Decree No. 79/2002/ND-CP dated October 04, 2002 of the Government on organization and operation of financial companies

DECREE

ON ORGANIZATION AND OPERATION OF FINANCIAL COMPANIES

THE GOVERNMENT

Pursuant to the Law on Organization of the Government of December 25, 2001;

Pursuant to the Law on Vietnam State Bank of December 12, 1997;

Pursuant to the Law on Credit Institutions of December 12, 1997;

At the proposal of the Governor of Vietnam State Bank,

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1.-Regulation scope

This Decree prescribes the organization and operation of financial companies.

Article 2.-Definition of the financial company

The financial company constitutes a type of non-bank credit institution, with function of using equity capital, mobilized capital and other capital sources to provide loans, make investment; provide services on financial or monetary consultancy and provide some other services under the provisions of law, but not to provide payment services, not to receive under-one year- deposits.

Article 3.-Founding forms

The financial companies are set up and operate in Vietnam in the following forms:

1. The State-run financial companies are those invested with capital, set up and managed in term of business operation by the State.

2. The joint-stock financial companies are those set up in form of joint-stock companies by organizations and/or individuals that jointly contribute capital thereto.

3. The financial companies of credit institutions are those each set up and owned by a credit institution with its equity capital under the provisions of law, which conduct independent cost-accounting and have their own legal person status.

4. The joint-venture financial companies are those set up with capital contributed between the Vietnamese party comprising one or many credit institutions and/or Vietnamese enterprises and the foreign party comprising one or many foreign credit institutions, on the basis of joint-venture contracts.

5. The financial companies with 100% foreign capital are those set up with capital of one or many foreign credit institutions according to the provisions of Vietnamese law.

Article 4.-Legal capital

The legal capital of financial companies shall be prescribed by the Government. The change of legal capital levels of financial companies shall be decided by the Government.

Article 5.-Operation duration

The operation duration of a financial company in Vietnam shall not exceed 50 years. In case of necessity to extend the operation duration, the approval of Vietnam State Bank (hereinafter called the State Bank for short) is required. Each extension shall not exceed 50 years.

Article 6.-Interpretation of terms and phrases

In this Decree, the following terms and phrases shall be construed as follows:

1. Entrustment taking means that the financial companies use the entrusted capital to lend or invest in projects or works on the basis of entrustment contracts between the entrusting parties and the financial companies.

2. Payment contracting means a form of discounting vouchers with a view to providing credit support for enterprises, on the basis of repurchase of receivable debts of enterprises which arise from goods sale with deferred payment, and performing the management of invoices, vouchers and accounting books for enterprises.

Article7.-Statemanagement

The State Bank is responsible for the State management over the organization and operation of financial companies, grant and withdraw establishment and operation licenses; supervise and inspect the activities of financial companies in Vietnam; promulgate documents guiding the organization and operation of financial companies; perform other State management tasks under the provisions of law.

Chapter II

ORGANIZATION AND ADMINISTRATION OF FINANCIAL COMPANIES

Section 1. GRANTING ESTABLISHMENT AND OPERATION LICENSES

Article 8.-Conditions for granting of licenses

1. The conditions for a financial company to be granted establishment and operation license (hereinafter called the license for short) include:

a) Having the demand for operations of the financial company;

b) Having enough legal capital prescribed by the Government;

c) The founding members are organizations or individuals, that have prestige and financial capability as provided for by the State Bank;

d) The manager and administrator have full civil act capacity and professional qualifications suitable for the operation of the financial company;

e) Having the organization and operation charter compatible to the provisions of the Law on Credit Institutions and other law provisions;

f) Having draft feasible business plan.

2. In addition to the conditions prescribed in Clause 1 of this Article, the foreign parties in financial companies, the financial companies with 100% foreign capital must also satisfy the following conditions:

a) They are allowed by competent bodies of foreign countries to carry out banking activities or to conduct operations of the financial companies;

b) They are allowed by competent bodies of foreign countries to operate in Vietnam.

Article 9.-Dossiers for granting of licenses

1. A dossier of application for a license includes:

a) The application for the license, which clearly states the operations applied for;

b) The draft charter;

c) The plan for operation in the first three years, clearly stating the economic efficiency and benefits of the operation of the financial company;

d) The list, curricula vitae, diplomas evidencing the professional capabilities and qualifications of the founding members, the Managing Board and Control Board members and the general director (director);

e) The contributed capital levels, the capital contribution plan and the list of individuals and organizations that contribute capital;

f) The financial situation and information related to major shareholders;

g) The approval by the provincial/municipal People’s Committee of the place to locate the head-office of the financial company.

2. Apart from the documents prescribed in Clause 1 of this Article, the dossiers of application for licenses of the joint-venture financial companies and the financial companies with 100% foreign capital shall also include:

a) The charters of the capital-contributing parties;

b) The licenses of the capital-contributing parties;

c) The documents of the competent foreign agencies permitting the foreign parties to operate in Vietnam in the form of joint-venture financial company or financial company with 100% foreign capital;

d) The financial balance sheet, the profit and loss sheet, which have already been audited, and the report on situation of operation for the latest three years of the capital-contributing parties;

e) The joint-venture contracts, for the joint-venture financial companies.

3. The dossiers of application for licenses of the joint-venture financial companies and the financial companies with 100% foreign capital shall be made in two sets, one in Vietnamese and one in English. The foreign-language documents in the dossiers must be consularly legalized and the translations from foreign languages into Vietnamese must be certified by Vietnamese notaries public or diplomatic missions or consulates overseas.

Article 10.-Licensing fees

The financial companies licensed by the State Bank must pay fees according to regulations of the Finance Ministry.

Article 11.-The time limits for granting and use of licenses

1. Within 90 days as from the date of receiving complete dossiers of application for licenses of financial companies, the State Bank must grant or refuse to grant the licenses. In case of refusal, the State Bank must explain in writing the reasons therefor.

2. In the licenses granted to financial companies, the State Bank specifies professional operations to be performed by the financial companies.

3. The licensed financial companies must use the right names and operate strictly according to the contents prescribed in their licenses. It is forbidden to forge, erase, cross out, transfer, lease or lend licenses.

Article 12.-Conditions for inaugurating operations

1. To carry out their operations, the licensed financial companies must meet the following conditions:

a) Having their charters approved by the State Bank;

b) Having business registration certificates; having enough legal capital and head-offices suitable for the operations of the financial companies;

c) The legal capital amounts contributed in cash must be deposited into the blocked accounts opened at the State Bank without enjoying interests at least 30 days before commencing the operations. These capital amounts shall be released when the financial companies inaugurate their operations;

d) Having legal documents on the right to own or use the head-offices of the financial companies in Vietnam;

e) Publishing on central or local newspapers as provided for by law the contents prescribed in the licenses.

2. Within 12 months as from the dates they are licensed, the financial companies licensed by the State Bank must commence their operations.

Article 13.-Withdrawal of licenses

The withdrawal of licenses of financial companies shall comply with the provisions in Article 29 of the Law on Credit Institutions and the guidance of the State Bank.

Section 2. ORGANIZATION, MANAGEMENT, ADMINISTRATION AND CONTROL OF FINANCIAL COMPANIES

Article 14.-Opening branches and representative offices and setting up affiliated companies

1. Financial companies may open branches and representative offices at home and abroad when so approved in writing by the State Bank.

2. Financial companies may set up affiliated companies which have legal person status, conduct independent cost-accounting in order to provide financial, monetary, brokerage, insurance, securities and consultancy services according to law provisions.

Article 15.-Conditions, dossiers and procedures for opening branches and representative offices and setting up affiliated companies

The conditions, dossiers and procedures for opening branches and representative offices or setting up affiliated companies of financial companies shall comply with Article 33 of the Law on Credit Institutions and the guidance of the State Bank.

Article 16.-Management, administration and control

The management, administration, control, inspection system and internal auditing of financial companies shall comply with the provisions in Section 3 and Section 4, Chapter II of the Law on Credit Institutions and the guidance of the State Bank.

Chapter III

OPERATIONS OF FINANCIAL COMPANIES

Section 1. CAPITAL MOBILIZATION

Article 17.-Forms of capital mobilization

Financial companies may mobilize capital from the following sources:

1. Deposits of one year or longer of organizations and individuals under the regulations of the State Bank.

2. Issuance of promissory notes, bonds, deposit certificates and other types of valuable paper to mobilize capital of organizations and individuals at home and abroad according to current law provisions.

3. Loans from domestic and foreign financial organizations as well as international financial organizations.

4. Capital entrusted to them by the Government, organizations and individuals at home and abroad.

Section 2. CREDIT OPERATIONS

Article 18.-Lending

Financial companies may provide loans in the following forms:

1. Providing short-term, medium-term and long-term loans according to the regulations of the State Bank.

2. Providing loans under entrustment by the Government, organizations and/or individuals at home and abroad according to the current provisions of the Law on Credit Institutions and the entrustment contracts.

3. Providing consumer loans in form of loans for installment buying.

Article 19.-Discount, rediscount, mortgage of commercial bills and other valuable papers

1. Financial companies may be granted credits in form of discount or mortgage of commercial bills, bonds and other valuable papers for organizations and individuals.

2. Financial companies and other credit institutions may rediscount or mortgage commercial bills, bonds and other valuable papers for each other.

Article 20.-Guarantee

Financial companies may provide guarantee with their own prestige and financial capabilities for the guaranteed. The guarantee by the financial companies must be effected according to the provisions in Articles 58, 59 and 60 of the Law on Credit Institutions and the guidance of the State Bank.

Article 21.-Other forms of credit granting

Financial companies may grant credits in other forms according to the regulations of the State Bank.

Section 3. ACCOUNT OPENING AND TREASURY SERVICES

Article 22.-Opening accounts

1. The financial companies may open deposit accounts at the State Bank in localities where they are headquartered and at banks operating on the Vietnamese territory. The opening of accounts at banks outside the Vietnamese territory must be permitted by the State Bank.

2. The financial companies which take deposits shall have to open their accounts at the State Bank and maintain there the credit balances not lower than the level prescribed by the State Bank.

Article 23.-Treasury services

The financial companies may provide services on cash collection and distribution to customers.

Section 4. OTHER OPERATIONS

Article 24.-Other operations permitted to perform under the current law provisions include:

1. Contributing capital to, and/or purchasing shares of, enterprises and/or other credit institutions.

2. Investing in projects under contracts.

3. Participating in monetary markets.

4. Providing overseas currency exchange, trading in gold.

5. Acting as agents to distribute bonds, share certificates and other valuable papers for enterprises.

6. Taking entrustment or agency in domains related to finance, banking, insurance and investment, including the management of assets and/or investment capital of organizations and individuals under contracts.

7. Providing services on banking, financial, monetary or investment consultancy for customers.

8. Providing services on preservation of precious objects, valuable payers, leasing safes, pawning and other services.

Article 25.-Operations to be permitted by competent State management bodies

1. Foreign exchange operations: The State Bank shall consider and license the financial companies to perform some foreign exchange operations according to the current regulations on foreign exchange management.

2. Payment contracting operations: The State Bank shall have to issue regulations guiding the performance of payment contracting operations and consider and permit the qualified financial companies to perform these operations.

3. Other operations.

Section 5. RESTRICTIONS TO ENSURE SAFETY IN OPERATIONS OF FINANCIAL COMPANIES

Article 26.-The risk reserve appropriation and use

The financial companies must make risk reserves and account these risk reserve amounts into their operating expenses. The risk reserve appropriation and use shall comply with the regulations of the State Bank.

Article 27.-Cases of non-provision of credits

The financial companies must not provide credits to the subjects prescribed in Clause 1, Article 77 of the Law on Credit Institutions, must not accept the guarantee of the above-prescribed subjects for use as basis for the provision of credits to customers.

Article 28.-Cases of credit restriction

1. The financial companies must not provide credits without security and/or provide credits with preferential conditions to the subjects defined in Clause 1, Article 78 of the Law on Credit Institutions.

2. The total balance of loans provided to the subjects prescribed in Clause 1 of this Article must not exceed 5% of the equity capital of financial companies.

3. The guarantee level for a customer and the total guarantee level of a financial company must not exceed the ratio to the equity capital of the financial company as provided for by the State Bank Governor.

Article 29.-Capital contribution and share purchase limits

1. The level of capital contribution to, purchase of shares of, an enterprise by a financial company, the total level of capital contribution to and purchase of shares of, all enterprises must not exceed the maximum levels prescribed by the State Bank Governor.

2. The total capital amount of a financial company investing in other credit institutions in form of capital contribution and share purchase must be subtracted from the equity capital of such financial company when calculating the safety ratios.

Article 30.-The provisions on ensuring safety

The financial companies must abide by the following safety-ensuring provisions:

1. Maintaining the safety-ensuring ratios prescribed in Article 81 of the Law on Credit Institutions and the guiding documents of the State Bank.

2. Purchasing and investing in their fixed assets at levels not exceeding 50% of the equity capital of the financial companies.

3. The limits of loans provided to a customer is prescribed as follows:

a) The total balance of loans provided to a customer must not exceed 15% of the equity capital of a financial company, except for cases where loans are provided from the entrusted capital sources of the Government, organizations and/or individuals or for cases where borrowing customers are other credit institutions;

b) Where the capital demand of a customer exceeds 15% of the equity capital of a financial company or the customer have the demand to mobilize capital from various sources, the financial company may provide consolidated loans according to the regulations of the State Bank.

4. Other relevant safety provisions of current legislation.

Chapter IV

FINANCE, ACCOUNTING AND REPORTING

Article 31.-Finance

1. The fiscal year of the financial companies commences on January 1st and ends on December 31st of the calendar year.

2. The financial revenues and expenditures of the financial companies shall comply with the provisions in Article 84 and Clause 2 of Article 110 of the Law on Credit Institutions and the regulations of the Finance Ministry.

Article 32.-Accounting

1. The financial companies accounting shall comply with the provisions in Article 86 and Clause 1 of Article 111 of the Law on Credit Institutions and the guiding documents of the State Bank.

2. For newly- supplemented operations of financial companies, for which accounts have not yet been prescribed, the State Bank shall have to supply new accounts into the system of book- keeping accounts of the financial companies.

Article 33.-Appropriation and use of funds

1. The appropriation, maintenance and use of funds of the financial companies shall comply with the provisions in Article 87 of the Law on Credit Institutions and the Finance Ministry.

2. The financial companies must not use the funds prescribed in Clause 1 of this Article to pay dividends or to make distributions to owners and shareholders in any form, except where they are dissolved or liquidated, but priority must be given to paying creditors before making reimbursement to owners and shareholders.

Article 34.-Transfer of profits abroad by foreign investors

The foreign parties to financial companies may transfer abroad the profit amounts divided to them and the asset quantity after liquidation or termination of operation as provided for in Article 112 of the Law on Credit Institutions and the guidance of the State Bank.

Article 35.-Regime of financial reporting and auditing

The financial companies must implement the regime of financial reporting, auditing and publicity strictly according to the provisions in Articles 89, 90, Clause 2 of Article 111 and Clauses 1 and 2 of Article 122 of the Law on Credit Institutions and the guiding documents of the Finance Ministry.

Chapter V

INSPECTION, SPECIAL CONTROL, BANKRUPTCY, DISSOLUTION AND LIQUIDATION

Article 36.-Inspection

1. The financial companies must submit to the inspection by the State Bank Inspectorate according to the provisions of the Law on Credit Institutions.

2. The rights and obligations of the inspected financial companies shall comply with the provisions in Articles 118 and 119 of the Law on Credit Institutions and the regulations of the State Bank.

Article 37.-Special control, bankruptcy, dissolution and liquidation

The special control, bankruptcy, dissolution and liquidation of financial companies shall comply with the provisions in Chapter V of the Law on Credit Institutions and the regulations of the State Bank.

Article 38.-Commendation and discipline

The commendation and handling violations of financial companies shall comply with the provisions in Chapter X of the Law on Credit Institutions and the relevant legal documents.

Chapter VI

IMPLEMENTATION PROVISIONS

Article 39.-Implementation effect

1. This Decree takes effect 15 days after its signing and replaces the previous regulations which are contrary to this Decree.

2. The State Bank shall assume the prime responsibility and coordinate with the relevant agencies in guiding the implementation of this Decree.

Article 40.-Adjustments applicable to the financial companies licensed before this Decree comes into force

The financial companies set up and operating under the licenses granted by the State Bank before this Decree takes effect are subject to the following regulations:

1. They must not carry out procedures for re-granting of establishment and operation licenses.

2. Their operation duration shall comply with the provisions in the issued licenses.

3. Within 12 months as from the date this Decree comes into force, they must readjust their organization and operation charters strictly according to this Decree.

Article 41.-The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government and the presidents of the People’s Committees of the provinces and centrally-run cities shall have to implement this Decree.