pollution and labour instruments such as UNCLOS, SOLAS, MARPOL, the 1992 CLC and the Maritime Labour Convention, but is not a party to the 1952 or 1999 Arrest Conventions or the 1993 Convention on Maritime Liens and Mortgages. This matters because a lender cannot assume foreign mortgage recognition or uniform lien ranking by treaty. Status changes, so counsel should check the IMO and United Nations depositary records for the current position before advising.
Foreign-exchange and regulatory points
Offshore lenders to Vietnamese borrowers should consider State Bank of Vietnam rules on medium and long-term foreign loans, including registration and the borrower’s eligibility to borrow, as well as repayment through designated accounts and remittance rules. Failure to register can restrict debt service remittance and affect enforceability in practice. A ship mortgage over a Vietnam-flag vessel and security over other Vietnamese assets require Vietnamese-law perfection even when the loan is offshore-governed.
Structuring options for international lenders
Common solutions include owning the vessel in an offshore special-purpose company under a recognised flag with a first mortgage there, supported by Vietnamese-law guarantees and share security from the Vietnamese sponsor, or keeping the vessel under Vietnam flag with a registered ship mortgage when cabotage or policy reasons require it. The best choice depends on trading pattern, tax and the lender’s recovery appetite. For related structuring advice, see our banking and finance practice and project finance team.
A Practical Ship Mortgage Checklist
Before signing
Confirm the owner’s title, flag eligibility and class status; order registry and lien searches; review charters and manager agreements; obtain independent valuations; and map foreign-exchange and licensing approvals. Check the current text of the Code and implementing decrees, since requirements change and Vietnamese authorities sometimes interpret them inconsistently.
At closing and after
Register the ship mortgage promptly, deliver notices of assignment and obtain acknowledgements, confirm the insurance assignment is endorsed, set up the earnings account waterfall, and diarise surveys, valuation dates and insurance renewals. Authorities and international bodies publish useful data: see the IMO status of conventions and the Vietnam Maritime Administration for registry and regulatory guidance.
Frequently Asked Questions
Can a foreign bank take a ship mortgage over a Vietnam-flag vessel?
Yes, a registered ship mortgage can secure a foreign lender, but the loan may need State Bank of Vietnam registration, and the mortgage must be registered with the Vietnamese ship registry to bind third parties and obtain priority.
Do maritime liens rank ahead of a registered ship mortgage?
Generally yes. Maritime liens, such as crew wages and salvage, arise by law and rank ahead of mortgages in a sale. Confirm the statutory order and limitation periods in the current Maritime Code.
What loan-to-value ratio do lenders usually require?
It varies by vessel age, type and charter cover. Lenders commonly advance a minority-to-majority share of market value and test security cover periodically, requiring prepayment or extra collateral if the ratio falls below the agreed threshold.
How long does vessel arrest and judicial sale take?
Arrest can be sought quickly as a provisional measure, but sale through judgment enforcement and auction can take many months. Duration depends on court workload, disputes with other claimants and the vessel’s condition.
Is Vietnam a party to the ship arrest and maritime lien conventions?
To our knowledge, no for the 1952 and 1999 Arrest Conventions and the 1993 Liens and Mortgages Convention. Verify current status with the IMO and UN depositary records before relying on this.
Speak to IVLF Advisors About Your Vessel Financing
IVLF Advisors LLC advises shipowners, banks and funds on vessel acquisition, refinancing and enforcement in Vietnam. Contact our banking and finance team in Ho Chi Minh City or Hanoi for a confidential preliminary consultation on your ship mortgage structure.
Your next step is simple: send us the draft term sheet or existing security documents, and we will map registration, priority and enforcement risks against the current Vietnamese rules before you commit funds.
Disclaimer: This article provides general information only and is not legal, tax or financial advice. Laws and regulations change, and you should obtain advice on your specific circumstances before acting.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
