For a project subject to performance security, the investor faces two options: pay a real cash deposit into a blocked account, or use a bank guarantee of the deposit obligation instead. The second option preserves cash for the construction phase, but not every guarantee instrument presented is accepted by the investment registration authority. Understanding the acceptance conditions helps the investor negotiate with the bank in the right direction from the start.
This article analyses the bank guarantee mechanism replacing the project performance deposit under the 2025 Investment Law framework: the acceptance basis, the conditions a guarantee instrument must satisfy, the question of guarantees issued by foreign banks, and a realistic view of guarantee costs.
Legal basis: the guarantee as a statutorily recognized form of security
The Law on Investment No. 143/2025/QH15 provides that the project performance security obligation may be performed in one of two forms: the investor posts a deposit, or holds a bank guarantee of the deposit obligation. Decree No. 96/2026/ND-CP regulates performance of this obligation within the project performance security agreement between the investor and the investment registration authority, including how the guarantee instrument is lodged, its term corresponding to the project schedule and the enforcement mechanism when the deposit obligation is called.
On the bank’s side, issuing a guarantee is a credit institution’s guarantee business, performed under the law on bank guarantee activities and the agreement between the bank and the investor. A guarantee instrument valid for deposit purposes must therefore satisfy two condition systems at once: investment law’s requirements on the security obligation (correct amount, correct term, correct beneficiary and payment conditions) and the issuing bank’s own requirements on the investor’s credit file.
Conditions for a bank guarantee to be accepted in lieu of a deposit
Condition 1: The guaranteed amount matches the deposit obligation
The guarantee instrument must guarantee the entire amount the investor must deposit under the project performance security agreement. A guarantee covering only part, or stating an amount below the obligation, will not be accepted as a full substitute. Where the project has several phases and the security obligation is set per phase, the guarantee structure must be agreed clearly so its value always corresponds to the obligation in force at each point in time.
Condition 2: The guarantee term covers the project schedule
The guarantee’s validity must cover the period the deposit obligation exists under the security agreement, tied to the project’s implementation schedule. A guarantee expiring before the project reaches the corresponding refund milestone creates a security gap and forces timely extension or replacement. Track the guarantee expiry as an independent compliance milestone, including when the project schedule is amended.
Condition 3: The issuing bank and the instrument’s contents
The guarantee instrument is issued by a lawfully operating credit institution, with contents clearly stating the bank’s obligation: when the investor falls into a case where the deposit obligation is enforced as prescribed, the bank must pay the corresponding amount into the State budget upon a valid demand. Payment conditions written in the instrument must be compatible with the enforcement mechanism in the security agreement; an instrument with materially different payment conditions may be returned for adjustment by the investment registration authority.
Condition 4: Lodging and confirmation in the project dossier
The guarantee instrument is lodged with the investment registration authority under the security agreement and kept in the project dossier as evidence that the obligation has been performed. Every change to the guarantee — extension, reduction following refund milestones, change of issuing bank — must be notified and updated so the project’s security file always matches reality, avoiding a situation where the paperwork shows a live guarantee while the real one has expired.
| Criterion | Cash deposit | Bank guarantee |
|---|---|---|
| Statutorily recognized | Yes | Yes, a lawful substitute form |
| Core condition | Pay the full amount into the deposit account | Instrument matching the agreement on amount, term, contents |
| Direct cost | Opportunity cost of locked cash | Guarantee fee per the bank’s tariff and credit conditions |
Risks when using a guarantee instead of a deposit
Filing the bank’s standard guarantee template as-is
A bank’s ordinary commercial guarantee template may contain payment conditions, terms or wording incompatible with the deposit obligation enforcement mechanism in the security agreement. The correct approach is to take the requirements from the security agreement and the investment registration authority’s guidance first, then negotiate the instrument’s contents with the bank against those requirements — not the reverse.
Forgetting to extend when the project schedule is amended
When the project schedule is extended, the security obligation lives longer while the original guarantee term does not stretch automatically. If the guarantee lapses mid-way, the project falls into a state of incomplete security performance. Every schedule amendment decision should come with a corresponding guarantee check and extension action.
Judging guarantee cost by the issuance fee alone
The real cost of a guarantee also includes accompanying credit conditions such as collateral, a partial cash margin at the bank, or occupied credit limits, depending on each bank’s policy and the investor’s credit file. Comparing the cash and guarantee options must use total cost and limit impact, with figures from the bank’s actual quotation, not an estimated fee number.
A bank guarantee used in place of a security deposit always has a fixed term, and that term does not extend itself in step with the project’s procedures. If the file goes through so many supplement rounds that the guarantee is about to expire, the investor faces yet another round of work with the bank to extend it, with additional fees and a fresh appraisal. When choosing the guarantee term, add a margin for dossier processing time and related procedures, rather than setting the term to end exactly at the expected certificate issuance date.
A guarantee in place of a security deposit is an option that only stands when both the registration authority and the issuing bank accept it at the time of implementation, under the conditions of the instrument currently in force. Bank-side conditions and forms are not fixed over time either: each bank has its own requirements on financial documents and collateral when issuing a guarantee. Before choosing the guarantee route, the investor should check simultaneously the current legal conditions on security deposits and the specific requirements of the intended issuing bank, to avoid a guarantee being issued only for the authority to decline it.
In short, a bank guarantee is a substitute for the deposit officially recognized by the 2025 Law on Investment, provided the instrument matches the entire deposit obligation in amount, covers the term per project schedule and has payment contents compatible with the security agreement. Start from the security agreement’s requirements, negotiate the instrument with the bank against them, and manage the guarantee term as its own compliance obligation. Done right, the guarantee preserves the project’s cash while fully securing its obligation to the State.
Frequently Asked Questions
Is a bank guarantee accepted instead of a cash deposit?
Yes, it is accepted. The Law on Investment No. 143/2025/QH15 recognizes two forms of performing the project performance security obligation: a cash deposit or a bank guarantee of the deposit obligation. The guarantee instrument must cover exactly the deposit amount under the security agreement, run for a term covering the project schedule, have contents compatible with the obligation enforcement mechanism, and be filed with the investment registration authority in the project dossier.
What conditions must the bank guarantee satisfy?
Three main condition groups: the guaranteed amount must equal the full deposit obligation under the project performance security agreement; the validity term must cover the period the obligation exists per the project schedule and be extended when the schedule is amended; and the instrument, issued by a lawful credit institution, must state the bank’s duty to pay when the investor falls into a case where the deposit obligation is enforced. An instrument not matching the security agreement may have to be corrected before acceptance.
Can a foreign bank’s guarantee be used?
The security dossier filed with the investment registration authority needs a guarantee instrument enforceable within Vietnam’s legal framework, issued by a lawfully operating credit institution. A guarantee issued by an overseas foreign bank usually does not directly meet this requirement as to the issuer and the payment mechanism in Vietnam; in practice, investors work with a bank in Vietnam or a foreign bank branch operating in Vietnam to issue a compliant instrument. Confirm with the investment registration authority and the intended bank before committing to an arrangement.
This article has been quality-reviewed by the FLAW AI Legal Council
