The importance of shareholding ownership ratio of a foreign investor in a Vietnamese commercial bank

It is important to determine the shareholding ownership ratio of a foreign investor in a Vietnamese commercial bank (a VN Bank), since:

there is different foreign ownership cap applicable to each type of foreign investor in a VN Bank (see here);
there are different requirements applicable to a foreign investor in a VN Bank depending on the shareholding ownership ratio of such foreign investor. For example, a foreign investor with 10% or more shareholding ownership must, among other things, have an international credit rating and must have a total assets of US$ 10 billion or more (for investors being financial institutions) or a charter capital of US$ 1 billion or more (for investors being non-financial institutions);
there are different approval procedures applicable to a foreign investor acquiring shares in a VN Bank depending on the shareholding ownership ratio that the investor intends to acquire. For example, an acquisition resulting in a less-than 5% shareholding ownership ratio by a foreign investor is not subject to approval by the State Bank of Vietnam (SBV). An acquisition resulting in a shareholding ownership ratio between 5% to less-than 10% is subject to an approval procedures different from an acquisition resulting in a a shareholding ownership ratio of more than 10% (see here); and
there are different transfer restrictions applicable to a foreign investor in a VN Bank depending on its shareholding ownership ratio. For example, a foreign investor with a less-than 5% shareholding ownership is not subject to any share transfer restriction. A foreign investor with a shareholding ownership ratio between 5% to less-than 10% may transfer shares subject to SBV’s approval for transfer shares by a major shareholder. A 10% or more foreign investor is not allowed to transfer shares for at least three years.

However, determination of the foreign ownership ratio held by a foreign investor in a VN Bank is not always straightforward since the Law on Credit Institution 2010 and Decree 1/2014 may take into account “indirect ownership” (sở hữu gián tiếp) when determining the foreign ownership ratio held by a foreign investor (see here).

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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.

IS SOCIAL INSURANCE PAYABLE DURING PROBATIONARY PERIOD OF A LABOUR CONTRACT IN VIETNAM?

According to Social Insurance Law 2014, from 1 January 2018, any employee working under a labor contract with a term of from one month to three months must participate in the compulsory social insurance scheme (SI Requirement). The social insurance contributions are paid by both employer and employee subject to the contribution rate, of which the employer usually pays larger part. However, it is not clear whether an employee working under a “probation labour contract” (hợp đồng thử việc) with a term of from one to two months (Probationary Contract) must comply with the SI Requirement. There are various views on this issue.

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.

Vietnam Business Law