Banking and Finance

Foreign investors wish to pour money into Vietnam for investment, by and large, will need a bank account to conduct their businesses in Vietnam.

1. Overview
 
As published by the State Bank of Vietnam (“SBV”), as on 30 June 2018, the banking system of Vietnam consists of 4 State-owned commercial bank, 31 local joint stock commercial banks, 2 banks for State’s polices, 48 branches of foreign banks, 9 wholly foreign-owned banks, 4 joint venture banks, 49 representative offices of foreign credit institutions in Vietnam, 16 financial companies, 11 financial leasing companies, 4 microfinance institutions. The figures reveal that the number of credit institutions accounts for a small proportion of total entities doing business in Vietnam. Nevertheless, the potential economic outlook will help boost it further.
 
Foreign investors wish to pour money into Vietnam for investment, by and large, will need a bank account to conduct their businesses in Vietnam.
 

2. Management Agency 
The management on banking and finance sector is implemented by the State Bank of Vietnam (“SBV”). The SBV is a ministerial-level agency of the Government and central bank which plays an important role in regulating the operations of credit institutions, other individuals and organizations doing banking and financial operations, ensuring monetary stability and regulating the money market. The SBV performs State management of monetary, banking and foreign exchange operations and performs the function of a central bank in issuing money, a bank of credit institutions and a provider of monetary services for the Government.
 

3. Banking Activities and Types of Credit Institution 
Under the Law on Credit Institution, an entity conducting banking activities must be a credit institution which is allowed by the SBV.
 
The scope of banking activities that can be performed by credit institutions is summarized in the following table:
 
No. Type Scope of banking activities
 
1 Commercial bank
  • Taking demand deposits, time deposits, savings deposits and deposits of other types;
  • Issuing deposit certificates, promissory notes, treasury bills and bonds to raise capital at home and aboard;
  • Extension of credit: lending; discounting and re- discounting negotiable instruments and other valuable papers; providing bank guarantees; issuing credit cards: domestic factoring; international factoring for banks licensed for international payment; and other forms of credit after obtaining the SBV's approval;
  • Opening payment accounts for clients;
  • Providing payment instruments; and
  • Providing payment services such as domestic payment services, including cheques, payment orders, authorized payment, collection, authorized collection, letter of credit, bank cards, and collection and payment services; international payment services and other payment services after obtaining the SBV's approval.
 
2 Co-operative bank
  • Regulating capital and conducting banking operations for their members comprising the people's credit funds.
  • Therefore, their banking operations and other business activities shall depend on the SBV's written approval.
 
3 Bank for State’s polices
  • The organization and operation of policy banks shall be subject to the sole discretion of the State for non-profit organizations to implement socio-
  • economic policies of the State.
 
4 Finance company
  • Taking deposits of organizations;
  • Issuing deposit certificates, promissory notes, bills or bonds to raise capital from organizations;
  • Borrowing loans from domestic and overseas credit institutions and financial institutions; borrowing loans from the SBV in the form of re-financing;
  • Providing loans, including amortized loans and consumer loans;
  • Providing bank guarantees;
  • Discounting and re-discounting negotiable instruments and other valuable papers; and
  • Issuing credit cards, factoring, financial leasing and
  • other forms of credit extension after obtaining the SBV's approval.
 
5 Finance leasing company
  • Taking deposits from organizations;
  • Issuing deposit certificates, promissory notes, bills and bonds to raise capital from organizations;
  • Borrowing loans from domestic and overseas credit institutions and financial institutions; borrowing loans from the SBV in the form of re-financing;
  • Conducting financial leasing;
  • Providing loans for financial lessees to add to their operating capital;
  • Providing operating leases on the condition that the total value of assets under operating leases does not exceed 30% of their total assets; and
  • Extending credit in other forms after obtaining the SBV's approval.
6 Micro-finance institution
  • Taking deposits in VND in the form of compulsory savings; deposits of organizations and individuals, including voluntary deposits from micro-finance clients, except those for payment purposes;
  • Borrowing loans from domestic and overseas credit institutions, financial institutions and other domestic and overseas individuals and organizations;
  • Extending credit in VND by lending;
  • Guarantees with compulsory deposits or guaranteeing group of savings depositors or loan borrowers; and
  • Opening deposit accounts at the SBV and commercial banks.
 
7 People's credit fund
  • Taking deposits in VND from its members; organizations and individuals other than its members;
  • Providing loans in VND to its members and non- member clients; and
  • Providing money transfer services and conducting
  • collection and payment for its members.
 
 
4. Foreign Investment in Financial Sector 
The forms of foreign investment in banking sector in Vietnam are similar with other sectors (Setting up a foreign invested credit institution; Setting up a joint venture credit institution; Setting up a foreign bank branch; Purchase of shares of a local credit institution). However, Foreign investors investing in banking sector must be subject to a number of conditions.
 
Foreign Ownership
Foreign credit institutions are entitled to establish 100% foreign-owned credit institutions in Vietnam but the percentage ownership of foreign investors in Vietnamese credit institution is still subject to some caps:
  • The holding of a foreign individual shall not exceed 5% of charter capital of a Vietnamese credit institution.
  • The holding of a foreign organization, unless otherwise foreign strategic investor, shall not exceed 15% of charter capital of a Vietnamese credit institution. The holding of a foreign strategic investor shall not exceed 20% of charter capital of a Vietnamese credit institution.
  • The holding of a foreign investor and its affiliates or related persons following the law of Vietnam shall not exceed 20% of charter capital of a Vietnamese credit institution.
  • Total shareholding level of foreign investors shall not exceed 30% of charter capital of a Vietnamese commercial bank.
  • Total shareholding level of foreign investors at a Vietnamese non-banking credit institution shall comply with legislation applicable to public companies and listed companies.
 
In special case, to perform credit institution restructuring for those are weak and faces to difficulties, to ensure credit safety of credit institution system, the Prime Minister shall decide the holding of a foreign organization, a foreign strategic investor, total shareholding level of foreign investors at a weak and restructured joint-stock credit institution, in excess of limit aforementioned.
 
Of note the holdings specified above include the capital amount which foreign investor entrusted for other organizations and individuals to purchase shares.
 
In addition to the maximum limits set out above, a foreign credit institution is only permitted to be a foreign strategic investor in one Vietnamese bank and may not hold (as a non-strategic investor) more than 10%of the shareholding in any other shareholding credit institution in Vietnam.
 
Minimum Capital Requirement
A legal capital requirement applies for credit institutions operating in Vietnam. Legal capital levels for commercial banks, foreign banks’ branches, finance companies and financial leasing companies are at least VND3,000 billion, US$15 million, VND500 billion and VND150 billion, respectively.
 

5. Loan 

General Structure of Loans in Vietnam
Under the Law on Credit Institution of Vietnam, there are three different types of loans: (i) short-term loans, with a tenor not exceeding more than one year; (ii) medium-term loans, with a tenor ranging from above 01 year to 05 years at the maximum; and (iii) long-term loans, with a tenor of more than 05 years. Subject to the purpose of use of the loans proposed by the borrower, which is normally reviewed by the credit institutions, the credit institution can offer the borrower a loan(s) with an appropriate tenor.
 
Security for Loans
While a Vietnam-based credit institution can take security over either movable assets (shares/equity interest, equipment and machinery, cars, stocks and goods in circulation, deposits, accounts, receivables, insurance proceeds, etc.) or immovable assets (land use rights and assets attached to land), an offshore lender can only take security over movable assets.
 
Foreign Loans
Borrowers (organizations only) and the foreign loans must meet the general requirements and additional requirements corresponding to each foreign loan. The State bank shall supervise the borrowers’ fulfillment of requirements for taking foreign loans by verifying the registration of foreign loans.
 
A foreign loan with a tenor over 01 year must be registered with the SBV within 30 days following the execution of the financial documents. The SBV will grant a registration certificate for such foreign loan if the application is valid or a written notice specifying reason of rejection.
 
The borrower shall open and use foreign borrowing and foreign debt repayment account at an authorized credit institution located within the territory of Vietnam to withdraw fund and repay debts incurred from foreign loans and other money transfer activities relating to foreign borrowing and foreign debt repayment and foreign loan guarantee.


6. Foreign Currencies Management 
Within Vietnam, all transactions, payments, listings, advertisements, quotations, pricings, prices in contracts and other agreements of a similar form (including conversion or adjustment of prices of goods and services and the value of contracts and agreements) of residents and non-residents are not allowed to be conducted in foreign currency, apart from some specific cases set out by SBV.
 
Regarding investment activities, by regulatory investment bank accounts, the State controls foreign exchange. Foreign investors are allowed to transfer revenue and disbursements via direct investment capital accounts in both foreign currencies and Vietnamese dong or via indirect investment capital accounts in Vietnamese dong.
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