New amendments to some articles on transparency in the sources of funding for contributing and controls on cross-ownership in 2017 Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions
In recent years, due to the growing economy, the bank capital requirement has increased sharply. The pressure of bank capital requirement is so great that a plenty of banks decide to abuse cross-ownership as a powerful tool of increasing the virtual capital. Cross-ownership between companies frequently exists directly; however, it often exists indirectly in Vietnam’s banking industry. For example, cross-ownership occurs when an individual or an organization owns shares in both X Bank and Y Bank. This type of cross-ownership is too sophisticated and difficult to control.
State Bank of Vietnam (“SBV”) has made vigorous efforts to deal with this issue such as (i) issuing Circular No. 06/2015/TT-NHNN Stipulating time limit, process and procedure for transition applied to the circumstance under which shares are owned in excess of permitted limit as prescribed in article 55 of 2010 Law on Credit institutions, (ii) issuing Decision No. 1058/QĐ – TTg on Approving scheme for “restructuring system of Credit institutions associated with settlement of bad debts in the period of 2016 – 2020 to control on cross-ownership,... The most notable dynamic of regulators and legislators is promulgating 2017 Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions with amendments to some articles on transparency in the sources of funding for contributing and controls on cross-ownership.
Firstly, articles on responsibilities for publicity of related interests was supplemented whereby credit institutions shall notify SBV in writing of the information about related interests within 07 working days from the day on which the credit institution receives information. (Article 39.4)
Secondly, Article 54.1.c regulating obligations of common shareholders was amended as follows:“Take legal responsibility for the legitimacy of the sources of funding for contributing, buying, receiving shares at the credit institution; do not use credit extended by the credit institution or foreign bank’s branch to buy or receive shares from the credit institution; do not contribute capital or buy shares of a credit institution in the name of another individual or legal entity in any shape or form, unless it is authorized in accordance with law;”
Thirdly, 2017 Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions has improved regulations on ineligibility for credit extension, credit restrictions and credit extension limits.
Lastly, 2017 Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions regulating levels of the total share ownership rate was amended. While 2010 Law on Credit Institutions only regulated that a shareholder and his/her/its affiliated persons may not own over 20% of the charter capital of a credit institution, the provisions of 2017 Law Amending and Supplementing are more detailed as follows: “A shareholder and related persons of such shareholder must not own shares whose value exceeds 20% of charter capital of a credit institution, except for the cases specified in Points a, b, c Clause 2 of this Article. A major shareholder of a credit institution and related persons of such major shareholder must not own shares whose value is 5% or more of charter capital of another credit institution”.
The 2017 Law Amending and Supplementing a number of articles of the 2010 Law on Credit Institutions takes effect on January 15th, 2018.
