Socialist Republic of Vietnam

STATE COUNCIL

Hanoi, 23 May 1990



ORDINANCE ON BANKS, CREDIT CO-OPERATIVES AND FINANCIAL COMPANIES


In order to improve management and give guidance on the operation of the banks, credit co?operatives and financial companies; to facilitate the development of a multi?sector economy and implement the State's monetary policy and simultaneously to protect legitimate interests of organizations and individuals;

Pursuant to article 100 of the Constitution of the Socialist Republic of Vietnam;

This Ordinance provides for the organization and operations of banks, credit co?operatives and financial companies, called in short, credit institutions.


CHAPTER I


General Provisions

Article 1

For the purpose of this Ordinance, the following terms concerning credit institutions shall have the meanings ascribed to them hereunder:

1. commercial bank means a monetary business organization with major and permanent operations of receiving deposits from, and making repayments to, its customers, using deposits to make loans, to conduct discounting transactions, and effect payment.

State?run commercial bank means a bank with one hundred (100) per cent State capital.

equity commercial bank means a bank which is a company in which shares are owned by individuals or organizations, provided that no one shareholder owns a proportion of the shares in excess of the maximum portion allowed, as determined by the State Bank.

foreign bank means a bank established in accordance with foreign laws. A foreign bank's branch in Vietnam shall be its operating office in Vietnam. All of its operations shall be subject to the laws of Vietnam.

joint bank means a bank established with capital contributed by foreign and Vietnamese banks. Its head office shall be located in Vietnam and it shall be subject to the laws of Vietnam.

2. Investment and Development Bank means the State?run bank, which receives State capital and mobilizes medium and long term loans from inside and outside Vietnam for the main purpose of then granting such loans for the purpose of investing in State economic and technological development projects.

3. credit co?operative means a credit institution collectively owned and established with capital subscribed by its members, which takes deposits from, and makes loans to, its members.

4. financial company means a State run company, or a company in which shares are owned by individuals or organizations, carrying on a business funded by its own capital or by loans from the public, the main operations of which are the granting loans for purchase and sale of commodities.

Article 2

All organizations which carry on the business of a credit institution in Vietnam require a licence for such business from the State Bank of Vietnam.

Article 3

1. A credit institution and its branches operating in Vietnam shall be a legal entity.

2. A foreign bank and its branches operating in Vietnam shall be a legal entity.


CHAPTER II


Conditions of Operation
for a Credit Institution

Article 4

An application by an organization for a licence to carry on the business of a credit institution in Vietnam shall be determined by the State Bank, which in doing so, shall take into account the following:

1. The anticipated demand for the banking and financial services of the organization in light of economic developments.


2. The source of required capital and method of its raising.

3. The ability of the organization to make profits.

4. The suitability of the head office of the organization to carry on the business of banking.

5. The proposed manager having management and technical skills and professional skill in monetary and credit matters.

6. The likelihood of all aspects of the business operations being carried out in a legal manner.

Article 5

1. An organization wishing to set up a credit institution in Vietnam shall submit an application to the State Bank.

The application shall include:

(a) An application form to carry on business as a bank, credit co?operative, or finance company.

(b) A plan of operations highlighting the economic and financial benefits of the deposit taking and credit provision business.

(c) The charter of the credit institution.

(d) Curricula vitae and documents illustrating the capacity of the members of the board of management and the manager.

(e) Other documents which may be requested by the State Bank to clarify matters arising from the above documentation.

2. A foreign bank wishing to open a branch in Vietnam or set up a joint bank in Vietnam shall, in addition to complying with clause 1 of this article, submit the following lawful certified documents:

(a) The charter of the bank in its own country.

(b) The operation licence in its own country.

(c) A certificate acknowledging the power of the bank to open a branch or set up a joint bank in Vietnam.

(d) Any joint venture contract.

(e) The profit and loss accounts, balance sheets and reports on the business of the foreign bank for the previous three years.


(g) The name of the person who is authorized to manage its branch in Vietnam.

Article 6

The principal items to be included in the charter of a credit institution are:

1. The name and address of head office of the credit institution.

2. Its legal monetary business and credit operations.

3. The duration of its operations.

4. The capital and the method by which it will be contributed.

5. The organization and members of its board of management and the manager.

6. Its authorized representative before the courts and in dealing with the State bodies of Vietnam.

7. Its principles on finance, accounting work and audit.

8. Events which will cause, and procedures for, its dissolution.

9. The procedures for amendment of its charter.

Article 7

1. The State Bank shall, no later than three months after submission of the application, make a determination on whether or not to grant a licence;

2. Within fifteen (15) days after the date of receipt of the licence, the credit institution shall pay to the State Bank a fee equivalent to two tenths (0.2) of one per cent of its capital;

3. The recipient of a licence shall implement all conditions stated in the licence no later than twelve months before commencement of its operation.

Article 8

1. The use of the descriptive terms contained in article 1 of this Ordinance is prohibited prior to the licence being granted.

2. A licence granted by the State Bank for operations of a credit institution shall not be transferable.

Article 9

1. Amendment by a credit institution of any of the following shall require the approval in writing from the State Bank:


(a) Its name and charter.

(b) Increase in the capital stated in its charter by way of issuing shares, or reduction of the capital stated in its charter.

(c) Change of its head office, or the opening or closing of any branch.

(d) Demerger or merger with one or more credit institutions.

(e) Its dissolution or liquidation.

2. The transfer of shares in a credit institution which is in excess of fifteen (15) per cent of its prescribed capital shall be subject to the approval of the State Bank.

Article 10

The State Bank shall withdraw a licence in any of the following cases:

1. If, within twelve months from the date of receipt of the licence, the credit institution does not satisfy the conditions stated in the licence or does not commence operations.

2. If the credit institution does not subscribe the adequate prescribed capital stipulated by the State Bank.

3. If the credit institution, after suffering losses, does not maintain the capital stipulated by the State Bank.

4. If the institution ceases repaying deposits to its customers.

5. If it dissolves itself willingly.

6. If it becomes bankrupt.

7. If it is demerged or merged.

Article 11

The State Bank shall publish the granting of a licence to a credit institution or the withdrawal of it in the gazette.

Article 12

A credit institution carrying on business in Vietnam shall maintain its prescribed capital at the level stipulated and published by the State Bank at the beginning of each financial year.

Article 13


Pending the official commencement of its operations, an equity credit institution shall deposit its capital in a frozen account opened at the State Bank. The State Bank shall only release the capital when the credit institution officially commences operations.

Article 14

1. A credit institution in Vietnam shall establish the following reserve funds:

(a) Ordinary Reserve Fund which is to be set aside to meet the requirements of additional prescribed capital and shall be appropriated annually from net profits at a rate stipulated by the State Bank of up to five per cent of net profits.

(b) Special Reserve Fund which is to be set aside to compensate for risks and shall be appropriated annually from the net profits, at a rate of ten (10) per cent of net profit until the Special Reserve Fund is equal to one hundred (100) per cent of the prescribed capital.

2. A credit institution may not use the reserve funds stipulated in clause 1 of this article for the purpose of payment of dividends or transfer abroad.


CHAPTER III


Administration and Management


Article 15

1. A State-run credit institution shall be subject to the administration of the board of management and the management of the general director, or the director.

The appointment or dismissal of the members of the board of management, the general director or director of a state run credit institution shall be determined by the Chairman of the Council of Ministers or by the Governor of the State Bank subject to delegation by the Chairman of the Council of Ministers.

The term of office of members of the board of management, the general director or director shall be five years. The members of the board of management, the general director and director may be reappointed.

2. Equity banks, and equity financial companies shall be administered by a board of management and a general director or director. The chairman or other members of the board of management shall be elected or dismissed at a shareholders meeting. The general director or director shall be appointed or dismissed by the board of management subject to approval by the Governor of the State Bank.


3. A credit co?operative shall be administered by a board of management and the head of the credit co?operative. The chairman and other members of the board of management shall be elected and dismissed at the co?operative members' meeting. The head of the co?operative shall be appointed or dismissed by the board of management.


Article 16

The following persons shall not be eligible for election to the board of management, be appointed to any managerial position of a credit institution, or be authorized to perform any professional activity of any credit institution:

1. Persons who are accused of committing a crime.

2. Persons who are convicted of violating national security, socialist property, private property, or of economic crimes.

3. Persons who are convicted of other crimes and the conviction has not been removed from the record.

4. Persons who are convicted by a foreign court of a crime which is considered by Vietnamese law to be a crime and where the conviction has not, in accordance with Vietnamese law, been removed from the record, as well as persons declared by a foreign court to be bankrupt and who have not yet been discharged.


Article 17

The rights and duties of the board of management and its operating regulations shall be determined by the Governor of the State Bank.


CHAPTER IV


Operation of a Credit Institution

Article 18

A commercial bank shall be permitted to mobilize short term and long term capital for short, medium and long term lending.

A commercial bank which wishes to perform the functions of a foreign bank shall be permitted to do so by the State Bank.


Article 19

1. The Investment and Development Bank receives capital for investment from the State or from other sources and shall use this capital properly for the purpose of investment and paying interest rates and commissions stipulated by the State Bank, consequent upon approval of the Ministry of Finance.

2. The Investment and Development Bank may mobilize capital for terms of more than one year in the form of deposits, savings, issue of bonds for short, medium and long term lending, and shall not mobilize capital for terms of less than one year.

Article 20

1. A financial company carrying out its business by relying on its own capital and loans raised from the public by the issue of bonds shall be prohibited from taking deposits of savings from the public and from using loans of the public as a means of payment.

2. A credit co?operative operates in accordance with the functions, duties and scope of operation stipulated in its charter approved by the Governor of the State Bank.

Article 21

A credit institution may open an account at the State Bank and shall, in accordance with the regulations of the State Bank, maintain in it a compulsory minimum reserve.

Article 22

1. In conducting credit business, a credit institution shall abide by the principles: avoid risks, avoid concentration of lending to a small number of customers, ensure that borrowers are creditworthy, and observe all the regulations of the State Bank.

2. A credit institution may request a customer to provide documents which illustrate the purposes for which a loan will be used and the feasibility of those purposes before it reaches a decision on the loan. Where it is discovered that a customer has false information or has behaved fraudulently in relation to the loan, the credit institution may withdraw any credit granted and recover any loan made.

3. A credit institution shall maintain a credit file for each loan, which file shall include:

(a) The application for a loan contract, papers indicating the purpose of the loan and, the legality and value of the security.

(b) The financial statement of the borrower and guarantor (if any).


(c) The decision on the loan with the signature of the General Director, Director or the authorized manager, or, in the case of a collective decision, minutes of a meeting which record the approved decision.

Article 23

A credit institution shall not be entitled to mobilize in excess of twenty (20) times its total equity and reserve fund.

Article 24

A credit institution shall not issue bonds where such issue could cause the holder of the bonds to obtain direct or indirect control of that credit institution.

Article 25

A credit institution shall not provide a loan to a customer of more than ten (10) per cent of its capital and reserve fund. The aggregate of loans to its ten (10) largest borrowers shall not exceed thirty (30) per cent of its capital and reserve fund.

Article 26

In carrying on the business of borrowing and lending, a credit institution shall,in accordance with the provisions of article 44 of the Ordinance on State Bank of Vietnam, establish the credit worthiness of each borrower.

Article 27

A credit institution shall publish and strictly implement interest rates, commissions, fees, and fines applicable to all of its operations.




Article 28

A credit institution may use its equity and reserve fund for investment in the purchase of shares, to be in a quantity no more than ten (10) per cent of the capital of the relevant co?operative or enterprise.

Article 29

A credit institution is prohibited from participating in contracts or agreements or from taking other steps which would result in it achieving a dominant role in the monetary, financial or foreign exchange markets, or from taking steps which would result in it achieving unfair superiority over a third party or other credit institutions.

Article 30

1. A credit institution shall not give to any of the persons referred to in clause 2 of this article any of the following preferential treatments:


(a) Lending money only to such persons, but not to others, even though the aims, characteristics, and risks of the business plans of other persons are the same.

(b) Assisting such persons to earn profits, favouring them in relation to their payment of fees, profits, and commissions while imposing fines on others in a biased manner.

2. The following persons shall not be entitled to enjoy preferential treatment:

(a) Members of the board of management and those who manage the credit institution.

(b) Persons who are responsible for the control of and for the auditing of the credit institution.

(c) Spouses or ancestors and descendants within three direct generations of the board of management and members responsible for management, control and auditing work.

(d) Shareholders holding more than ten (10) per cent of the shares and having the right to vote in the meetings of the credit institution.

(e) Agencies responsible for the examination and control of the credit institution on behalf of its members.

(f) Companies in which one of the abovementioned persons holds more than ten (10) per cent of the shares.

(g) Companies which control the credit institution.

(h) Shareholders holding ten (10) per cent of shares who have the right to vote in another company which controls the credit institution.

3. A credit institution may grant loans to the persons stipulated in clause 2 of this article, provided that the board of management so approves after having examined a report of the manager on the borrower's relationship with the credit institution, its business plan, actual financial situation and, creditability.

The amount of any such loan shall not exceed five per cent of the equity of the credit institution.

Article 31

A credit institution which wishes to deal in foreign currencies shall obtain approval of the State Bank and shall abide by the State regulations on foreign exchange control.

Article 32

Banks and financial companies may conduct business in relation to:

1. Gold, precious metals, and gems.

2. The purchase, sale, transfer, holding, and control of securities and other valuable papers.

3. Banks and financial companies which carry on the business of hire purchase transactions may deal in the leasing of real estate and hire purchase transactions.

4. The provision of financial consulting and property management services, as requested by customers.


CHAPTER V


Foreign Bank Branches and Joint
Banks Based in Vietnam

Article 33

A foreign bank may, with the approval of the State Bank, open branches and establish joint banks in the cities of Vietnam.




Article 34

A foreign bank shall set aside and transfer capital to its operating branch in Vietnam pursuant to the provisions of the State Bank as prescribed in article 12 of this Ordinance.

Article 35

A foreign bank branch and a joint venture bank in Vietnam may transfer abroad:

1. The net profit remaining after setting up the fund and meeting the financial obligations prescribed in article 14 and clause 3 of article 40 of this Ordinance.

2. The assets remaining after liquidation in the event of termination of the branch's operations in Vietnam.

The transfer of money abroad shall take place in accordance with the Law on Foreign Investment in Vietnam and regulations of the State on the management and control of foreign exchange.

Article 36

Vietnamese creditors shall have priority in payment of debts in the event of cessation of business by a foreign bank branch or joint venture bank in Vietnam.

Article 37


Foreign bank branches and joint venture banks in Vietnam shall give priority to the recruitment of Vietnamese employees for training programmes.

Article 38

Each foreign bank branch and joint venture bank based in Vietnam shall, within six months of the end of its financial year and balance sheet date, submit to the State Bank of Vietnam a list of its assets, its balance sheet and profit and loss statements, annual report on the operation of the branch and its head office in the foreign country, and an up to date list of the members of the board of management and of the managers.









CHAPTER VI


Financial Year, Cost Accounting, Book?keeping and Supervision of Business

Article 39

The financial year of a credit institution commences on 1 January and ends on 31 December of the same year.

Article 40

1. A credit institution shall keep cost accounting and book keeping statements in accordance with the system of accounts stipulated by the State Bank.

2. A credit institution shall maintain accurate and adequate accounting records and books of account in relation to its operations in accordance with the Ordinance on Accounting and Statistics.

3. The payment of taxes and setting up of funds for welfare, bonuses, and the development of the business operations of a credit institution shall take place in accordance with the provisions of the law.

4. The statement of assets, and the profit and loss accounts shall be subject to confirmation by the auditor.

The appointment of auditor shall be approved by the State Bank.


Article 41

1. On the fifteenth day of each month, each credit institution shall submit to the State Bank a profit and loss statement of the previous month together with explanations as appropriate.

2. Each credit institution shall, in addition to making periodical reports, report immediately to the State Bank any change of its manager or any event which occurs outside of normal business operations.

Article 42

1. Within forty five (45) days of the end of each financial year, each State run credit institution shall hold a meeting of its board of management, and each equity credit institution shall hold an annual meeting of its shareholders, in order to approve their respective annual financial statements and reports.

Within ten (10) days after the above meeting, the credit institution shall submit to the State Bank its balance sheet, its profit and loss account, annual report, resolution passed at the meeting and a current list of members of its board of management and managers.

2. Within sixty (60) days after the end of the financial year, each credit institution shall publish its balance sheet, its profit and loss statement and the current list of members of its board of management and managers.

Article 43

Employees of a credit institution shall keep confidential all business of the credit institution and of its customers.

Article 44

A credit institution shall be subject to the supervision of and inspection by the State Bank.

Expenses of inspection shall be paid by the credit institution which is the subject of the inspection.

The inspection work shall be carried out in accordance with the provisions of the Regulations on Bank Inspection and Ordinance on Inspection.

Article 45

1. Where the financial situation of a credit institution deteriorates to the point that there is a danger of it being unable to pay its customers, the State Bank shall place that credit institution under external administration and take measures to restore it to its normal situation.


2. If, while under or at the conclusion of the period of the external administration, it appears that the credit institution cannot be restored, or that dissolution is necessary, the State Bank shall declare that the credit institution is unable to pay its debts and is to be dissolved.

The dissolution shall be carried out pursuant to the provisions of the Law.

Article 46

1. A credit institution, once dissolved or forced to terminate its operations, shall be liquidated immediately. The liquidation of a credit institution shall take place under the supervision of the State Bank and the Ministry of Finance.

2. All expenses of the liquidation shall be met by the assets of the credit institution being liquidated.


CHAPTER VII


Dealing with Breaches

Article 47

1. A credit institution which breaches the conditions of its licence, fails to comply with provisions relating to the compulsory reserve fund and safety ratios, fails to adopt the interest rates, commissions, fees, and fines which have been stipulated or published and other provisions of this Ordinance shall be subject to one of the following penalties imposed by the State Bank:

(a) Warning.

(b) Payment of a fine.

2. In addition, the State Bank may apply the following penalties:

(a) An order to increase the proportion of the compulsory minimal reserve.

(b) An order to increase the compulsory purchase of bonds.

(c) An order to limit or cease certain of the operations of the business.

(d) An order to compel the resignation of members of the board of management and the managers.

(e) A withdrawal of the licence.

Article 48

Those who take advantage of their position and ability to breach this Ordinance, in order to protect offenders, or to profit themselves shall, depending on the seriousness of the offence, be disciplined or be subject to administrative penalty or prosecution for criminal responsibility in accordance with the provisions of the law.




CHAPTER VIII


Final Provisions

Article 49

1. This Ordinance shall be of full force and effect as of 1 October 1990.

2. All previous provisions inconsistent with this Ordinance are hereby repealed.

Article 50

1. Each existing credit institution shall, within three months from the date of this Ordinance coming into force, and in order to comply with its provisions, amend its charter, institution, and operations.


2. The State Bank shall, within six months of this Ordinance coming into force, grant a licence to every duly qualified credit institution, to carry on business pursuant to the provisions of this Ordinance.

3. A credit institution which is not granted a licence by the State Bank shall cease business and commence liquidation in accordance with article 46 of this Ordinance.

Article 51

All institutions and individuals who carry on any aspect of the business of a credit institution without a licence granted by the State Bank shall terminate their business.

On behalf of the State Council of the
Socialist Republic of Vietnam
President


VO CHI CONG