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 secured by guarantees by other credit institutions, and (3) loans secured by individual saving deposits. The outstanding credit excludes (1) credit extended to a borrower being another credit institution and (2) credit extended by funds entrusted by the Government or other organisations 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.

(d) a bank must not use more than 5% of its charter capital to provide loans to borrowers, who use the loan proceeds to invest in corporate bonds. A bank can only extend a loan of not more than 12 months for the purpose of investing in corporate bonds. A bank must not extend loans for corporate bond investment in the following cases, among other things: (1) the loan is secured by bonds issued by such bank, (2) the loan is secured by the bond purchased by the loan proceed, (3) the borrower is a person specified at (b) or (c) or its related persons, and (4) the bond is not listed or registered for trading on a stock exchange;

(e) a bank must not use more than 5% of its charter capital to provide loans to customers who use the loan proceeds to invest in shares of companies. A bank can only extend a loan of not more than 12 months for the purpose of investing in shares of companies. A bank must not extend loans for investment in shares in the following cases, among other things: (1) the loan is secured by shares issued by such bank, (2) the loan is secured by the shares purchased by the loan proceed, (3) the borrower is a person specified at (b) or (c) or its related persons, and (4) the borrower is a subsidiary or affiliate of such bank;

(f) a bank must not extend credit to a securities company or a fund management company which is controlled by the bank;

(g) a bank must not extend credit which is secured by shares of such bank or of a subsidiary of such bank; and

(h) a bank must not extend credit for the purpose of making a capital contribution or purchasing of shares of any credit institution.

This is contributed by Nguyen Hoang Duy and Le Minh Thuy of Venture North Law Limited.

Update 27 February 2018: Revising (a) to reflect Article 128.3 of the Law on Credit Institutions 2010.

Vietnam Business Law