Vietnam Law on Credit Institutions 2024

The Law on Credit Institutions 2024 was passed by the Vietnam National Assembly at the 5^th Extraordinary Session of the 15^th National Assembly. After the session, following the provisions of the Law on Promulgation of Legislative Documents, the authorities conducted a technical review of the document. In the article below, Viet An Law Firm will represent the highlights of Law on Credit Institutions 2024.

Background of the Vietnam Law on Credit Institutions 2024

The Vietnam Law on Credit Institutions 2010 contributed significantly to management efforts and created a stable legal environment for the banking system. Specifically, the regulations in the law have:

• Provided a legal framework for the operations of credit institutions.
• Enhanced governance quality: Promoted credit institutions to improve their management and risk management capabilities.
• Facilitated international standards: Helped credit institutions gradually align with international banking standards and practices.

However, after more than 12 years of implementation and an amendment in 2017, some provisions of the Law are no longer suitable for current realities. Furthermore, to meet the increasing demands for financial and credit management aligned with new circumstances and international standards, it is necessary to amend the Vietnam Law on Credit Institutions 2010. Specifically:

• The operations of credit institutions, including new transactions, need to be regulated to establish a basis for implementation, such as treasury operations, payment agent activities, etc. Additionally, technological advancements in banking require a review of the Law to ensure a legal framework for the implementation of electronic banking activities (digitalization of banking operations).
• Although amended in 2017, some provisions in the previous Law on Credit Institutions still need further amendments, such as regulations on special loans, secured assets for special loans, and special control of credit institutions.

Notable contents of the Vietnam Law on Credit Institutions 2024

Format

The newly issued Vietnam Law on Credit Institutions consists of 15 Chapters with 210 Articles. Compared to the previous law, which only had 10 Chapters with 163 Articles, the 2024 Law has increased the number of chapters and articles.

Chapter II on policy banks has been added, and the Chapter on handling bad debts and secured assets for bad debts has been moved ahead of the Chapter on restructuring, dissolution, and bankruptcy. Additionally, the Chapter on special control, mandatory transfer, and bankruptcy of credit institutions under special control has been split into two chapters: (i) Handling cases of mass withdrawals from credit institutions (Chapter XI); and (ii) Special loans (Chapter XII).

Scope and subjects of application

• Regarding the scope, the Law on Credit Institutions inherits the provisions of the previous law, regulating the establishment, operation, special control, restructuring, and bankruptcy of credit institutions; the establishment and operation of foreign bank branches, representative offices of foreign credit institutions and other foreign organizations with banking activities. The Law also adds provisions on handling bad debts and secured assets for bad debts.
• Regarding the subjects, the Law on Credit Institutions adds the subject of application to include organizations wholly owned by the State, which have the function of buying and handling debts. This addition aligns with the inclusion of bad debt handling within the scope of the Law.
• The expansion of the scope and the addition of subjects of application are necessary to meet practical demands and to improve the legal system governing financial and credit activities. Handling bad debts and secured assets for bad debts is an important issue that needs specific regulation in the Vietnam Law on Credit Institutions to ensure the efficiency and safety of the banking system.

Regarding the use of words and terms related to banking activities

In Clauses 10, 12, 13, 28, 31, 36, 39, 42, 43, and 44 of Article 4, the Law on Credit Institutions 2024 provides new definitions for terms such as controlling company, specialized finance company, general finance company, mass withdrawals, mandatory transfer methods, letters of credit, supporting credit institutions, charter capital, statutory capital, and allocated capital.

Regarding the use of banking terms, the Law on Credit Institutions 2024 adds the terms “microfinance institution” and “people’s credit fund”, which were not previously recognized. Accordingly, non-credit institutions and foreign bank branches are not allowed to use terms such as “microfinance institution” or “people’s credit fund” in their names, titles, or any part of their names or titles in documents or advertisements if the use of such terms might mislead customers into thinking they are credit institutions or foreign bank branches.

Information to be provided by shareholders

According to Clause 2, Article 49 of the Vietnam Law on Credit Institutions 2024, shareholders owning 1% or more of a credit institution’s charter capital must provide the following information to the institution:

• Name; personal identification number; nationality; passport number, date of issue, and place of issue for foreign shareholders; business registration certificate number or equivalent legal document for organizational shareholders; date and place of issue of these documents.
• Information about related persons.
• Number and percentage of shares owned in the credit institution.
• Number and percentage of shares owned by related persons in the credit institution.

Minimum customer information for small-value credit decisions

According to Article 102, before making small-value credit decisions, credit institutions must have at least the following information about the lawful use of funds and the customer’s financial capacity:

• Loans for living needs, credit card facilities from commercial banks, and foreign bank branches.
• Financial leases, consumer loans, and credit card facilities from non-bank credit institutions.
• Loans for living needs from people’s credit funds.
• Loans from microfinance institutions.

Notable prohibited actions

Clause 5 of Article 15 of the Vietnam Law on Credit Institutions prohibits credit institutions, foreign bank branches, managers, executives, and employees from linking the sale of non-mandatory insurance products with the provision of banking products or services in any form.

The effective date of the Vietnam Law on Credit Institutions 2024

The Vietnam Law on Credit Institutions 2024 takes effect on July 1, 2024, except for Clause 3 of Article 200 and Clause 15 of Article 210, which take effect on January 1, 2025.

The Vietnam Law on Credit Institutions 2010 (as amended in 2017) will cease to be effective from the date the 2024 Law takes effect, except for provisions in Clauses 1, 2, 3, 4, 8, 9, 12, and 14 of Article 210 of the Law 2024.

For legal consultation on the Vietnam Law on Credit Institutions, civil law, corporate law, and related amendments, please contact Viet An Law Firm for the best support.