Law Amending and Supplementing Certain Articles of the Law on Credit Organizations No. 20/2004/QH11

LAW

Amending and supplementing certain articles of the Law on Credit Institutions

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Pursuant to the Constitution of the Socialist Republic of Vietnam in 1992, amended and supplemented by Resolution No. 51/2001/QH10 dated December 25, 2001 of the National Assembly, tenth session;

This Law amends and supplements certain articles of the Law on Credit Institutions which was adopted by the National Assembly of the Socialist Republic of Vietnam on December 12, 1997,

Article 1.

Amending and supplementing certain articles of the Law on Credit Institutions:

1. Clause 4 shall be amended and supplemented as follows:

"Article 4. State policy on building types of credit institutions

1. Unifying management over all banking activities, establishing a modern credit institution system capable of meeting the capital and banking service needs of the economy and the population, contributing to implementing national monetary policy, ensuring the safety of the credit institution system, and protecting the legitimate interests of depositors.

2. Investing capital and other resources to develop state-owned credit institutions, creating conditions for these institutions to play a leading role in the money market.

3. The State shall establish policy banks that operate without profit-making objectives to serve the poor and other policy targets; serve mountainous, island, remote, and economically disadvantaged areas; and serve agriculture, rural areas, and farmers to implement economic and social policies of the State. The Government shall stipulate preferential credit policies regarding capital, interest rates, loan conditions, and terms.

Based on the provisions of this Law, the Government shall specify the organization and operation of policy banks in accordance with the characteristics of each type of policy bank.

4. Protecting ownership rights and other legitimate rights and interests in the operations of cooperative credit institutions to create conditions for workers to assist each other in production and daily life."

3. Article 16 shall be amended and supplemented as follows:

"Article 12. Types of credit institutions

1. Credit institutions established under Vietnamese law include state-owned credit institutions, joint-stock credit institutions, cooperative credit institutions, joint venture credit institutions, and foreign-owned credit institutions.

2. Foreign credit institutions may open branches of foreign banks and representative offices in Vietnam.

3. Foreign credit institutions may invest capital and purchase shares of credit institutions operating in Vietnam according to regulations of the Government."

3. Article 20 is amended and supplemented as follows:

"Article 20. Definitions

In this Law, the following terms shall be understood as follows:

1. A credit institution is a business entity established in accordance with this Law and other relevant laws to engage in banking activities.

2. A bank is a type of credit institution that conducts all banking activities and related commercial activities. Depending on their nature and operational goals, banks include commercial banks, development banks, investment banks, policy banks, cooperative banks, and other types of banks.

3. Non-bank credit institutions are types of credit institutions that conduct some banking activities as part of regular business operations but are not allowed to accept demand deposits or provide payment services. Non-bank credit institutions include finance companies, financial leasing companies, and other non-bank credit institutions.

4. Foreign credit institutions are credit institutions established under foreign laws.

5. Cooperative credit institutions are organizations engaged in money trading and banking services, voluntarily established by organizations, individuals, and households to operate banking activities in accordance with this Law and the Law on Cooperatives with the main goal of assisting each other in developing production, business, and daily life. Cooperative credit institutions include cooperative banks, people's credit funds, and other forms.

6. Large shareholders are individuals or organizations holding more than 10% of the charter capital or having more than 10% of the voting shares of a credit institution.

7. Banking activities are money trading and banking service activities with the regular content of accepting deposits, using these funds to provide credit, and providing payment services.

8. Credit activities involve credit institutions using their own capital and raised capital to provide credit.

9. Deposits are sums of money deposited by organizations, individuals, or other entities with credit institutions or other entities engaged in banking activities in the form of demand deposits, term deposits, savings deposits, and other forms. Deposits may be interest-bearing or non-interest-bearing and must be returned to the depositor.

10. Providing credit involves credit institutions agreeing to allow customers to use a sum of money with the principle of repayment through lending, discounting, financial leasing, bank guarantees, and other transactions.

11. Financial leasing is a medium-term or long-term credit activity based on a financial lease agreement between the lessor, a credit institution, and the lessee.

12. Bank guarantee is a written commitment by a credit institution to a party entitled to enforce a financial obligation on behalf of the customer if the customer fails to fulfill the committed obligations; the customer must recognize the debt and repay the credit institution the amount paid on its behalf.

13. Core capital includes the actual value of the charter capital, reserve funds, and certain "Liabilities" assets of credit institutions as prescribed by the State Bank. Core capital serves as the basis for calculating safety ratios in banking operations.

14. Discounting involves a credit institution purchasing promissory notes or other negotiable instruments from the beneficiary before maturity.

15. Rediscounting involves a credit institution repurchasing promissory notes or other negotiable instruments previously discounted before maturity."

4. Article 30 is amended and supplemented as follows:

"Article 30. Articles of Association

1. The articles of association of a credit institution must contain the following main contents:

a) Name and location of the headquarters;

b) Content and scope of operations;

c) Term of operation;

d) Registered capital and method of capital contribution;

d) Duties and powers of the Board of Directors, General Director (Director), and Supervisory Board;

e) Procedures for electing, appointing, and dismissing members of the Board of Directors, General Director (Director), and Supervisory Board;

g) Rights and obligations of shareholders;

h) Financial principles, accounting, auditing, and internal control;

i) Cases of dissolution and dissolution procedures;

k) Procedures for amending the articles of association.

2. The articles of association of a credit institution can only be implemented after being approved by the State Bank, except where otherwise provided by law."

5. Article 31 is amended and supplemented as follows:

"Article 31. Changes must be approved

1. Credit organizations must obtain the State Bank's written approval before making changes to any of the following points:

a) The name of the credit organization;

b) The registered capital amount, authorized capital amount;

c) The location of the headquarters, branch offices, and representative offices;

d) Content, scope, and duration of operation;

d) Transfer of named shares exceeding the ratio prescribed by the State Bank;

e) The shareholding percentage of major shareholders;

g) Members of the Board of Directors, General Director (Director) and members of the Supervisory Board.

2. After obtaining the State Bank's approval, credit organizations must register with competent state authorities regarding the changes stipulated in Clause 1 of this Article and must publish in central and local newspapers according to the provisions of Points a, b, c and d of Clause 1 of this Article.

6. Article 32 is amended and supplemented as follows:

"Article 32. Opening branches, representative offices; establishing companies, public service units

Credit organizations are permitted:

1. To open branches, representative offices at domestic and foreign locations where there is a need for operations, including the location of their headquarters, after obtaining the State Bank's written approval;

2. To establish affiliated companies with independent legal status and accounting using their own capital to operate in certain financial, banking, insurance fields, and manage, exploit, sell assets during the process of handling collateral assets and assets entrusted by the State to credit organizations for debt recovery;

3. To establish public service units after obtaining the State Bank's written approval.

7. Clause 37 shall be amended and supplemented as follows:

"Article 37. Board of Directors

1. The Board of Directors has the function of managing the credit organization according to the provisions of this Law and other laws.

2. The Board of Directors has a minimum of three members, comprising individuals with reputation, professional ethics, and knowledge of banking activities.

3. The Chairman and other members of the Board of Directors may not delegate their duties and powers to non-members of the Board of Directors.

4. The Chairman of the Board of Directors may not concurrently hold the position of General Director (Director) or Deputy General Director (Deputy Director) of the credit organization, except where otherwise provided by law.

5. The Chairman of the Board of Directors of this credit organization may not participate in the Board of Directors or management of another credit organization, except where that organization is a company of the credit organization.

The Chairman of the People's Credit Fund Board at the grassroots level may participate in the People's Credit Fund Board at the central level.

8. Article 38 is amended and supplemented as follows:

"Article 38. Supervisory Board

1. The Supervisory Board of credit organizations operates according to the provisions of this Law and other laws.

2. The Supervisory Board has the duty to check financial activities, monitor compliance with accounting systems, ensure safety in the operation of credit organizations, conduct internal audits periodically and in specific areas to accurately assess business operations and financial status of credit organizations.

3. The Supervisory Board of credit organizations has a minimum of three members, including one Chairperson and at least half of the members must be full-time.

4. Members of the Supervisory Board must meet the requirements for professional qualifications and professional ethics set by the State Bank.

5. The Supervisory Board has a support staff and can use the internal inspection and control system of the credit organization to perform its duties.

9. Article 39 is amended and supplemented as follows:

"Article 39. General Director (Director)

1. The General Director (Director) of the credit organization is responsible to the Board of Directors for daily operations according to tasks and powers consistent with the provisions of this Law and other laws.

2. The General Director (Director) and Deputy General Director (Deputy Director) of the credit organization must meet the following criteria:

a) Reside in Vietnam during tenure;

b) Have good health, professional ethics, honesty, integrity; understand the law and have a sense of compliance with the law;

c) Have professional qualifications, managerial skills, and ability to manage credit organizations as prescribed by the State Bank.

3. The General Director (Director) of this credit organization may not be the General Director (Director) or Chairman of the Board of Directors of another credit organization, except where that organization is a company of the credit organization.

10. Article 42 is amended and supplemented as follows:

"Article 42. Internal Inspection and Control

Credit organizations must regularly inspect and control compliance with laws and internal regulations; directly inspect and control business activities in all areas at branches, representative offices, and affiliated companies.

11. Article 45 is amended and supplemented as follows:

"Article 45. Accepting Deposits

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

2. Non-bank credit organizations may accept term deposits of one year or more from organizations and individuals according to the regulations of the State Bank.

12. Article 46 is amended and supplemented as follows:

"Article 46. Issuing Valuable Instruments

Credit organizations may issue deposit certificates, bonds, and other valuable instruments to raise funds from organizations, individuals both domestically and internationally according to the regulations of the State Bank.

13. Article 52 is amended and supplemented as follows:

"Article 52. Loan Guarantees

1. Credit organizations actively seek viable and effective production and business projects capable of repaying loans for lending purposes.

2. Credit organizations have the right to consider and decide on lending based on collateral or guarantees by customers' assets, third-party guarantees, and bear responsibility for their decisions. Credit organizations may not lend based on collateral by shares of the borrowing credit organization.

3. Credit organizations consider and decide on lending secured by assets formed from borrowed funds.

4. State-owned credit organizations may lend without collateral according to the Government's designation. Losses due to objective reasons from these loans will be handled by the Government."

14. Article 53 is amended and supplemented as follows:

"Article 53. Examination and approval for loans, inspection of loan usage

1. Credit organizations shall require customers to provide documents proving feasible business plans and their financial capacity, as well as that of guarantors, before deciding to grant loans.

2. Credit organizations must organize the examination and approval for loans according to the principle of defining responsibilities between the appraisal stage and the decision-making stage for granting loans.

3. Credit organizations have the responsibility and right to inspect and supervise the loan process, the use of borrowed funds, and debt repayment by customers."

15. Article 57 is amended and supplemented as follows:

"Article 57. Discounting, rediscounting commercial bills and other negotiable instruments

1. Credit organizations may discount commercial bills and other negotiable instruments for customers.

2. Credit organizations may rediscount commercial bills and other negotiable instruments among themselves.

3. Credit organizations that are banks may be eligible for rediscounting of commercial bills and other negotiable instruments already discounted by the State Bank of Vietnam.

4. The discounting and rediscounting of commercial bills and other negotiable instruments within the system of credit organizations shall be regulated by the State Bank of Vietnam."

16. Article 79 is amended and supplemented as follows:

"Article 79. Limits on lending, guarantees, discounting commercial bills and other negotiable instruments, and financial leasing

1. The limit on lending to a single customer is defined as follows:

a) The total outstanding loan balance to a single customer shall not exceed 15% of the credit organization's own capital, except in cases where the loans are from entrusted funds of the Government, organizations, or individuals, or when the borrower is another credit organization;

b) In cases where a customer's capital requirement exceeds 15% of the credit organization's own capital or the customer requires funding from multiple sources, credit organizations may grant joint loans in accordance with the regulations of the Governor of the State Bank of Vietnam;

c) In special cases, if the ability of credit organizations to jointly lend does not meet the borrowing requirements of a specific customer to fulfill economic and social tasks, the Prime Minister may decide on the maximum loan amount for each specific case.

2. The guarantee and discounting limits for commercial bills and other negotiable instruments for a single customer shall not exceed the ratio specified by the Governor of the State Bank of Vietnam relative to the credit organization's own capital.

3. The limit on financial leasing for a single customer by credit organizations shall be carried out in accordance with the regulations of the Government."

17. Article 81 is amended and supplemented as follows:

"Article 81. Safety Ratio

1. Credit organizations must maintain the following safety ratios:

a) Liquidity is determined by the ratio of immediately payable assets ("Have") to various types of liabilities ("Owe") at a certain point in time of the credit organization;

b) The minimum capital adequacy ratio is determined by the ratio of own capital to assets ("Have"), including off-balance sheet commitments adjusted according to risk levels;

c) The maximum proportion of short-term capital used for medium- and long-term loans.

2. The Governor of the State Bank of Vietnam shall specify these ratios under Clause 1 of this Article for different types of credit organizations.

3. The total investment capital of a credit organization in another credit organization in the form of equity contribution or share purchase must be deducted from its own capital when calculating safety ratios."

18. Article 84 is amended and supplemented as follows:

"Article 84. Finance and Accounting

Financial income and expenditure, fiscal year, and accounting of credit organizations shall be carried out in accordance with the laws on finance, accounting, and statistics."

19. Article 105 is amended and supplemented as follows:

"Article 105. Forms of Operation

1. Foreign credit organizations permitted to operate in Vietnam shall do so in the following forms:

a) Joint venture credit organizations;

b) 100% foreign-owned credit organizations;

c) Branches of foreign banks in Vietnam.

2. Foreign credit organizations may establish representative offices in Vietnam. Representative offices of foreign credit organizations shall not engage in 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 the fiscal year, credit organizations must select an independent auditing organization meeting the conditions stipulated by the State Bank of Vietnam to audit their operations. The selection of an independent auditing organization shall be conducted in accordance with the laws on bidding.

2. During the auditing process, credit organizations have the responsibility to provide accurate, complete, and timely information as required by the Auditor.

3. The auditing of cooperative credit organizations shall be regulated by the State Bank of Vietnam in accordance with management requirements and the scale of operations of these organizations."

Article 2.

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

2. Replace the phrase "internal audit" in the title of Section 4 Chapter II, Article 41, and Article 44 with the phrase "internal control"; replace the phrase "short-term negotiable instruments" in Article 70 with the phrase "negotiable instruments"; replace the phrase "as prescribed in Clause 2 of Article 50 of the Enterprise Bankruptcy Law" in Point d Clause 1 of Article 40, the phrase "as prescribed in the Enterprise Bankruptcy Law" in Article 98, the phrase "as prescribed in the laws on enterprise bankruptcy" in Clause 3 of Article 54 and Clause 1 of Article 100 with the phrase "as prescribed in the laws on bankruptcy"; replace the phrase "100% foreign-owned non-bank credit organizations" in Articles 106, 107, 108, 109, 110, 111, 112, and 113 with the phrase "100% foreign-owned credit organizations".

3. Remove the phrase "government agencies" in Clause 3 of Article 116.

Article 3.

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

2. The Government shall provide detailed regulations and guidance on the implementation of this Law./.