Identifying a major shareholder of a joint stock commercial bank in Vietnam

Under the Law on Credit Institution 2010,

a major shareholder of a joint stock commercial bank in Vietnam (VN Bank) is a shareholder, who owns directly or indirectly at least 5% of the total voting shares of the VN Bank. Indirect ownership is defined as an organization or individual owning the charter capital or shareholding capital of a credit institution via a related person or trust investment; and
a SBV’s approval is required for “transfer of shares by a major shareholder” or “transfer of shares resulting in a major shareholder becoming a non-major shareholder and vice versa”.

Under the definition of a “major shareholder”, a holding company (Parent Co), which indirectly owns shares in a VN Bank through one of its subsidiaries (Sub Co) could be considered as a major shareholder of the VN Bank if the aggregate shareholding is 5% or more. However, in that case, it is not clear:

whether Sub Co or Parent Co or both are considered as major shareholders of the VN Bank. And if the Parent Co only owns a part of Sub Co, then whether the indirect shareholding of the Parent Co in the VN Bank should be calculated with reference to the shareholding of the Parent Co in Sub Co; and
whether a transfer of shares in Sub Co by a Parent Co is considered as a transfer of shares in VN Bank and is subject to SBV’s approval.

Limitations on bank lending in Vietnam

Under the Law on Credit Institutions 2010 (as recently amended), a bank is subject to several limitations when extending a loan and other forms of credit to a borrower including the following:

(a) the aggregate outstanding credit extended to (1) a single client and (2) a single client and its related persons must not exceed 15% and 25% of the equity capital of the bank respectively. The outstanding credit includes, among other things, (1) bonds issued by the client and its related persons, (2) loans to clients being other credit institutions or loans secured by guarantees by other credit institutions, (3) loans secured by individual saving deposits, and (4) loans financed by funds entrusted by the Government, organizations or individuals. The Prime Minister may decide to waive this limitation subject to a limitation of 400% of the equity capital of the bank;

(b) a commercial bank must not extend credit to (1) board member, member of member council, member of board of controllers, general director, director, deputy director, deputy general director and equivalent positions in the commercial bank, legal entities being a shareholder whose representative of the capital contribution portion is a board member or member of board of controllers; and (2) a parent, spouse or child of a board member or member of board of controllers or of general director, director or deputy general director, deputy director and equivalent positions.

A bank must not extend credit to a borrower on the basis of security provided by any of the persons specified at (b);

(c) a bank must not extend credit without security or under preferred conditions to following persons: (1) auditing organization and auditor currently conducting an audit at such bank or inspector currently conducting an inspection at such bank; (2) chief account of such commercial bank; (3) major shareholders and founding shareholders of such bank; (4) companies of which more than 10% of charter capital is owned by one of the persons specified in (b); (5) people conducting appraisal and approval of loans; and (6) subsidiaries or affiliates of such bank or of an enterprise controlled by such bank.

The total outstanding credit balance extended by a bank to all borrowers specified at (1) to (5) must not exceed 5% of equity capital of such bank. Such outstanding credit balance includes the total of the investment and purchase of bond issued by the borrowers (if applicable).

The total outstanding credit balance extended by a bank to a single borrower specified at (6) must not exceed 10% of equity capital of such bank and to all borrowers specified at (6) must not exceed 20% of equity capital of such bank. Such outstanding credit balance includes the total of the investment and purchase of bond issued by the borrowers.

New amendments to the Law on Credit Institutions 2010 in Vietnam

In November 2017, the National Assembly passed various amendments to the Law on Credit Institutions 2010 (LCI Amendments). About two-thirds of the LCI Amendments focus on restructuring, rescue, and liquidation of a credit institution. This probably explains the relatively short period between the issuance of the LCI Amendment and its effective date. The LCI Amendments will take effect from 15 January 2018, less than two months after issuance. The National Assembly usually give a new law six months to one year to take effect. This seems to indicate a sense of urgency by the State Bank of Vietnam (SBV) in dealing with various banks which have been rescued by the SBV for the last couple of years.

In addition to the provisions on restructuring, rescue, and liquidation of a credit institution, the LCI Amendments contain a host of other amendments which aim to improve the governance and operation of a credit institution. These amendments include:

New Decree on registration of mortgages and other security interests in Vietnam

On 15 October 2017, Decree 102 of the Government dated 1 September 2017 on registration of secured transactions (Decree 102/2017) has taken effect. Decree 102 replaces Decree 83 of the Government dated 23 July 2010 (Decree 83/2010) on the same subject matter. Decree 102/2017 introduces the following new points:

A mortgage over assets attached to land has to be registered if such assets have been recorded in a land use right certificate. Before Decree 102/2007, registration of mortgage over assets attached to land is not compulsory.
Procedures for registration of retention of title (a new form of security interest under the Civil Code 2015) are introduced.
The effective date of the registration is amended. Notably, the registration of security interest over land use right or asset attached to land will only be effective after the registrar recorded such registration into the book of registry. On the other hand, Decree 102/2017 expressly recognizes several cases in which, the original effective date of a registration will not change after an amendment to the original registration.
A security interest created over investment project for construction of residential house and works has to be published on the website of the Department of Natural Resources and Environment within five days from the date of registration.
Adding additional secured obligation to a registered security interest will have to be registered, unless (i) the original security agreement has a provision covering future obligations, (ii) there is no addition to security asset, and (iii) the parties only sign supplement agreement rather than new agreement.
Decree 102/2017 also provides a new process for ensuring the continuity of a registration of mortgage of contractual right under a residential house sale and purchase agreement at National Registration Agency of Secured Transactions when it becomes a mortgage of a future residential house at the land registration office. This process will retain the effective date of the original registration.
Decree 102/2017 supplements several cases of rejection of a security registration, including (i) land use right or residential house is not qualified to be mortgaged, (ii) there is accepted dispute regarding land use right or residential house, (iii) the securing party is a judgment debtor or (iv) the security asset had been seized for the enforcement of judgment.
Regarding an application for registration of security interest, the registrar is not allowed to request any document that not required by law or to request the contractual parties to amend the name of the security contract or its contents, except for mistake due to a wrong declaration by the applicant. However, it is not clear what would constitute “a mistake due to a wrong declaration by the applicant”.

This post is contributed by Nguyen Hoang Duy, an associate at Venture North Law Limited.

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Vietnam Business Law