Can a foreign bank acquire 100% shares in a Vietnamese joint stock bank?

There has been an argument that under the new Decree 1/2014 a foreign bank may acquire 100% of the shares in a Vietnamese joint stock bank (Local Bank) if (1) the Local Bank is, among other things, a “weak credit institution”, and (2) the Prime Minister approves to increase the foreign ownership limit in the relevant Local Bank to 100%. However, in order for a foreign bank to acquire 100% of the shares in a Local Bank, various legal issues still need to be clarified. In particular,

  •  It is not clear if Decree 1/2014 is applicable to the scenario where a foreign bank acquires shares in Local Bank and becomes a single-member LLC bank owned by the foreign bank. Decree 1/2014 allows the Prime Minister to increase the foreign ownership limit in a Local Bank. However, Decree 1/2014 appears to be drafted on the assumption that the Local Bank will remain to be a joint stock bank even after the acquisition by a foreign bank. For example, all of the provisions in Decree 1/2014 regarding rights and obligations of a foreign investor after acquiring a Local Bank refer to “share” and “shareholders”.
  • A Local Bank is required to have at least 100 shareholders under the Law on Credit Institutions. If a foreign investor acquires 100% of the shares in a Local Bank, the Local Bank will become a 100% foreign-invested bank existing in the form of a single member limited liability company (LLC). The Law on Credit Institutions and Decree 59/2009 currently do not have any specific procedures for converting a local joint stock bank into a single-member LLC bank owned by a foreign bank. Instead, the Law on Credit Institutions and Decree 59/2009 only generally provide that conversion (chuyển đổi) of legal corporate form of a joint stock bank requires State Bank’s approval. As such presumably, the conversion of a local joint stock bank into a single-member LLC bank will need to follow the procedures under the Enterprise Law and Decree 102/2010. This means that, among other things, the conversion would require (1) super majority approval by the General Meeting of Shareholder of the Local Bank and (2) the share purchase price by the foreign bank to be determined according to market price or price determined by certain valuation methods.
  • After a 100% acquisition, the Local Bank will become a 100% foreign-invested bank. Therefore, presumably, the foreign investor will need to satisfy the conditions of setting up a 100% foreign-invested bank in Vietnam in addition to the conditions of acquiring shares in Local Bank in Vietnam.
  • A Local Bank is also a public joint stock company in Vietnam. Therefore, acquiring 100% shares in a Local Bank will be subject to the tender offer rules under the securities law unless an exemption is granted by the General Meeting of Shareholders.
  • A conversion of a Local Bank into a single-member LLC bank owned by a foreign bank would require (1) consent by all of the shareholders of the Local Bank for selling their shares to the foreign bank and (2) super majority approval by the Local Bank’s shareholders. If a shareholder in the Local Bank objects to the 100% acquisition, it may be difficult to complete the acquisition voluntarily. Under the Law on Credit Institutions, only when a Local Bank is put under “special control” (kiểm soát đặc biệt) by the State Bank, the State Bank may compel the Local Bank to be acquired by another bank or by the State Bank itself. Even in case of special control, the legal ground and procedures for a compulsory transfer of shares is still unclear and untested.
Vietnam Business Law Blog

In a recent post, we have discussed the concept of “wholesale” and “retail” as two forms of activities under the regulations concerning trading activities by FIEs in Vietnam. From the commercial perspective, “distribution” (phân phối) activities should involve the purchase or import of goods from suppliers for selling to customers. Thus, if an FIE has registered distribution business (i.e., wholesale or retail), it should naturally be able to import goods to sell within its distribution rights without being subject to further licensing requirements. However, this may not be justified from the legal perspective as the purchase of goods to sell in Vietnam or abroad by an FIE is classified as other forms of trading and should be licensed before implemented. Under Vietnamese regulations,

On 15 October 2018, the Government issued Decree 143/2018, which details regulation on compulsory social insurance (Social Insurance) applicable to foreign employees under the Social Insurance Law 2014. Before the issuance of Decree 143/2018, the Social Insurance Law 2014 only provides that foreign employees would be “allowed” to participate in Vietnam’s Social Insurance from 1 January 2018. For a long time, this vague regulation has given rise to concern as to whether the Social Insurance contribution for foreign employees is compulsory or voluntary. Decree 143/2018 now officially confirms that this is compulsory. In particular,

On 20 August 2018, the Ministry of Industry and Trade (MOIT) issued Circular 21/2018 to amend and supplement some articles of Circular 47 of the MOIT dated 05 December 2014 on management of e-commerce websites (Circular 47/2014) and Circular 59 of the MOIT dated 31 December 2015 on management of e-commerce activities via applications on mobile equipment (Circular 59/2015). Below are some notable provisions of Circular 21/2018.

Set out below are some legal issues in transfer of debts (Debts) from a credit institution (Originator) to a company licensed to trade debts in Vietnam (Debt Trading Co). Debt trading between a credit institution and a credit institution is useful for the credit institution to handle its bad debts or to issue assets-backed securities:

  • Credit institutions are allowed to negotiate loan interest rates based on market demand and supply and the creditworthiness without being restricted to maximum interest rate except in some cases. Meanwhile, interest rates of loans extended by non-credit institutions are subject to the maximum interest rate of 20% per annum under the Civil Code 2015. In practice, interest rates of consumer loans are quite high and could be higher than the maximum rate of 20% per annum. If the interest rate of the Debts is higher than 20% per annum, it is not clear at law whether the Debt Trading Co, upon owning the Debt, can continuously charge such interest rate;

In September 2018, the Government issues Decree 117/2018 on protection of customers information in banking sectors replacing Decree 70/2000. Decree 117/2018 applies to confidentiality, storage and providing of information by credit institutions and foreign bank branches (collectively referred to as CI) relating to the deposit and asset of customers with the CI. The following points are notable:

·       Decree 117/2018 does not apply to, among other things, information, which is classified as State secrets and which is governed by State secrets regulations. Under the old Decision 151/2003 of the Ministry of Police, information regarding customer deposits with a CI is classified as “State secret” at secret level. It is not clear if this classification still remains valid since Decision 45/2007 of the State Bank, which is based on Decision 151/2003, does not list customer deposit information as a State secret. Decree 117/2018 does not clarify this uncertainty;

Decree 9/2018 introduces a new approach regarding trading activities of foreign invested enterprises (FIE) in Vietnam. In particular, wholesale of most goods is not subject to the requirement of Trading License (Giấy Phép Kinh Doanh). However, Decree 9/2018 is still uncertain on the category of wholesale versus retail activities. A clearer definition of these concepts is important because an FIE conducting retail activities must apply for a Trading License with the Ministry of Industry and Trade (MOIT).

Under Decree 9/2018,

  • “wholesale” means the activities of selling goods to (a) wholesalers, (b) retailers, and (c) other traders, organizations; exclusive of retail activities;

  • “retail” means the activities of selling goods to (a) individuals, (b) households, and (c) other organizations for consumption purposes.

There are some issues arising from the above definitions under Decree 9/2018:

The Enterprise Law 2014 provides that in a meeting of the Board of a joint stock company (JSC), a Board director may authorise another person to attend if such authorisation is approved by the majority of members of the Board. However, the Enterprise Law 2014 is silent about the ability of a Board member to authorise another person to vote for such Board member if the Board decides to pass its decision by way of collecting written opinion of Board members.

Under the Law on Construction 2014, a dispute relating to a construction contract can be resolved through mediation, by a commercial arbitration or court “in accordance with law”. This standard wording seems to allow parties to a construction dispute in Vietnam to select arbitration to settle the dispute. However, Circular 26/2016 of the Ministry of Construction provides that a dispute relating to quality of a construction work will be resolved in the following steps: