Law amending the Law on credit institutions 2004, No. 20/2004/QH11

LAW

AMENDING AND SUPPLEMENTING A NUMBER OF ARTICLES OF THE LAW ON CREDIT INSTITUTIONS

Pursuant to the 1992 Constitution of the Socialist Republic of Vietnam, which was amended and supplemented under Resolution No. 51/2001/QH10 of December 25, 2001 of the X^th National Assembly, the 10^th session,

This Law amends and supplements a number of articles of the Law on Credit Institutions, which was passed on December 12, 1997 by the National Assembly of the Socialist Republic of Vietnam.

Article 1.- To amend and supplement a number of articles of the Law on Credit Institutions:

1. Article 4 is amended and supplemented as follows:

"Article 4.- The State's policies on building up credit institutions of different types

1. To uniformly manage all banking activities, to build a system of modern credit institutions capable of meeting the economy's and population's demands for capital and banking services, and to contribute to implementing the national monetary policies, ensuring the safety of the system of credit institutions and protecting the legitimate interests of money depositors.

2. To invest capital and other resources in the development of State-run credit institutions, thus creating conditions for these institutions to play a leading and key role in the monetary market.

3. The State shall set up policy banks operating for non-profit purposes to serve the poor and other policy beneficiaries; serve mountainous, island, deep-lying and remote areas as well as areas meeting with socio-economic difficulties; serve agriculture, rural areas and peasants in order to implement the State's socio-economic policies. The Government shall prescribe preferential credit policies regarding capital, interest rates as well as capital-borrowing conditions and terms.

Basing itself on the provisions of this Law, the Government shall prescribe the organization and operation of policy banks to suit the characteristics of each type of the policy bank.

4. To protect the ownership as well as other rights and legitimate interests in the operation of cooperative credit institutions in order to create conditions for the laborers to assist one another in production and life."

2. Article 12 is amended and supplemented as follows:

"Article 12.- Types of credit institution

1. Credit institutions set up under the Vietnamese law, including State-run credit institutions, joint-stock credit institutions, cooperative credit institutions, joint-venture credit institutions and credit institutions with 100% foreign capital.

2. Foreign credit institutions that open foreign banks' branches and their representative offices in Vietnam.

3. Foreign credit institutions that contribute their capital to, and/or purchase shares from, credit institutions operating in Vietnam according to the Government's regulations."

3. Article 20 is amended and supplemented as follows:

"Article 20.- Interpretation of terms

In this Law, the terms below are construed as follows:

1. A credit institution means an enterprise set up under the provisions of this Law and other law provisions to carry out banking activities.

2. A bank means a type of credit institution which is entitled to perform the entire banking operations and other relevant business activities. According to the nature and objectives of their operation, banks include commercial banks, development banks, investment banks, policy banks, cooperative banks and other types of banks.

3. A non-bank credit institution means a type of credit institution which is entitled to perform a number of banking operations as routine business activities, but not entitled to take demand deposits or provide payment services. Non-bank credit institutions include financial companies, financial leasing companies and other non-bank credit institutions.

4. A foreign credit institution means a credit institution set up under the law of a foreign country.

5. A cooperative credit institution means an institution which conducts monetary business and provides banking services, set up voluntarily by organizations, individuals or households to carry out banking activities under the provisions of this Law and the Cooperative Law for the principal objective of mutual assistance in production and business development and life improvement. Cooperative credit institutions include cooperative banks, people's credit funds and other forms.

6. A major shareholder means an individual or organization that owns more than 10% of the charter capital or holds more than 10% of the voting-right share capital of a credit institution.

7. Banking activities mean monetary business activities and banking services of regularly taking deposits and using such deposits for granting credit and providing payment services.

8. Credit activities mean a credit institution's use of its own capital or mobilized capital to grant credit.

9. A deposit means a sum of money deposited by an organization or individual at a credit institution or another organization engaged in banking activities in form of demand deposits, time deposits, savings deposits and other forms. A deposit may or may not bear interests and must be reimbursed to the money depositor.

10. Credit granting means a transaction in which a credit institution agrees to allow a client to use a sum of money on the principle of repayment through operations of lending, discounting, financial leasing, banking guarantee and other operations.

11. Financial leasing means a medium- or long-term credit operation on the basis of a financial leasing contract between the lessor being a credit institution and the lessee-client.

12. Bank guarantee means a written commitment of a credit institution to the obligee for fulfilling a financial obligation on behalf of its client when such client fails to fulfill the committed obligation; the client must acknowledge the debt and refund to the credit institution the money amount already paid on his/her behalf.

13. Own capital comprises the actual value of the charter capital, reserve funds and a number of other "debit" assets of a credit institution as prescribed by the State Bank. Own capital serves as a basis for the calculation of safety ratios in banking operations.

14. Discounting means the purchase of commercial bills and/or other valuable papers from their beneficiaries by a credit institution before they become mature.

15. Re-discounting means the re-purchase of commercial bills and/or other valuable papers which have been discounted before they become mature."

4. Article 30 is amended and supplemented as follows:

"Article 30.- The charter

1. The charter of a credit institution must comprise the following principal contents:

a/ The name and address of the head office;

b/ The contents and scope of its operation;

c/ The operation duration;

d/ The charter capital and modes of capital contribution;

e/ Tasks and powers of the Managing Board, the general director (director) and the Control Board;

f/ Procedures for election, appointment and dismissal of the Managing Board's members, general director (director) and the Control Board;

g/ Rights and obligations of shareholders;

h/ Principles for financial, accounting, examination, control and internal audit activities;

i/ Cases of dissolution and dissolution procedures;

j/ Procedures for amendment of the charter.

2. The charter of a credit institution shall be implemented only after it is approved by the State Bank, except otherwise provided for by law."

5. Article 31 is amended and supplemented as follows:

"Article 31.- Changes subject to approval

1. A credit institution must obtain the State Bank's written approval before it changes one of the following contents:

a/ Its name;

b/ The level of its charter capital and/or allocated capital;

c/ The location of its head-office, transaction bureau, branch or representative office;

d/ The contents, scope and duration of its operation;

e/ The transfer of registered shares exceeding the percentage prescribed by the State Bank;

f/ The percentage of shares of major shareholders;

g/ Members of the Managing Board, the general director (director) and members of the Control Board.

2. After obtaining the State Bank's approval, the credit institution must register with the competent State agency the change(s) prescribed in Clause 1 of this Article and publish such change(s) in a central or local newspaper according to law provisions regarding the contents prescribed at Points a, b, c and d, Clause 1 of this Article."

6. Article 32 is amended and supplemented as follows:

"Article 32.- Opening of transaction bureaus, branches and representative offices; setting up of companies and non-business units

Credit institutions are entitled to:

1. Open transaction bureaus, branches and representative offices in various geographical areas at home and abroad, where there is demand for their operation, even where they are headquartered, after obtaining the State Bank's written approval;

2. Set up dependent companies which have the legal person status and follow independent accounting with their own capital to operate in a number of domains such as finance, banking, insurance as well as management, exploitation and sale of assets in the course of handling loan-guarantee assets and assets assigned by the State to credit institutions for debt recovery;

3. Set up non-business units after obtaining the State Bank's written approval."

7. Article 37 is amended and supplemented as follows:

"Article 37.- The Managing Board

1. The Managing Board functions to administer a credit institution according to the provisions of this Law and other law provisions.

2. The Managing Board is composed of at least three members, who have prestige and professional ethics, and knowledge about banking operations.

3. The chairman and other members of the Managing Board must not authorize persons who are not members of the Managing Board to perform their respective tasks or powers.

4. The chairman of the Managing Board must not concurrently be the general director (director) or the deputy general director (deputy director) of the same credit institution, except otherwise provided for by law.

5. The chairman of the Managing Board of a credit institution must not participate in the Managing Board of, or administering, another credit institution, except for cases where the latter is the former's attached company.

The chairman of the Managing Board of a grassroots people's credit fund may participate in the Managing Board of the Central People's Credit Fund."

8. Article 38 is amended and supplemented as follows:

"Article 38.- The Control Board

1. The Control Board of a credit institution shall operate according to the provisions of this Law and other law provisions.

2. The Control Board is tasked to examine financial activities, supervise the observance of the accounting regime and the safety in the credit institution's operation, and conduct internal audit in each period and each domain in order to accurately evaluate the business activities and actual financial situation of the credit institution.

3. The Control Board of a credit institution is composed of at least three members, including its head, and at least half of its members work on a full-time basis.

4. Members of the Control Board must satisfy the requirements on professional qualifications and ethics prescribed by the State Bank.

5. The Control Board has its assisting apparatus and may use the internal examination and control system of the credit institution to perform its tasks."

9. Article 39 is amended and supplemented as follows:

"Article 39.- The general director (director)

1. The general director (director) of a credit institution is a person who is answerable to the Managing Board for running routine activities according to his/her tasks and powers in accordance with the provisions of this Law and other law provisions.

2. The general director (director), deputy general director (deputy director) of a credit institution must satisfy the following criteria:

a/ Residing in Vietnam during the working term;

b/ Having good health and professional ethics, being honest and righteous; being knowledgeable about law and having good sense of law observance;

c/ Having professional qualifications and capabilities to run and manage a credit institution as prescribed by the State Bank.

3. The general director (director) of a credit institution must not be the general director (director) or the chairman of the Managing Board of another credit institution, except for cases where the latter is the former's attached company."

10. Article 42 is amended and supplemented as follows:

"Article 42.- Internal examination and control

Credit institutions must regularly examine and control the observance of laws and internal regulations; directly examine and control professional operations in all domains at their respective transaction bureaus, branches, representative offices and dependent companies."

11. Article 45 is amended and supplemented as follows:

"Article 45.- Taking deposits

1. Banks may take deposits from organizations, individuals and other credit institutions.

2. Non-bank credit institutions may take deposits with a term of one year or more from organizations and individuals as prescribed by the State Bank."

12. Article 46 is amended and supplemented as follows:

"Article 46.- Issuance of valuable papers

Credit institutions may issue deposit certificates, bonds and other valuable papers to mobilize capital from domestic and foreign organizations and individuals according to the State Bank’s regulations."

13. Article 52 is amended and supplemented as follows:

"Article 52.- Security of loans

1. Credit institutions shall take initiative in seeking feasible and efficient production and business projects, which are capable of repaying debts, to provide loans for.

2. Credit institutions may consider and decide to provide loans, which are secured or unsecured with pledged or mortgaged assets of the borrowing clients, or with the third party’s guarantee, and are answerable for their own decisions. Credit institutions must not provide loans which are pledged with the shares of the very lending credit institutions.

3. Credit institutions shall consider and decide on the provision of loans secured with assets formed from borrowed capital.

4. State-run credit institutions may provide unsecured loans as designated by the Government. Losses of such loans due to objective causes shall be handled by the Government."

14. Article 53 is amended and supplemented as follows:

"Article 53.- Consideration and approval of loans, examination of the use of loans

1. Credit institutions may request their clients to supply documents proving the feasibility of their business plans as well as financial capabilities of their own and of the guarantors before deciding to provide loans.

2. Credit institutions must organize loan consideration and approval on the principle of division of responsibilities for the stage of loan evaluation and the stage of loan decision.

3. Credit institutions shall have the responsibilities and the rights to examine and supervise the process of borrowing capital, using loan capital and repaying debts by their clients."

15. Article 57 is amended and supplemented as follows:

"Article 57.- Discounting and re-discounting of commercial bills and other valuable papers

1. Credit institutions may discount commercial bills and other valuable papers for their clients.

2. Credit institutions may re-discount commercial bills and other valuable papers for one another.

3. Credit institutions being banks may have the discounted commercial bills and other valuable papers re-discounted by the State Bank.

4. The discounting and re-discounting of commercial bills and other valuable papers within the system of credit institutions shall be prescribed by the State Bank."

16. Article 79 is amended and supplemented as follows:

"Article 79.- Limits of loans, guarantee and discounting of commercial bills and other valuable papers, financial leasing

1. The loan limit for a client is prescribed as follows:

a/ The total loan debt balance for a client must not exceed 15% of the own capital of a credit institution, except for loans from the trusted capital sources of the Government, organizations and individuals or cases where the borrowing client is another credit institution;

b/ In cases where the capital demand of a client exceeds 15% of the own capital of a credit institution or the client wishes to mobilize capital from different sources, credit institutions may syndicate loans according to the State Bank Governor's regulations;

c/ In special cases, for the performance of socio-economic tasks, if the credit institutions' syndicated loans cannot meet a client's capital-borrowing demand, the Prime Minister may decide on the maximum loan amount on a case-by-case basis.

2. The amount of guarantee and discounting of commercial bills and other valuable papers for a client must not exceed the ratio between this amount and the own capital of the credit institution set by the State Bank Governor.

3. The financial leasing amount for a client of credit institutions shall comply with the Government's regulations."

17. Article 81 is amended and supplemented as follows:

"Article 81.- Safety ratios

1. The credit institution must maintain the following safety ratios:

a/ The solvency which is determined by the ratio between the credit institution's "credit" assets available for immediate payment and the "debit" assets payable at a given time;

b/ The minimum capital safety ratio which is determined by the ratio between the own capital and the "credit" assets, including off-balance sheet commitments adjusted according to the extent of risk;

c/ The maximum proportion of the short-term capital sources used for the provision of medium- and long-term loans.

2. The State Bank Governor shall prescribe the ratios stated in Clause 1 of this Article for each type of credit institution.

3. The total capital amount invested by a credit institution in another credit institution in form of capital contribution or share purchase must be excluded from its own capital upon the calculation of the safety ratios."

18. Article 84 is amended and supplemented as follows:

"Article 84.- Finance and accounting

Financial revenues and expenditures, fiscal year and cost-accounting of credit institutions shall comply with law provisions on finance, accounting and statistics."

19. Article 105 is amended and supplemented as follows:

"Article 105.- Forms of operation

1. Foreign credit institutions shall be permitted to operate in Vietnam in the following forms:

a/ Joint-venture credit institutions;

b/ Credit institutions with 100% foreign capital;

c/ Foreign banks' branches in Vietnam.

2. Foreign credit institutions may open their representative offices in Vietnam. Foreign credit institutions' representative offices must not conduct business activities in Vietnam."

20. Article 122 is amended and supplemented as follows:

"Article 122.- Auditing

1. At least 30 days before the end of a fiscal year, a credit institution must select an independent auditing organization fully meeting the conditions prescribed by the State Bank to audit its operations. The selection of independent auditing organizations shall comply with the law provisions on bidding.

2. In the course of auditing, the credit institutions shall have to supply in time accurate and sufficient information at the auditors' requests.

3. The auditing of cooperative credit institutions shall be prescribed by the State Bank in compliance with the management requirements and operation scope of these institutions."

Article 2.-

1. To annul Articles 6, 7, 8, 9, 10, 43, 85 and 86.

2. To replace the phrase "internal auditing" in the title of Section 4 of Chapter II, Article 41 and Article 44 with the phrase "internal control"; to replace the phrase "short-term valuable papers" in Article 70 with the phrase "valuable papers"; to replace the phrase "prescribed in Clause 2, Article 50 of the Law on Enterprise Bankruptcy" at Point d, Clause 1, Article 40, the phrase "according to the provisions of the Law on Enterprise Bankruptcy" in Article 98, and the phrase "according to the provisions of the legislation on enterprise bankruptcy" in Clause 3 of Article 54 and Clause 1 of Article 100, with the phrase "according to law provisions on bankruptcy"; to replace the phrase "non-bank credit institutions with 100% foreign capital" in Articles 106, 107, 108, 109, 110, 111, 112 and 113 with the phrase "credit institutions with 100% foreign capital".

3. To cancel the phrase "the agencies attached to the Government" in Clause 3 of Article 116.

Article 3.-

1. This Law takes effect as from October 1, 2004.

2. The Government shall detail and guide the implementation of this Law.

This Law was passed on June 15, 2004 by the XI^th National Assembly of the Socialist Republic of Vietnam at its 5^th session.