Introduction

On 18 January 2024, new Law on Credit Institutions (LCI 2024) has been passed by the National Assembly. LCI 2024 will replace the Law on Credit Institutions 2010 (as amended) (LCI 2010) from 1 July 2024. In a series of posts, we will introduce the new changes of LCI 2024.

It seems that the ongoing criminal case against the controlling shareholders of Saigon Commercial Bank (SCB) has motivated the draftsman of LCI 2024 to introduce stricter management toward credit institutions (CIs).

Stricter conditions of independent board members

LCI 2024 tightens the standards and conditions of independent members of the Board of Directors of CIs. Specifically, an independent member of the Board of Directors of a CI must not represent ownership of any share of such CI and not, together with his/her related persons, directly or indirectly own 1% or more of the charter capital of such CI.

A broader range of related persons

LCI 2024 expands the definition of related persons to also cover the relationship between (i) the “grandparent” company/CIs and the “grandchildren” company, (ii) the manager/controller of a parent company/CIs and the subsidiary, and (iii) an individual with his/her wider range of family members.

Changes to indirect ownership definition

Regarding the definition of “indirect ownership”, LCI 2024 replaces ownership through related persons with ownership through an intermediary enterprise. The individual/organization in question must own more than 50% of charter capital of the intermediary enterprise. However, it is not clear if the ownership over the intermediary enterprise is direct ownership only or if it can also be indirect ownership.

LCI 2024 remains unclear on the meaning of owning through entrust investment (sở hữu thông qua ủy thác đầu tư).

Lower share ownership limit

The share ownership limit in a CI of an organization shareholder of such CI is reduced to 10% from 15% as stipulated in LCI 2010. Both direct and indirect ownership is counted toward such limit.

The share ownership limit in a CI of such CI’s shareholder and its related persons is reduced to 15% from 20% as stipulated in LCI 2010. The share ownership limit in another CI of a CI’s major shareholder and its related persons remains at 5%. Similar to LCI 2010, shares entrusted by such shareholder to other organizations or individuals are counted toward such limit. A new point of LCI 2024 is that: if such shareholder is a CI, shares of a subsidiary of which such shareholder owns more than 50% charter capital (CI’s 50% Subsidiary) are not counted toward such limit. It seems that such new exception will enable a major shareholder (which is a CI itself) of a CI (CI 1) to own 5% in another CI (CI 2) while CI’s 50% Subsidiary of such major shareholder can own less than 5% in CI 2. It seems that such new point is purported to prevent double counting the ownership by CI’s 50% Subsidiary due to the changes to indirect ownership definition.

LCI 2024 allows the maintenance of the status quo of ownership ratio exceeding its limits, with an exception that the ownership ratio can increase in case the CI pays share dividend.

Public disclosure by 1% shareholder

LCI 2024 requires each CI’s shareholder owning 1% or more of the charter capital of such CI (1% Shareholder) to provide such CI with information on its related persons and the share ownership ratio of 1% Shareholder and its related persons at the CI. 1% Shareholder is also obliged to update the CI where there are changes to such share ownership ratio of 1% or more. The CI must list such information at its head office. The list of 1% Shareholder must be published on the CI’s website and be submitted in writing to the SBV within 7 working days from the date of such information receipt.

New prohibition on CI’s share purchase and capital contribution

LCI 2024 prohibits a CI and its subsidiaries from contributing capital and purchasing shares of companies/CIs which are related persons of major shareholders or capital contributing members of such CI. The relevant parties are required to have a plan to comply with such prohibition following the regulations which will be issued by the Governor of the SBV later.

New prohibition on abusive bancassurance

Due to alleged cases of forcing borrowing customers to buy insurance, LCI 2024 has clearly prohibited CIs, foreign bank branches, and their managers, operators, and officers from attaching the selling of non-compulsory insurance with the provision of banking products and service under any form.

This post is written by Cao Khanh Linh and Nguyen Hoang Duy and edited by Nguyen Quang Vu.

Vietnam Business Law