The 2024 Law on Credit Institutions in Vietnam includes several noteworthy updates to enhance transparency, reduce risks, and promote fairness within the banking sector. Key highlights are as follows:
1. Disclosure by Shareholders:
Shareholders owning 1% or more of a credit institution’s charter capital must provide detailed information such as their identity, related persons, and shareholding ratios. This information must be publicly disclosed on the institution’s website within seven working days of receipt and reported annually to the State Bank of Vietnam and at shareholder meetings.
2. Reduction in Shareholding Limits:
The law reduces the shareholding cap for institutional shareholders from 15% to 10% and for individual shareholders and their related persons from 20% to 15%. Additionally, major shareholders and their related persons are limited to owning no more than 5% in another credit institution to prevent cross-ownership and undue influence.
3. Ban on Mandatory Insurance Sales with Loans:
Credit institutions are prohibited from tying non-mandatory insurance sales to loan products, aiming to prevent coercive sales practices and potentially slowing the growth of insurance revenue linked to banking products.
4. Regulation of Small Consumer Loans:
Clear criteria are established for granting small-value loans, including verifying the legality of the loan purpose and the borrower’s financial capacity, covering various types of consumer credit such as personal loans, credit card advances, and microfinance.
5. Early Intervention for Weak Credit Institutions:
New provisions allow the State Bank to intervene early when institutions show signs of financial distress, such as significant losses or failure to meet regulatory capital adequacy requirements, with measures including capital increases, cost reductions, and management restructuring.
6. Gradual Reduction of Credit Limits:
The law mandates a phased reduction in the credit exposure limits to a single borrower and related parties, aiming to decrease from the current 15% and 25% caps to lower percentages over the next few years, ultimately reaching 10% and 15% respectively by January 2029.
7. Transfer of Collateralized Real Estate Projects:
Credit institutions are permitted to transfer real estate projects used as collateral to recover debts, without the need to meet the business conditions for real estate transactions stipulated by the Real Estate Business Law. This provision becomes effective from January 1, 2025.
These measures collectively aim to enhance the stability and transparency of Vietnam’s financial system, aligning it more closely with international standards and best practices.
Disclaimer: This Legal Update is intended to provide updates on the Laws for information purposes only, and should not be used or interpreted as our advice for business purposes. LNT & Partners shall not be liable for any use or application of the information for any business purpose. For further clarification or advice from the Legal Update, please consult our lawyers: Mr Le Net at net.le@lntpartners.com
