Amendments to the 2010 law on credit institutions



Amendments to the 2010 Law on Credit Institutions

Diep Hoang, Partner, Dilinh Legal

4 December 2012

On 20 November 2017, the National Assembly of Vietnam passed the Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions (“Amended Law”). The Amended Law is aimed at providing further guidance on the handling credit institutions under special control by the State Bank of Vietnam (“SBV”) and amends a number of articles of the 2010 Law on Credit Institutions. The changes brought about by the Amended Law include restrictions on executives holding positions in other companies, the qualifications of executives, and special control measures that may be exercised by the SBV. The Amended Law takes place on 15 January 2018.

Bank executives are prohibited from holding multiple positions in other companies

The Amended Law strictly prohibits the executives of credit institutions (including chairman, board of directors, general director, deputy general directors) from holding executive positions in any other corporate entities. This restriction is likely to create hurdles for a significant number of commercial banks in Vietnam because many of their executives do in fact hold executive positions in other companies.

Qualifications for members of the Board of Directors

The Amended Law removes the requirement that the members of the board of a credit institution must to be a shareholder or an authorized representative of shareholders holding at least 5% charter capital of credit institution. However, the Amended Law now requires the members of the board to hold at least a university degree. The Amended Law has a grandfather clause that allows current board members who would not be qualified under the new regulations to hold their board positions until the expiry of their current appointed term.

Obligations of Shareholders

Under the Amended Law, shareholders are prohibited from using funds from credit institutions in which they have equity interest to purchase shares or share capital of such credit institutions. In addition, the use of nominee shareholders is strictly prohibited under the Amended Law, except for permitted trust activities.

Early intervention by SBV

The Amended Law allows SBV to take early intervention action against credit institutions which (i) fail to maintain the prudential limits for 6 months, (ii) fail to maintain liquidity requirements for three consecutive months, or (iii) for being ranked “below average” by the SBV. The early intervention period shall be for 1 year. During early intervention, SBV shall apply a recovery plan which many include (i) downsizing of the scope of operation, avoidance of large transactions; (ii) charter capital increase (iii) avoidance of dividend and profit distribution, (iv) reduction of operational cost, and (v) corporate re-organization and employee layoff.

Credit institutions under special control

The Amended Law sets out in detail and broadly increases the authority of SBV to apply necessary measures to credit institutions placed under special control.

Under the Amended Law, credit institutions falling under the following circumstances shall be placed under special control by SBV: (i) becomes insolvent, (ii) accumulated losses exceed fifty percent of its charter capital and reserves funds, (iii) being ranked as bad bank for two consecutive years by SBV, and (iv) failure to maintain minimum capital adequacy for 12 consecutive months or minimum capital adequacy being less than 4% in the six consecutive months.

SBV shall decide on the measures and timing for special control as well as appoint the members of the special control committee.

The Amended Law provides that if credit institutions fail to recover under the recovery plan or fail to increase its charter capital, the SBV shall decide or propose remedial measures to the government.

These measures may include:

  • Merger, transfer of shares or charter capital of credit institutions under special control; or
  • Compulsory transfer. Under the compulsory transfer, the shareholders/transferers must waive its rights and benefits in such credit institution and the transferee must satisfy the condition of operating profitably within 2 consecutive years and having adequate capital for additional capital contribution plan; or Bankruptcy.
  • Bankruptcy of credit institutions shall be conducted in accordance with procedures of relevant courts of Vietnam and laws on bankruptcy of credit institutions.

These new regulations on special control provides the legal framework necessary for the government to better handle underperforming banks.

The Amended Law will become effective on 15 January 2018. For more information on the Amended Law, please contact Ms. Diep Hoang at