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:
- The LCI Amendments expand the list of “related persons” of a credit institution or an organisation to include persons who have “potentially risky relationship” with the credit institution as determined by the credit institution’s internal rules or by recommendation by the SBV. This amendment could potentially allow various limitations or restriction of the LCI to capture more “related persons” of a credit institution.
- Change of name of a branch of a credit institution is no longer subject to the SBV’s approval;
- The number of days which a credit institution can cease to operate without the approval of the SBV is increased to 5 days;
- Instead of being approved by the SBV, the listing on domestic stock exchange of shares of a credit institution is now only required to be reported to the SBV;
- A major shareholder of a credit institution and his/her related persons are not allowed to own 5% or more of charter capital of another credit institution. This new restriction will probably force many investors who have acquired shares in joint stock banks in Vietnam to sell down their investments;
- The charter of a credit institution and its amendment is now only required to be sent to the SBV rather than being registered like before;
- The General Director and Deputy General Director and similar positions in a credit institution are not allowed to hold the position of a member of the member council, member of the board of directors/controllers of other credit institution except where such other credit institution is a subsidiary of the first credit institution;
- The General Director and the Deputy General Director and similar positions in a credit institution are not allowed to hold the position as the General Director and Deputy General Director and similar positions of another company;
- The Chairman and General Director of a credit institution must not concurrently be Board member or director of another company;
- A person who is considered by the SBV as being liable for the credit institution to be subject to certain type of administrative fines is not allowed to be appointed as board member or director of a credit institution;
- The power to dismiss and appoint internal audit managers in a joint stock bank is transferred from the Board to the Inspection Committee. This change is reasonable as it guarantee the impartiality of the internal audit section;
- A credit institution is forbidden from granting unsecured or preferential loan to its board members and director;
- Various credit limits set out by the LCI including single client concentration limit now include corporate bonds;
- A fund management company owned by a credit institution can now own unlimited ownership in a non-bank entity. In the past, this amount is subject to an 11% limit since the ownership of a fund management company in a non-bank entity is counted toward the credit institution’s ownership in such non-bank entity;
- A shareholder cannot borrow fund from a credit institution to acquire shares in a joint stock bank; and
- The amount of Government bond and Government-guaranteed bond is now regarded as a capital adequacy ratio.
This post is contributed in parts by Nguyen Hoang Duy, an associate and Dinh Khanh Linh, an intern at Venture North Law.