New amendments to the Law on Credit Institutions 2010 in Vietnam

In November 2017, the National Assembly passed various amendments to the Law on Credit Institutions 2010 (LCI Amendments). About two-thirds of the LCI Amendments focus on restructuring, rescue, and liquidation of a credit institution. This probably explains the relatively short period between the issuance of the LCI Amendment and its effective date. The LCI Amendments will take effect from 15 January 2018, less than two months after issuance. The National Assembly usually give a new law six months to one year to take effect. This seems to indicate a sense of urgency by the State Bank of Vietnam (SBV) in dealing with various banks which have been rescued by the SBV for the last couple of years.

In addition to the provisions on restructuring, rescue, and liquidation of a credit institution, the LCI Amendments contain a host of other amendments which aim to improve the governance and operation of a credit institution. These amendments include:

New Decree on registration of mortgages and other security interests in Vietnam

On 15 October 2017, Decree 102 of the Government dated 1 September 2017 on registration of secured transactions (Decree 102/2017) has taken effect. Decree 102 replaces Decree 83 of the Government dated 23 July 2010 (Decree 83/2010) on the same subject matter. Decree 102/2017 introduces the following new points:

A mortgage over assets attached to land has to be registered if such assets have been recorded in a land use right certificate. Before Decree 102/2007, registration of mortgage over assets attached to land is not compulsory.
Procedures for registration of retention of title (a new form of security interest under the Civil Code 2015) are introduced.
The effective date of the registration is amended. Notably, the registration of security interest over land use right or asset attached to land will only be effective after the registrar recorded such registration into the book of registry. On the other hand, Decree 102/2017 expressly recognizes several cases in which, the original effective date of a registration will not change after an amendment to the original registration.
A security interest created over investment project for construction of residential house and works has to be published on the website of the Department of Natural Resources and Environment within five days from the date of registration.
Adding additional secured obligation to a registered security interest will have to be registered, unless (i) the original security agreement has a provision covering future obligations, (ii) there is no addition to security asset, and (iii) the parties only sign supplement agreement rather than new agreement.
Decree 102/2017 also provides a new process for ensuring the continuity of a registration of mortgage of contractual right under a residential house sale and purchase agreement at National Registration Agency of Secured Transactions when it becomes a mortgage of a future residential house at the land registration office. This process will retain the effective date of the original registration.
Decree 102/2017 supplements several cases of rejection of a security registration, including (i) land use right or residential house is not qualified to be mortgaged, (ii) there is accepted dispute regarding land use right or residential house, (iii) the securing party is a judgment debtor or (iv) the security asset had been seized for the enforcement of judgment.
Regarding an application for registration of security interest, the registrar is not allowed to request any document that not required by law or to request the contractual parties to amend the name of the security contract or its contents, except for mistake due to a wrong declaration by the applicant. However, it is not clear what would constitute “a mistake due to a wrong declaration by the applicant”.

This post is contributed by Nguyen Hoang Duy, an associate at Venture North Law Limited.

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Comment

Order of payment priority between unenforceable secured transactions

Under Article 308 of the Civil Code 2015, where all secured transactions relating to the same assets are not enforceable against a third person (unenforceable secured transactions), the order of payment will be determined according to the order in which the unenforceable secured transactions were established. Article 47a of Decree 163/2006 contains a similar provision governing the order of payment priority between the beneficiary of a guarantee and other unenforceable secured transactions. In particular, the order of payment priority among the beneficiary of a guarantee and other unenforceable secured transactions will also be determined according to the order in which these transactions are established.

These provisions give rise to the following issues:

New measures to address non-performing loans in Vietnam

The National Assembly has just passed an important resolution specifically addressing non-performing loans (NPLs) held by credit institutions (NPL Resolution). The NPL Resolution takes effect for a period of five years from 15 August 2017. The NPL Resolution only applies to (1) NPLs arising before 15 August 2017 or (2) NPLs arising after 15 August 2017 from loans which have been extended before 15 August 2017. The NPL Resolution does not make clear whether a credit institution may acquire NPLs from other non-bank entities and use the powers under NPL Resolution to enforce such NPLs.

Vietnam Business Law