Amended Law on Credit Institutions to bring significant change to Vietnam banking sector from 1 July 2024

25 March 2024

On 18 January 2024, the Vietnam National Assembly passed the amended Law on Credit Institutions (“New Law”). The New Law will come into effect on 1 July 2024 with the exception of certain provisions relating to the enforcement of security over real estate, which will come into effect on 1 January 2025. The New Law will supersede the current Law on Credit Institutions 2010 (as amended) (“Current Law”).

This Article highlights some of the key points of the New Law.

Reduction of shareholding limits in credit institutions

The New Law amends the allowed maximum shareholding of the charter capital of credit institutions (“CI”) as set out below.

Type of shareholder	Current Law	New Law
Individual shareholders	5%	5%
Institutional shareholders	15%	10%
Shareholders and its related persons	20%	15%

Existing shareholders with current shareholdings exceeding the new limits may continue to maintain their current shareholdings but an increase will not be permitted with the exception of additional shares received as dividends.

Thresholds for foreign shareholders will be set via implementing regulation issued by the Government in due course. The shareholdings as set out in the New Law include the shareholder’s indirect ownership. Accordingly, the New Law provides a more detailed definition of “indirect ownership”, specifying it to mean ownership obtained through an investment trust or an entity where the investor owns more than 50% interest.

Public disclosure of ownership

Under the Current Law, only CI management personnel are required to disclose related interests, including information of any other enterprise in which they and/or a related person own at least 5% of its charter capital or for which they and/or a related person act as management personnel. In relation to listed CI, disclosure requirements are only applicable to shareholders holding 5% or more of voting shares.

In order to ensure greater transparency, the New Law requires that any shareholder holding 1% or more of the CI charter capital is required to inform the affected CI of any changes to the following:

• Identification of the shareholder;
• Related persons of the shareholder; and
• Number of shares and ownership ratio of the shareholder and its related persons and any change to such ownership ratio by 1% increment or decrement.

This information will be submitted to the State Bank of Vietnam (“SBV”) and, with the exception of the identities of the related persons, made available on the CI’s website within seven business days from the date of receipt.

Reduction on single borrowing limit

The New Law requires commercial banks and foreign bank branches (“FIs”) to reduce the total outstanding credit extended to a single client and its related persons to a maximum of 10% and 15% respectively as a percentage of the FIs’ capital. These amounts are to be achieved by 1 January 2029 (“target date”). The New Law sets out time frames for FIs to gradually reduce the credit extended from the coming into force of the New Law on 1 July 2024 to the target date.

Period	Percentage of capital - Single client	Percentage of capital - Single client and related persons
Before 1 July 2024 (under Current Law)	15%	25%
1 July 2024 – 1 January 2026	14%	23%
1 January 2026 - 1 January 2027	13%	21%
1 January 2027 - 1 January 2028	12%	19%
1 January 2028 - 1 January 2029	11%	17%
From 1 January 2029	10%	15%

Early intervention

The New Law introduces two new circumstances in which SBV can intervene in the operations of CI before subjecting them to special control by SBV:

• Where there is a mass withdrawal of money and a report of such situation is sent to the SBV; or
• Where there are accumulated losses greater than 15% of the charter capital, allocated capital and reserve funds (“CAR”) and the CAR is lower than the threshold set out by SBV.