Vietnam credit institutions law: what the 2024 update changes

Vietnam credit institutions law is being rewritten. The National Assembly is now working through the draft amended Law on Credit Institutions. If it is passed, it will change how banks are owned, how weak banks are handled, and how bad loans are recovered. This note explains the draft in plain terms for borrowers, savers and firms that work with banks.

Nothing is final yet. The points below come from the draft as reported up to 15 January 2024. Wording and dates can still change.

Why the law is being changed

The current rules are Law 47/2010/QH12, which was amended once in 2017 by Law 17/2017/QH14. A temporary tool, Resolution 42, set up a legal framework for handling bad debt. Resolution 63/2022/QH15, adopted on 16 June 2022, extended it until 31 December 2023. That resolution also asked the Government to study and propose writing the bad debt rules into the law itself.

The draft was first presented to lawmakers in June 2023. Delegates gave comments, and the Assembly Standing Committee reviewed a revised text on 9 January 2024. On 15 January 2024, official news reports described the revised draft in detail.

Sources: Government News (baochinhphu.vn), reports of 5 June 2023, 9 January 2024 and 15 January 2024, on the draft amended Law on Credit Institutions.

Who can own a bank

Cross-ownership is a main worry. This means banks owning each other, or a business group setting up a bank mainly to fund its own firms. Delegates said this makes banks harder to supervise and less open about their dealings.

Article 55 of the draft lowers the highest share an individual may own in a bank compared with current law. Some delegates asked for stronger checks on nominee shareholders. These are people who hold shares so that one group can control a bank without saying so. Others warned that tight caps could reduce the money flowing into banking.

For most customers, nothing changes at the counter. The aim is a safer bank, not a different account.

Source: Government News (baochinhphu.vn), report of 10 June 2023 on the National Assembly debate.

Limits on lending and bank boards

The draft sets limits on how much credit a bank may give to one borrower or group. Under the revised text reported in January 2024, these limits would come down step by step over five years from the date the law takes effect. This avoids a sudden shock to the market. A firm that borrows a very large share from one bank may want to talk to that bank about the change.

Another change affects governance. The Government proposed that a commercial bank's supervisory board have at least five members, up from three, and the Standing Committee adopted this. The revised draft also grows to 15 chapters and 210 articles, seven more than the version first submitted.

Source: Government News (baochinhphu.vn), report of 15 January 2024.

Weak banks and special control

The State Bank of Vietnam would decide when a bank goes under special control, but only in cases the law lists. Before that stage, the draft allows early intervention. One trigger is when a bank's accumulated losses pass 15 percent of its charter capital, granted capital and reserve funds, and it also falls below the minimum capital adequacy ratio.

In an exceptional case, the Government may decide special measures to protect the stability of the banking system. It would then report to the National Assembly at the next session. At a review meeting in March 2023, officials said weak credit institutions should be dealt with firmly through mergers, consolidations or buyouts.

Sources: Government News (baochinhphu.vn), reports of 21 March 2023 and 15 January 2024.

Bad debt and collateral

Bad debt rules are a large part of the draft. The idea is to give banks a clear legal basis to recover money when a borrower defaults, instead of relying on temporary measures. One open question in early review was the order of payment when a pledged asset is sold. The State Bank's second option would pay the secured bank debt first, ahead of court fees and taxes. The Ministry of Natural Resources and Environment backed that option. The Ministry of Finance said the duties for taxes and fees still needed clearer rules.

For borrowers, the message is simple. The draft aims to make bad debt handling clearer, so it is wise to keep loan terms and pledged assets well documented.

Source: Government News (baochinhphu.vn), report of 21 March 2023.

What to watch next

The revised draft sets a start date of 1 January of next year, moved from 1 July 2024 in the first version, to line up with related laws. Watch for three things: the final vote, the final ownership limits, and the decrees that will explain how the rules work. The draft gives the Government nine tasks, the Prime Minister one and the State Bank 28 to carry out.

Depositors need to do nothing now. Firms that borrow heavily should ask their bank how the lending limits could affect them. This is general information only. For how the new credit rules affect your own case, ask a licensed lawyer or your bank.

Source: Government News (baochinhphu.vn), report of 15 January 2024.

Sources

https://baochinhphu.vn/xu-ly-nhung-vuong-mac-bat-cap-cua-phap-luat-ve-to-chuc-tin-dung-102230605100010018.htm
https://baochinhphu.vn/dbqh-de-nghi-xu-ly-chat-che-so-huu-cheo-giua-cac-ngan-hang-102230610173617651.htm
https://baochinhphu.vn/tao-hanh-lang-phap-ly-de-kiem-soat-an-toan-he-thong-cac-to-chuc-tin-dung-102230321111852361.htm
https://baochinhphu.vn/ubtvqh-cho-y-kien-ve-giai-trinh-tiep-thu-chinh-ly-du-thao-luat-cac-to-chuc-tin-dung-sua-doi-102240109185317073.htm
https://baochinhphu.vn/to-chuc-tin-dung-bi-ap-dung-kiem-soat-dac-biet-khi-nao-102240115145020281.htm