This post continues discussing some additional changes of the Law on Credit Institution 2024 (LCI 2024). For changes discussed in our Part 1, please see here, in Part 2, please see here.

1. More comment on security agent

As discussed in Part 2, LCI 2024 allows security agent operation. However, the relevant provision of LCI 2024 has the following limitations:

1.1. such provision does not clarify the nature of security agent and whether it is the relation of representative (đại diện) or authorization (ủy quyền) as stipulated under the Civil Code. Under LCI 2024, the activity of security agent is implemented under the provisions of relevant laws, without further clarifying which relevant laws are; and

1.2. LCI 2024 does not provide any details on what a security agent can do (such as definition of security agent or the role of the security agent).

2. New classification for letter of credit

LCI 2024 no longer classifies letter of credit operation as a payment service provided via account (dịch vụ thanh toán qua tài khoản). LCI 2024 now defines letter of credit as a form of credit extension through the issuance, confirmation, negotiation, payment and return of letter of credit.

3. More cases of early intervention

The early intervention concept was first introduced in the 2017 amendment to the LCI 2010. LCI 2024 introduces new cases and applies a lower threshold for some other cases of early intervention. Under LCI 2024, early intervention can be applied to a credit institution (CI) in the following cases:

3.1 accumulated losses of the CI are higher than 15% of value of charter capital, provided capital and reserve funds as recorded in the latest financial statements or under inspection/audit conclusion of competent authority, and the capital adequacy ratio is violated;

3.2 the CI is ranked below average under regulations of the Governor of the SBV;

3.3 the CI fails to achieve the minimum solvency ratio for 30 consecutive days;

3.4 the CI fails to achieve the minimum capital adequacy ratio for 6 consecutive months; or

3.5 a bank run occurred, and the CI sent a report to the SBV.

4. Expected remedy plan in case of early intervention

LCI 2024 introduces a new requirement that existing CIs must prepare an expected remedy plan in case of early intervention and such plan must be duly approved by internal corporate body before 1 July 2025. Such plan must be prepared even when a CI is not subject to early intervention. Without such an approved plan, a CI may subject to restrictions similar to the case where the SBV applies early intervention on it.

For a newly established CI, such CI must prepare an expected remedy plan in case of early intervention within 1 year from the date it is granted with an operation license.

5. Amendment to cases of special control

Under LCI 2024, special control can be applied in the following cases:

5.1 CI subject to early intervention does not submit to the SBV a remedy plan or does not amend its remedy plan in accordance with SBV’s written request;

5.2 during remedy period of early intervention, CI is not capable of implementing the remedy plan;

5.3 CI has not remedied the reason for early intervention when the remedy period expires;

5.4 a bank run occurred and there is a potential risk that may threaten safety of the credit institution system;

5.5 the capital adequacy ratio is lower than 4% for 6 consecutive months; or

5.6 the dissolved CI is found insolvent during the liquidation of assets.

6. Codification of provisions on bad debt handling

LCI 2024 codifies certain provisions of Resolution 42 of the National Assembly dated 21 June 2017 on pilot scheme for bad debt handling of CIs (Resolution 42). Compared to Resolution 42, the provisions of LCI 2024 on bad debt handling have the following notable differences:

6.1 LCI 2024 does not require that the price for the selling of bad debts must be market price;

6.2 LCI 2024 does not provide the CIs with the right to seize (thu giữ) the security assets of bad debts;

6.3 LCI 2024 does not provide that the dispute related to the handover of security assets or right to realize security assets will be conducted under the simplified procedures;

6.4 LCI 2024 removes the exemption from seizure (kê biên) for the security assets of bad debts; and

6.5 under LCI 2024, the court fee and tax directly related to the transfer of security assets (including personal income tax and registration fee) will have higher priority in the payment from the proceeds of the realization of security assets of bad debts.

7. Notable transition provisions

LCI 2024 has the following notable provisions on transition:

7.1 existing CIs are not required to re-apply for operation license;

7.2 contracts which have been signed with indefinite terms containing contents not in accordance with LCI 2024 can be continued until 30 June 2025;

7.3 security assets of bad debts which are real estate projects and are seized under Resolution 42 or are being transferred under Article 10 of Resolution 42 are permitted to apply Article 10 of Resolution 42 until the completion of the realization;

7.4 receivable interest of bad debts and difference between book value and sale value of bad debts and specific provisional amounts for such bad debts, which are allocated under Article 16 of Resolution 42 are permitted to apply until the end of 14 August 2027;

7.5 in general, managers of CIs that do not meet LCI 2024’s requirements can work until the end of their office term. For CIs being single LLC and having more than 9 members of member’s council, such member’s council has to reduce its members before 1 July 2025; and

7.6 CIs that have been licensed to provide factoring and letter of credit operation, respectively, before 1 July 2024 are permitted to continue to provide such operation and other services related to, respectively, factoring and letter of credit, without being required to amend its current operation license.

This post is written by Nguyen Hoang Duy and edited by Nguyen Quang Vu.

Vietnam Business Law