CHAP 1: OVERVIEW OF LAW ON FINANCE & BANKING

I. FUNDAMENTALS
1. Definition:
Law on finance and banking is the legally enforceable rules made by authorities to govern
the relations arising in banking and financial activities.

● Legally enforceable rules: Compulsory + Sanctioned

● National assembly: made the law in Vietnam
● Banking and financial activities:
○ The management of money
○ The process of establishment, management and usage of monetary funds
○ Public finance & private finance:

Public finance Private finance

Envolve of public entity: government Private parties:

→ State budget (ngân sách nhà nước) → Credits (more often)
→ Credits → Corporate finance
→ Insurance (Compulsory) → Insurance
→ Residential finance

● Banking activity shall be the permanent trading, supply of one or more of following
operations:
○ Deposit taking: nhận tiền gửi
○ Credit extension: cấp tín dụng
○ Supply of account payment services: Cung cấp các dịch vụ thanh toán qua tài
khoản
○ For example:
■ Company A takes advantage of its temporary funds to give B a loan of
VND 500 mil in the next 6 months with prepaid interest rate of 1.2%/month →
not permanent trading
■ Mr C remits VND 10mil to his relatives via post office → not among 3
activities listed in the law
■ A,B,C → There is only credit institution that can conduct the banking activities
2. Governing scope

Finance Banking

Relations arising in the process of

establishment, management and usage of
monetary funds by the state
Relations arising in the process of
establishment, management and usage of
monetary funds by
3. Methodologies
● Order-Obey based method: Mệnh lệnh phục tùng → public sector
● Consent based method: mutually agreement → usually private sector
● Mixture based method → banking/insurance sector

4. Sources of law
4.1. Sources of law in vietnam & their hierarchy
Legislation (Văn bản luật)
● Constitution (Hiến pháp): Fundamental/Basic/Supreme law (Luật tối cao) is the special
thing of Constitution → Highest validity
○ Version: Now version 2013. First version 1946
○ Prevail: Constitution acts should follow first, if other laws which is contrary to
Constitution → Unconstitutional (vi hiến). Then it should be abolished/revised/amended
to make sure the alignment with constitution
○ Content: Political system & Human rights
● Acts (Đạo luật) = Law (Luật)
○ Validity: carry same meaning, validity
○ Preference: Vietnam prefers to “Law”, while “Acts” is used in common law
system
● Codes (Bộ luật):
○ For example: Civil code, criminal code, labor code
○ Governing scope of the law is narrow than the code, because law is focus one
specified field
○ Criminal code: spreads down in every aspects as long as it’s criminal
○ Civil code: but not disputes is governed by civil code.
■ For example: marriage, property,
○ If something is governed by the code and the law, which should be prevail?
■ Law and Code is share the same validity. When it comes to reality,
specialized law (luật chuyên ngành) should be prevailed

Delegated legislation (Văn bản dưới luật)

? Legislation should be prevailed because it is made by higher authority.
● Ordinances (Pháp lệnh)
○ Issuance: by The Standing Committee (Ủy ban thường vụ quốc hội)
○ VD: pháp lệnh ngoại hối
○ Reason: Ordinances in stead of updating law.
■ Process of law is complicated and should be approved by higher authority →
taking-time process
■ Urgent
■ Unstable, changing
● Decrees (Nghị định)
○ Issuance: by Government
○ Main function: Provide detailed guidelines on the law to make the law more specific to
apply → because law is general and hard to apply
 ● Circulars (Thông tư)
○ Issuance: by Minister of Ministry and Head of Ministerial-level agencies (SBV,
Government office - VP Chính phủ, Uỷ ban dân tộc, Government Inspectorate -
Thanh tra chính phủ)
○ Main function: Provide detailed information and guidance for decree
● Official letter (Công văn)
○ Law on the legal documents specified
○ Official letters and other similar documents are not legal normative documents,
so they are not commonly used as a legal basis in courts. However, these
documents contain specific directives and instructions of superior State agencies
sent to lower State agencies, so in practice, lower State agencies still comply
with these documents.
○ Urgent situation
4.2 Sources of FBL in Vietnam
Banking: 05 Acts - 01 Ordinances - Hundreds of pieces of delegated legislation (i.e. decrees &
circulars) (as of Jan 2021).
● Law on credit institutions 2010 (amended 2017)
● Law on State Bank of Vietnam 2010
● Law on deposit insurance 2012 (amended 2013)
● Law on negotiable instruments 2005
● Law on prevention of money laundering 2012
● Ordinance on foreign exchange 2006 (amended 2013)
○ Not allowed to exchange in foreign currency → return money, but not pay the interest in
transaction because it is null and void.
II. LEGAL RELATIONS OF BANKING AND FINANCE
1. Definition:
● Legal relations of banking and finance are social relations arising from banking and
finance activities
2. Elements:
● Parties: State, organizations, individuals
● Object: Interests that the parties aim at
● Content: Rights and obligations

? Which of the following are the legal relations of banking & finance
● Company A imported wines for sales
→ Should be governed by commercial law but because of excise tax (thuế tiêu thụ đặc
biệt) → relation of banking & finance + obligations & rights of government
● Company A grants a loan of 500 mil VND to B
→ Not a relation of banking of finance because the civil code applied in this case
● B opened a savings account at VCB
→ Based on the credit institution law → Relation of banking & finance
● Prudential VN provides loans to customers
→ Relation of banking & finance because
● SBV issued Circular 24/2012/TT-NHNN regarding the termination of mobilization
and provision of loans in gold by credit institutions
→ State management of SBV → Relation of banking & finance
CHAP 2: LAW ON BANKING IN VIETNAM
I. LAW ON CREDIT INSTITUTION
1. Definition, Features and types of credit institutions
1.1. Definition
● “Credit institution means an enterprise conducting one, some or all banking
operations…” (Article 4.1 – Law on credit institutions)
1.2. Features
● Economic organization with the purpose of conducting business (Tổ chức kinh tế)
● Having its own name, assets, stable office
● Conducting banking operations (hoạt động ngân hàng) is considered as regular
main business activity.
● Under the control of The state bank of Vietnam
● Others feature that help to distinguish the credit institution vs other companies:
○ Other enterprises is under the control of the Department of Planning and
Investment in every province/city.
○ Requirement to become a manager/executive/… of credit institution
1.3. Types

Bank: Ngân hàng

● Commercial bank: Ngân hàng thương mại
○ State-owned: Nhà nước
○ Joint stock: Cổ phần
○ Joint Venture: Liên doanh
○ Wholly foreign-owned: 100% vốn đầu tư nước ngoài
● Policy Bank: Ngân hàng chính sách
● Cooperative Bank: Ngân hàng hợp tác xã
Non-bank credit Institution: Tổ chức tín dụng phi ngân hàng
● Finance Company: Công ty tài chính
● Financial leasing company: Công ty cho thuê tài chính
Microfinance institution: Tổ chức tài chính vi mô
People’s credit fund: Quỹ tín dụng nhân dân

a) Bank
 Commercial Bank Policy Bank Cooperative Bank

Example - Vietnam Bank for

Social Policies
- Vietnam
Development Bank"

Definition Commercial bank means a The Government shall Cooperative bank

type of bank which establish policy banks means a bank of all
may conduct all banking operating not for people’s credit funds
operations and other profit to implement established by
business activities the State’s people’s credit funds
(Article 107) under this socio-economic and some legal
Law for profit. policies. entities by contributing
capital under this Law
for the main purposes of
systematic link, financial
support and capital
balancing within the
system of people’s
credit funds.

b) Non-bank credit institution

Bank Non-bank credit institution

● Allow to conduct one or some

banking operations
● Not allowed to take deposits of
individuals
● Not allowed to provide services
of payment via client accounts

Financial company Financial leasing company

● Not allowed to provide ● To conduct financial lease

payment services ● At the end of lease contract, the
● Not allowed to receive ownership transfers leasee
under-one year-deposit ● Movable assets

c) Microfinance institution
● Microfinance institution means a type of credit institution which mainly conducts some
banking operations to meet the needs of low-income individuals and households and
super small sized enterprises.
● Low-income: Based on: area and monthly income: 200,000 VND
 ● Size: Based on scale of company, number of employees, total capital 10bil-20 bil certain
fields (trade, services, construction,...)

d) People’s Credit Fund

● People’s credit fund means a credit institution established voluntarily by legal entities,
individuals and households as a cooperative to conduct some banking operations under
this Law and the Law on Cooperatives for the main purpose of mutual assistance in
production and business development and life.

Review:
1. Credit institution is claimed to be a special company → TRUE
● Conducting banking operations (hoạt động ngân hàng) is considered as regular
main business activity.
● Under the control of The state bank of Vietnam
● Requirement to become a manager/executive/… of credit institution

2. Credit institution are entitled to take deposits of individuals → FALSE

→ Non-bank not allowed to
3. Banks are established and operated for profit → FALSE
→ Policy Bank not for profit
4. HSBC Bank Vietnam Limited is a foreign credit institution → FALSE
HSBS Bank Vietnam Limited is wholly foreign owned bank but set up legal entity in Vietnam
→ Vietnam’s bank → not foreign credit institution

2. Organization, governance and administration of credit institutions

● Limited liability
● Joint-stock company
○ Anonymous company: dont care who you are, just care only the capital you put in
the company
● Cooperative

Article 6. Organizational forms of credit institutions

● 1. Domestic commercial banks established and organized as joint-stock companies,
except the case defined in Clause 2 of this Article.
● 2. State commercial banks established and organized as one-member limited liability
companies with wholly stale-owned charter capital.
● 3. Domestic non-bank credit institutions established and organized as joint-stock or
limited liability companies.
● 4. Joint-venture or wholly foreign-owned credit institutions established and organized as
limited liability companies.
● 5. Cooperative banks and people's credit funds established and organized as
cooperatives.
● 6. Microfinance institutions established and organized as limited liability companies.
 1-MEMBER LLC JSC LLC COOPERATIVE

State-owned bank - Domestic Joint-stock - Joint-venture credit - Cooperative bank

bank institutions → - People’s credit
- Domestic Non-bank combinations of funds
credit institutions domestic due to
established and
operated under VN law
- Wholly foreign-owned
credit institutions
- Microfinance
institutions
- Domestic Non-bank
credit institutions

2.1 Forms of enterprises under The Law on enterprises 2020 (46-87)

2.1.1 Limited liability company (46-87)
a) Two or more members (46-73) vs One member (74-87)

Two or more LLC 1-member LLC

Member 2-50 Organizations or Individuals One organization or individual

(46.1) (74)

Member Liability Members are liable for the Member is liable for all debts and other
debts and other property property obligations of the company to
obligations of the enterprise the extent of the amount of the charter
within the amount of capital capital of the company.
contributed to the enterprise,
except for the case stipulated in
article 47.4 of this Law

→ The property of individuals → The property of individuals investors

investors and companies is separate.
You only paid the debtors the
principal you have put in the company
→ Company has to pay the debt itself
when bankruptcy → Risk for
investors
and companies is separate. You only paid
the debtors the principal you have put in
the company
→ Company has to pay the debt itself
when bankruptcy → Risk for investors

Ability to issue No except when it converts to No except when it converts to become

share become a shareholding company a shareholding company

WHY? WHY?
> Violates the law > Violates the law
> Closed-company - small scale > Closed-company - small scale
business business
Legal entity (Pháp From the date of issuance of its From the date of issuance of the ERC.
nhân) Enterprise Registration Certificate
→ The asset is (ERC) - Giấy chứng nhận thành
separate of its lập doanh nghiệp
members and
other members

Capital - Contributed asset: Art 34 Capital contribution: In full within the

contribution > Knowledge/Beauty may not be
accepted as a asset by authority
- Valuation of contributed
assets: Art 36
- Transfer of ownership of
contributed assets: Art 35
> When contributed the assets to the
company → transfer the ownership
and the assets is owned by the
company
time limit (Art 75)
Capital withdrawal and transfer: Art
75
Adjustment to charter capital: Art 87
> Decrease of charter capital -
Condition?
● Can decrease as long as you
pay all the debts
> Increase of charter capital

- Obligation of capital
distribution: Members must
contribute capital to the company
in the full and in the type of assets
as undertaken when registering
establishment of an enterprise,
within a period of ninety (90)
days from the date of issuance
of the ERC, excluding the duration
of transporting or importing assets
contributed as capital and
conducting administrative
procedures for conversion of
ownership of assets
> Must contribute within 90 days

Transfer of Restrictions: Art 51-52-53

contributed > Transfer the capital amount to
capital amount the remaining members with the
portion of them. If they can’t/don’t
want purchase, transfer for the
outsiders of the company.
Because the LLC is closed
company, the members know
everyone very well

Redemption of When? Art 51.1, 53.4

contributed > Amendment of or addition to the
capital amount provisions of the charter of the
(Mua lại phần vốn company relating to the rights
góp) and obligations of members and of
the Members’ Council;
> Reorganization of the company
(split 2 companies, merge with
others companies

Consequences?
> Termination of member status
> The charter capital will be
decreased

Management Institutional owner

structure ● Members’ Council → President →
Controlling board
● President → Controlling board
Individual owner
State-owned LLCs and its
subsidiaries: Controlling board is
compulsory

The remainder: controlling board is

optional.

Legal Law on enterprise: Art 12

representative > Legal representative of an
enterprise means an individual
representing the enterprise to
exercise the rights and perform the
obligations arising out of
transactions of the enterprise, and
representing the enterprise to act
as the person lodging a petition for
resolution of a civil matter, as a
plaintiff, defendant or person with
related interests and obligations in
arbitration proceedings or courts
and to exercise other rights and
perform other obligations in
accordance with law.

Members’ Council Position

> Highest-decision making body
> Comprise all members:
● Members’ council meeting
(Art 57)
● Rights and obligations (Art
55.2)
Chairman
 > Shall be elected by the MC
> Concurrently act as director
> Term of office: <= 5 years
(without term limit)
> Rights and obligations: art 56

Director/General > Management day-to-day

Director business operation
> Act as chairperson of company
> May be legal representative
> Rights and obligation: Art 63.2
> Criteria and condition: Art 64

Controlling board Rights and obligations: Art 65.3

Review
● A multiple member LLC is considered as a legal person when registering for business
→ FALSE. From the date of issuance of its Enterprise Registration Certificate
(ERC)
● A multiple member LLC is allowed to issue all kind of securities
→ FALSE. No except when it converts to become a shareholding company (Art 46)
● The time limit for members to contribute the capital to the LLC as committed is agreed
upon by all members
→ FALSE. Within a period of ninety (90) days from the date of issuance of the ERC
Discussion 1
A, B, C together established D Co. Ltd. Upon their agreement of capital contribution, A
committed to contribute 500 mil, B with 350 mil and C with his factory of 450 mil. After that, C
wants to contribute his 450-million car instead of his factory as committed.
● Is C allowed to change his type of contributed assets?
Yes, if more than 50% of other members so agree according to Article 47.2
[Article 47.2] "A member of the company is only permitted to contribute capital to the
company by another type of assets different from the assets undertaken if more than
fifty (50) per cent of other members so agree"
● On the due date, B contributed 200 mill (The (committed capital amount is 350mil).
○ How to deal with the unpaid capital amount?
And the unpaid capital amount shall be offered for sale in accordance with a resolution
or decision of the Members' Council. [Article 47.3.c]
○ Is B still the member of the company? If yes, what is his liability?
B is still a member and only has the rights corresponding to the committed capital
contribution portion already paid. [Article 47.3.b & 47.4]

[Article 47.3] Where a member fails to contribute capital or fails to contribute pay] in full
the capital contribution portion as under taken upon expiry of the period stipulated in
clause 2 of this article, it shall be dealt with as follows:
 (a) The member failing to contribute capital as undertaken automatically ceases to be a
member of the company;
(b) The member failing to pay in full its capital contribution portion as undertaken has the
rights corresponding to the capital contribution portion already paid;
(c) The capital contribution portion not yet paid by a member shall be offered for sale in
accordance with a resolution or decision of the Members' Council.
Discussion 2
X Co.,Ltd:
A: 200 mil → 16%
B: 300 ml → 24%
C: 250 mil → 20%
D: 350 mil → 28%
E: 150 mil. → 12%
Charter capital amount =1250 mil. C wants to transfer his capital amount:
● The 4 remaining members want to purchase C’s capital amount
A+B+D+E = 1000 mil
A: 200 mil → 20% → 50
B: 300 ml → 30% → 75
D: 350 mil → 35% → 87.5
E: 150 mil. → 15% → 37.5
● Only A&B want to purchase
A+B=500mil
A: 200 mil → 40% → 100
B: 300 mil → 60% → 150
● Only E wants to purchase
E<= 250 mil
E has the right to purchase up to 250mil. If E can’t purchase the total 250mil, C can offer
to outsiders the remaining amount of capital

Discussion 3
The difference of redemption and transfer the contributed amount in LLC:
Redemption Transfer

Entire the amount of capital contributed → A part of the amount of capital contributed → No
Termination of member status effect on member status

The charter capital will be decreased (the The charter capital remains unchanged
company has to pay the redemption) (increase/decrease between members)

The company will receive the amount of the Anyone can receive the transfer capital
redemption contributed

If you want to redeem the chartẻ capital, must Transfer to members or non-members
satisfy the Article 51.1 anytime
Discussion 4
● A company is entitled to have more than one legal representative
FALSE → Art 12.2. LLCs and shareholding companies may have one or more legal
representatives. Not other companies.
● Legal representative of a company can be a foreigner
TRUE → if residing in Vietnam Art 12.3
● Director of an LLC is always the legal representative of such company.
FALSE → The company must have at least one (1) legal representative holding the position of
chairman of the Members' Council or director or general director. If the company charter does not
contain any [relevant] provision, then the chairman of the Members' Council is the legal
representative of the company
● The legal representative is entitled to sign all kinds of contracts on half of the company
unconditionally
FALSE → Value more than 50% needs to get approval from the Members’ Council.
● Each type of enterprise may have more than one legal representative.
FALSE → Art 12.2. LLCs and shareholding companies may have one or more legal
representatives. Not other companies.
● Chairman of an LLC may not be the member of such company.
FALSE → Art 56.1 The Members’ Council shall elect a member to be its chairman.
● A controlling board is compulsory in the organizational structure of an LLC
FALSE → Art 4 State-owned LLCs and its subsidiaries: Controlling board is compulsory
● A LLC director must have experience in company management.
TRUE → Art 64

Discussion 5
Duong, Thanh, Trung, Hai established the Pacific Co., Ltd specialized in export and export
promotion. The company has registered the charter capital of 5 VND billion. The capital
contribution of each member are as follows:
● Duong contributed 800 million in cash (16% of charter capital)
● Thanh contributed via the debt certificate of Thanh My company of 1.3 VND billion. It is
agreed by all members that this certificate is valued at 1.2 billion (24% of charter capital)
● Trung contributed capital by his house whose value at the time of the capital contribution
is 700 million. However, all the members agreed to evaluate it at 1.5 billion (30% of
charter capital) as they all believe that the house price will be significantly increased
given that the road in front of the house rmay be expanded in the near future
● Hai committed to contribute VND 1.5 billion in cash (30% of chartered capital) but initially
contributed only 500 million VND. The rest 1 billion will be paid under the company's
request
After 3 months of its operation, Hai failed to contribute the rest capital amount as committed and
the company has a net profit of 800 million.
● Does Hai receive the profit in the proportion to his contributed capital (500 million) or his
committed capital amount (1.5 billion)?
Proportion to his contributed capital
 ● Is it legal to contribute capital by a debt certificate? Thanh My company paid off only 600
million because of its bankruptcy. Does Thanh have to contribute the rest? How will the
profit be distributed?
Yes, debt certificate can convert to cash according to Art 34.2. Thanh does not have to
contribute because the debt certificate is belonged to company’s property. Thanh will
receive the profit according to the proportion of contribution
● ls it legal if the house was overvalued compared with its actual value at of capital
contribution?
Art 36.2 In case a contributed asset is valued at a value higher than its actual value at
contribution time (overvalued), the members/partners/founding shareholders shall jointly
contribute an amount equal to the difference and are jointly responsible (trách nhiệm
liên đới) for the damage caused by the overvaluation.

2.1.2 JSC (111-176)

2.1.2.1. Characteristics
a. Member: Shareholders may be organizations or individuals; the minimum number of
shareholders is three (3) and there is no restriction on the maximum number (111.1b)
b. Member liability: Shareholders are liable for the debts and other property obligations of
the enterprise to the extent of the amount of capital contributed to the enterprise (111.1c)
c. Ability to issue shares: A shareholding company may issue shares, bonds and other
types of securities of the company. (Key difference with others: issue shares)
d. Legal entity status: from the date it is granted an ERC
2.1.2.2 Types of shares
Shares can be freely transferred, except for 3 cases
● Transfer restrictions stipulated in the company charter
● Voting preference shares not allowed to transfer
● Ordinary shares of founding shareholders within 3 years from the date of issuance of
ERC
Between founding shareholders: freely transferred
Other shareholders/person: approved by GMS (General meeting of the Shareholders)
Remark: Art 120.4
Discussion: Restrictions on the first buying, the second transfer is accepted
a) Ordinary shares: Mandatory
● Owner: individual/organization
● Transfer: freely transferred except the cases stipulated in art 120.3, 127.1
● Voting: 1 ordinary shares = 1 vote
● Cannot be converted into preference shares
b) Preference shares: Optional
● Voting preference shares: Cổ phần ưu đãi biểu quyết
● Dividend preference shares: Cổ phần ưu đãi cổ tức
● Redeemable preference shares: Cổ phần ưu đãi hoàn lại
● Other preference shares stipulated in the charted of the company
 Voting Dividend Redeemable

Pros 116.1 117.1 118.1

> Carries more > A dividend is > Ask the
votes than paid at a rate > company to
ordinary share an ordinary share repurchase at
(up to the charter or at an annual anytime.
of the company) fixed rate. > Bankrupt,
> When expiry, > Upon redeemable
voting preference dissolution or receive >
shares shall be bankruptcy of the Dividend > Voting
converted into company, to + Ordinary +
ordinary shares. receive a part of Other type of
> Only the the remaining shares
organization assets in
authorized by proportion to the
the Government ratio of ownership
(State-owned) of shares in the
and founding company after the
shareholders company has
have the right to paid in full
hold voting its debts and
preference shares redeemable
preference
shares;

Cons > Non - > Not have the > Not have the
transferable right to right to
> Founding: vote/attend vote/attend
Valid for 3 years + meetings of the meetings of the
Convert into General Meeting General Meeting
ordinary ones of Shareholders/ of Shareholders/
when expiry nominate nominate
(Protect in first 3 candidates to the candidates to the
years after BOM and the BOM and the
establishment & Controlling Board Controlling Board
and Fair for other
shareholder after
that)
> Organization
authorized:
unlimited
(belonged to state
so do whatever
they want)

Discussion: Independent member of BOM

1. Mr A - The chief accountant of the company
FALSE → Currently working
 2. Ms B - a shareholder of the company owning less than 1% of the total vote
TRUE
3. Mr C - a major shareholder of the company
FALSE → Less than 1
4. Ms D - the son-in-law if the director of the company
TRUE
5. Mrs E whose younger brother is the current member of the BM
FALSE → No because current members of the BM

Discussion 1
● THE B.M HAS 5 MEMBERS: A Chairperson), B, C, D, E.
● 4 members attend the meeting to vote on the dismissal of General Director H and G's
appointment as new G.D. Results:
● A, B agree to dismiss H and appoint G
● C,D object to the dismissal and appointment
● E sends the vote by mail: "Object to the dismissal of Mr H"
Who is the G.D? H or G?
● Article 157.9d Based on majority rules, H stills a G.D (3/2 objections). Appoint G (2/2 Support)
→ G is general director.
● The general director is still H because he doesnot be dismissed
2.1.2.3 Management structure
2.1.3 Partnership (177-187) – Công ty hợp danh
2.1.4 Sole proprietorship (188-193) – Doanh nghiệp tư nhân
2.1.5 Corporate group (194-197)
2.1.6 State-owned Company (88-110)
3. Establishment, granting licenses, special control, dissolution, bankruptcy of credit
institutions
4. Operation of credit institutions
4.1 Capital mobilization
● Deposit taking (Art 13.4)
○ Demand deposit
○ Time deposit
○ Savings deposit
○ Issuance of deposit certificate, promissory note, bills
● Borrowings
○ From other credit institutions (Art 100; 108.1.c; 112.3; 119.2)
○ From SBV
■ Refinancing (Art 11)
■ Special loan (Art 24.2)

Discussion 1
● Why we don’t insure the deposit in foreign currency?
Interest rate
4.3 Banking services:
a) Credit contract (Hợp đồng tín dụng)
● A credit contract is an agreement between credit institutions and customers to establish
rights and obligations, under which credit institutions lend an amount of money to the
customers in the principle of principal and interest repayment to be fully made.
● Features
○ Parties
■ Lending credit institutions (Art 2.2 Circular 39/2016/TT-NHNN)
● Commercial bank
● Cooperative bank
● Non-bank credit institution
● Microfinance instituion
● People’s credit funds
● Foreign bank branches
■ Borrowing customers (Art 2.3 Circular 39/2016/TT-NHNN)
● Legal entities established and operated within the territory of
Vietnam and/or those established abroad and legally operated
within the territory of Vietnam; • Vietnamese and/or foreign
nationals.
● Vietnamese and/or foreign nationals.
● Condition: Must fulfill 5 conditions:
○ 1. If that customer is a legal person, it must have civil
capacity in accordance with the civil law jurisdictions. If that
customer is a natural person, (s)he must be aged exactly
18 years or older and have full capacity for civil conduct in
accordance with the civil law jurisdictions, or must be aged
between exactly 15 and nearly 18 years and must not have
his/her incapacity or restricted capacity for civil conduct as
provided by laws.
○ 2. Demonstrate that customer’s demands for a loan to be
used for legally accepted purposes.
○ 3. Establish that customer’s plan for effective use of
borrowed fund.
○ 4. Prove the customer’s sound financial capability to repay
debt owed.
○ 5. Where that customer obtains a loan from a credit
institution on which the interest rate is prescribed by
Clause 2 Article 13 hereof, it shall be rated transparent and
healthy in its financial status by a credit institution.
○ Forms of contract
○ Objects
Discussion 1:
● A foreigner is not allowed to borrow money from the vietnamese credit institution
 FALSE → as long as they fulfill the conditions to borrow money according to Article 7 of
Circular 39/2016/TT-NHNN
● A credit contract need not be made in writing
FALSE → Article 23. Loan agreement
1. The loan agreement must be made in writing, including the following minimum
requirements
● A credit contract is null and void without specifying capital utilization purpose
TRUE → Demonstrate that customer’s demands for a loan to be used for legally accepted
purposes.
● The ownership of collateral is transferred from the mortgagor to the mortgagee in
the mortgage agreement

b) Legal issues on security for loan

● Security without assets
○ Fidelity guarantees (Bảo lãnh tín chấp)
○ Guarantees
● Security with assets
○ Pledge
○ Mortgages
○ Pledge, mortgage of the third party’s assets

Discussion 1:

Mortgages Pledges

Art 317 - Civil code Art 309 - Civil code

● use by one party - mortgagor of ● delivery by one party - the pledgor of

property under its ownership as
security for the performance of an
obligation to the other party - the
mortgagee without transferring such
property to the mortgagee.
property under its ownership to
another party - pledgee as security for
the performance of an obligation.
● Not transferring ownership.

Guarantees Fidelity Guarantee

Art 335 - Civil code Art 345 - Civil code

● an undertaking made by a third ● A socio-political organization at the

person - the guarantor to an obligee -
beneficiary to perform an obligation on
behalf of an obligor - principal if the
obligation falls due and the principal
fails to perform or performs incorrectly
grassroots level may provide a fidelity
guarantee in order that poor
individuals and households are able to
borrow sums from credit institutions
for purposes of production, business
 the obligation. or consumption in accordance with
law.

Guarantees Fidelity guarantee Tín chất

Art 335 - Civil code Art 345 - Civil code

● an undertaking made by a third ● A socio-political organization at the

person - the guarantor to an obligee -
beneficiary to perform an obligation on
behalf of an obligor - principal if the
obligation falls due and the principal
fails to perform or performs incorrectly
● the obligation.
grassroots level may provide a fidelity
guarantee in order that poor
individuals and households are able to
borrow sums from credit institutions
for purposes of production, business
or consumption in accordance with
law.

c) Pleading/Mortgage Contract
● Form:
○ Made in writing
○ Be notarized or certified (if applicable)
■ Certified (Chứng thực)
● A copy of original (chứng thực bản sao giống với bản chính)
● Signature
● Check on the form
■ Notarized (Công chứng)
● Check the contents
○ Registered with security transaction (if applicable) - Đăng ký giao dịch bảo đảm
(Art 298 - Civil code)
○ Legal consequences (Art 297 + Art3208): set priority for the use of registered
with security transaction

Discussion 2:
Security contract Mortgage contract

● Hợp đồng chính Hợp đồng phụ

● Do not be affected when the mortgage
contract is terminated
● Have not been performed → terminate. If
already performed → still valid and
protect the third parties.

Discussion 3:
Company A borrowed money from bank B and used its property as collateral which was
registered at a competent authority. A continued to borrow money from bank C and used
the above property as collateral (The title document was delivered to bank Cand the
collateral was then registered at the competent authority). Now company A declare
insolvent. Who would be given priority for the payment B, C?
→ Priority, 1st come 1st served → Protect third parties in that case

Discussion 4:
Can the branch of company A receive a bank loan guaranteed by company A?
→ Branch of company A is not a legal entity → is not separated → not a third person → not allowed to
receive guarantees in this case

Discussion 5:
● In 2007, the Bank lent the money to Company A with a guarantee from Mr. B
whose his land use right certificate were used as the security for A's loan and
handed over to the bank.
● In 2010, the Bank and Company A liquidated the 2007 loan contract and lent
Company A a new amount of money. The bank and company A agreed to continue
to use Mr. B's land use right certificate as security.
● Now company A is unable to pay and the bank sues Mr. B. Does the bank have the
right to force Mr. B to perform the guarantee obligation?
● Can Mr. B ask the bank to return his land use right certificate?
→ Art 343.1, the guarantee in 2007 is terminated as when the bank and company liquidated the loan
contract so the guarantee is eligible for the first contract

Discussion 6:
Guarantee Mortgage of a third parties’s asset

● Borrower cannot pay: The bank will the
ask the guarantor to pay, if fails to do →
bank sues the guarantor
● If asset is insufficient to repay, you
have to pay the rest of the amount of
the debt
● Borrower cannot pay: The bank can
rely on the secure property
● If asset is insufficient to repay the
loan, the third parties is released from
the liability to pay the debt

Discussion 7:
Some commercial banks are offering unsecured loans without collateral and guarantee. Is this
offer a fidelity guarantee?
→ Offer for: Poor individual & households, Lender: Bank
Socio-political organizations provide the fidelity guarantee
No one are required to to pay the debt
The Vietnam Fatherland Front, Vietnam Women Union, Ho Chi Minh Communist Youth,
Vietnam Farmer’s Association
Discussion 8:
On 01 September 2020, ABC Co., Ltd, represented by Mr K - Director negotiated to enter
into a credit contract with D Joint-stock Commercial Bank. Accordingly, Bank D would
grant ABC a loan of 2 VND billion with the loan term of 2 years and interest rate of
10%/year. The loan purpose is to make payments to their foreign partner in accordance
with the contract of importing machines. Decide if the following options are legitimate.
1. The company could use importing machines as security assets for the loan.
→ No

2. The Company may request the local Vietnam Women's Union to provide fidelity
guarantee for the loan as the company is recruiting many local female employees.
→ No

3. The company could use shares issued by Bank D to mortgage for the loan.
→ No, Art 126.5 LCI

LAW ON VIETNAM STATE BANK

Model 2
Definition
● Article 2.1. The State Bank of Vietnam (below referred to as the
State Bank) is a ministerial-level agency of the Government and
the central bank of the Socialist Republic of Vietnam.

Main purpose of the SBV

● Art 4 Law of SBV

Objectives of central bank:

● Hierarchical objectives (phân cấp)
● Dual objectives (ngang hàng).
Functions:

Interest rate
Art 12

[CO-TEACHING] BANKING & FINANCE LAW

1. Internal regulations
● Independent audit: Circular 39
○ Independent audit of the operation of the internal control system (internal
mechanisms, policies, processes, regulations and organizational structure)
○ Independent audit of FSs: (a) accounting balance sheet; (b) business result
report, © cash flow report, and (d) explanatory notes on FSs
 ○ Independent audit firm must be qualified (Art. 11)
○ Responsibility of CI/FBB (Art. 15):
■ Send the notice of the selected independent auditor to central SBV &
local SBV within 30 days
■ Within 90 days from fiscal year end, submit the results of independent
auditing to central SBV & local SBV
■ Redo the audit in case of the negative auditing opinion
■ Execute the public disclosure of financial information
● Internal audit, internal control: Circular 13
○ Requirements for the internal control system
○ Filing of documents on internal control systems
○ Report to SBV on internal control systems
○ Requirements for internal control
○ Compliance Function
○ Risk Management Function: Requirements as to and internal regulations on Risk
Management
○ Requirements and strategies for credit risk management and credit risk limits
○ Market risk management strategy and market risk limits
○ Operational risk management strategy , and operational risk limits
○ Requirements and strategies for liquidity risk management & liquidity risk limits
○ Concentration risk management strategy & concentration risk limits
○ Interest rate risks in the banking book (IRRBB) risk management strategy &
IRRBB limits
○ Principles of internal auditing
○ Coordination mechanism
○ Eligibility criteria for internal audit department
○ Ethical standards of internal auditors
○ Organizational structure, tasks, powers & responsibilities of internal audit dept.
○ Internal audit plan, contents, reports
● Special control: Circular 11
○ Power to make decisions on special control of credit institutions
○ Forms of special control
○ Extension of special control duration
○ Termination of special control
○ Responsibility of credit institution placed under special control, and its owner,
capital contributors, shareholders, BOD, BOM, BOC, and GD (or Director)
○ Insolvency due to low liquid assets or low tier-1 capital adequacy ratio
● Prudential ratios: LCI, Circular 22
○ Liquidity ratio include:
■ Reserved liquidity ratio: at least 10%; and
■ Liquidity ratio for following 30 days: 50% for VND and 5% for USD
○ Ratio between short-term funds and medium- and long-term loans financed by
the short-term funds, under the following schedule:
■ From 1st Jan, 2020 to the end of Sep 30, 2021: maximum 40%
 ■ From 01 Oct, 2021 to the end of Sep 30, 2022: maximum 37%;
■ From 01 Oct, 2022 to the end of Sep 30, 2023: maximum 34%
■ From 01 Oct, 2023: maximum 30%
○ Minimum capital adequacy ratio: 9%
○ Maximum ratio of loan outstanding over deposit balance: 85%.
○ Maximum ratio of purchasing, investing to governmental bonds, bonds
guaranteed by Govt.: 30%
2. Banking operations
● Deposit taking:
○ Definition: receiving money from an organization or individual as demand or term
deposit, savings deposit, issuing deposit certificates, bills or treasury bills, and
other forms of receiving deposits on the principles of full payment of principals
and interest to depositors under agreement
■ Limitations on Vietnamese Dong denominated deposits
■ Eligible depositors
■ Procedures for making deposits at CIs
■ Premature withdrawal of deposits
■ Procedures for paying out deposits at CIs
■ Agreement on term deposit
■ Deposit term extension
■ Internal regulations
■ Public posting
○ LDR: <= 85%
■ Exceptional case: Foreign bank, foreign branch of bank established within
1-3 years. “The Governor of SBV shall impose specific ratios applicable
to banks and FBBs over their first 03 years of operation on a case-by-
case basis.”
■ What happens when bank reach the maximum LDR
● Transfer syndicated loan to the new lender
○ Get consent from the lenders in the syndicated groups
○ Get consent from the new lenders
● Non-performing loan ratio
■ Which of the following reflects the profitability of a credit institution?
● LDR (loan-to-deposit ratio)
● CASA (current account - savings account)
● CAR (Capital adequacy ratio) - Circular 21/2016
● NIM (Net interest margin ratio)
● Credit extension
○ Lending:
■ Offshore loan:
● Support business of the borrower
○ FDI: Investment registration certificate
○ Non-FDI: Business plan
● Financing the current office loans
 ■ Onshore loan:
● Lender needs to be licensed by the SBV to provide directly
onshore loan. But can restructure the loan to the corporate bonds
● Some limit imposed on the onshore lender, for 1 single borrower → the
maximum lending limit <=15% of the equity of the credit institution
○ Charter capital
○ Other reserve fund
● Bank will do assessment within the bank but also consider the
information provided on the related person elements (structure of
the borrowers)
■ Case discussion: An FDI wants to acquire a joint venture’s equity which
had been contributed in form of cash, factory, machines and land use
right. The FDI approaches an FBB for an onshore loan to finance the
equity acquisition.
● Is the proposed loan purpose permitted by law? → Yes
● What kind of documents we need to review? →
○ Buyer/Borrower of bank sidee:
■ Legal capacity (Legal status, Alignment of business
line of seller with us)
■ Financial capacity
○ Seller side:
■ Financial/Legal capacity help buyer/borrower
understand the seller and other related procedure
■
● What are the key issues we need to consider before deciding to
grant an onshore loan to such FDI
● Via-account payment