Decree No. 79/2002/ND-CP On the organization and operation of Financial Companies

DECREE

Regarding the organization and operation of Financial Companies

  THE GOVERNMENT 

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

Based on the Law on the State Bank of Vietnam dated December 12, 1997;

This Decision is based on Decree No. 63/1998/ND-CP dated August 17, 1998 of the Government on foreign exchange management and Decree No. 05/2001/ND-CP dated January 17, 2001 of the Government amending and supplementing certain provisions of Decree No. 63/1998/ND-CP dated August 17, 1998 of the Government on foreign exchange management;

At the proposal of the Governor of the State Bank of Vietnam;

 DECREE:

 PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decree stipulates the organization and operation of Financial Companies.

Article 2. Definition of Financial Company

A Financial Company is a type of non-bank credit institution with the function of using its own capital, raised capital, and other sources of capital to lend and invest; providing financial and monetary advisory services and performing other services as prescribed by law, but not including payment services and accepting deposits for less than one year.

Article 3. Forms of Establishment

Financial Companies operate in Vietnam under the following forms:

1. State-owned Financial Company: a Financial Company established and managed by the State through investment of capital, business operations.

2. Joint-stock Financial Company: a Financial Company established by organizations and individuals contributing capital in accordance with the law, operating under the form of a joint-stock company.

3. Affiliated Financial Company of a Credit Institution: a Financial Company established by a credit institution using its own capital and being the owner in accordance with the law, independently accounting and having legal personality.

4. Joint Venture Financial Company: a Financial Company established by the contribution of capital between the Vietnamese side comprising one or more credit institutions and domestic enterprises, and the foreign side comprising one or more foreign credit institutions, based on a joint venture agreement.

5. Wholly Foreign-Owned Financial Company: a Financial Company established by the capital of one or more foreign credit institutions in accordance with Vietnamese law.

Article 4. Statutory Capital

The statutory capital of a Financial Company is regulated by the Government. Any change in the statutory capital of a Financial Company shall be decided by the Government.

Article 5. Term of Operation

The term of operation of a Financial Company in Vietnam shall not exceed fifty years. In cases where an extension of the term of operation is required, it must be approved by the State Bank of Vietnam (hereinafter referred to as the State Bank). Each extension shall not exceed fifty years.

Article 6. Explanation of Terms

In this Decree, the following terms are understood as follows:

1. Entrusted Fund Utilization means the use of entrusted funds by a Financial Company to lend or invest in projects and works based on an entrustment agreement between the entrusting party and the Financial Company.

2. Factoring is a discounting method aimed at financing businesses through the purchase of receivables arising from delayed sales payments, managing invoices, documents, and accounting books for businesses.

Article 7. State Management

The State Bank is responsible for state management over the organization and operation of Financial Companies, issuing and revoking licenses for establishment and operation; supervising and inspecting the activities of Financial Companies in Vietnam; issuing guiding documents on the organization and operation of Financial Companies; performing other state management tasks as prescribed by law.

Chapter II

Organization and Operation of Financial Companies

Section 1

Issuance of Licenses for Establishment and Operation

 

Article 8. Conditions for Issuing Licenses

1. The conditions for obtaining a license for establishment and operation of a Financial Company (hereinafter referred to as the license) include:

a) There is a need for the operation of a Financial Company;

b) Having sufficient statutory capital as prescribed by the Government;

c) Founding members are organizations and individuals with reputation and financial capacity as prescribed by the State Bank;

d) Managers and executives have full civil capacity and appropriate professional qualifications for the operation of a Financial Company;

e) Having a Charter of organization and operation consistent with the Law on Credit Institutions and other relevant laws;

f) Having a feasible business plan draft.

2. In addition to the conditions set out in Clause 1 of this Article, foreign parties in Joint Venture Financial Companies and Wholly Foreign-Owned Financial Companies must also meet the following conditions:

a) Being authorized by competent authorities of their countries to carry out banking activities or Financial Company activities;

b) Being permitted by the competent authority of the foreign country to operate in Vietnam.

Article 9. Documents for Issuing a License

1. The application documents for issuing a license include:

a) A request for issuing a license, clearly stating the business activities being applied for;

b) Draft articles of association;

c) A three-year business plan, specifying the economic efficiency and benefits of the operations of the Financial Company;

d) List, curriculum vitae, and certificates proving the qualifications and professional expertise of founding members, board members, supervisory board members, and general manager (director);

đ) Capital contribution levels, capital contribution plans, and lists of individual and organizational contributors;

e) Financial situation and related information about major shareholders;

g) Approval from the provincial people's committee or municipal people's committee under the central government regarding the location of the Financial Company's headquarters.

2. In addition to the documents stipulated in Clause 1 of this Article, the application documents for issuing a license for joint venture Financial Companies and wholly foreign-owned Financial Companies also include:

a) Articles of association of contributing parties;

b) Licenses of contributing parties;

c) Official documents from foreign authorities authorizing foreign parties to operate in Vietnam as joint venture Financial Companies or wholly foreign-owned Financial Companies;

d) Audited balance sheets, profit and loss statements, and reports on operational status over the last three years of contributing parties;

đ) Joint venture contracts for joint venture Financial Companies.

3. Application documents for issuing licenses for joint venture Financial Companies and wholly foreign-owned Financial Companies must be prepared in two sets, one in Vietnamese and one in English. Documents in the set in a foreign language must be legalized by consular officials. Copies in Vietnamese and translations from a foreign language into Vietnamese must be certified by a Vietnamese notary office or a diplomatic or consular mission of Vietnam abroad.

Article 10. Licensing Fees

Financial Companies that are issued licenses by the State Bank must pay licensing fees as prescribed by the Ministry of Finance.

Article 11. Time Limit for Issuing and Using the License

1. Within ninety days from the date of receiving complete application documents for issuing a license for a Financial Company, the State Bank must issue or refuse to issue the license. In case of refusal, the State Bank must provide a written explanation of the reasons.

2. The license issued to a Financial Company shall specify the specific business activities that the Financial Company may carry out.

3. Financial Companies granted permission must use the correct name and operate according to the contents specified in the license. It is prohibited to forge, erase, transfer, lease, or lend the license.

Article 12. Conditions for Commencing Operations

1. To commence operations, Financial Companies granted a license must meet the following conditions: 

a) Have articles approved by the State Bank of Vietnam;

b) Have a business registration certificate; have sufficient statutory capital and a suitable headquarters for the operation of the Financial Company;

c) Statutory capital contributed in cash must be deposited into a frozen account without interest at the State Bank at least thirty days before commencing operations. This amount can only be released after the Financial Company has commenced operations;

d) Legal documentation regarding ownership rights or permission to use the main headquarters of the Financial Company in Vietnam;

đ) Publish in central and local newspapers, as required by law, the contents specified in the license.        

2. Within twelve months from the date of issuance of the license, Financial Companies granted a license by the State Bank must commence operations.

Article 13. Revocation of License

The revocation of licenses for Finance Companies shall be carried out in accordance with Article 29 of the Law on Credit Organizations and guidelines of the State Bank.

Section 2

Organization, management, operation, and supervision of Finance Company

Article 14. Establishment of Branches, Representative Offices, and Subsidiaries

1. Finance Companies may establish branches and representative offices within and outside the country upon written approval from the State Bank.

2. Finance Companies may establish subsidiaries with independent legal status and accounting to engage in financial services, monetary services, brokerage, insurance, securities, and advisory services in accordance with the law.

Article 15. Conditions, Documents, and Procedures for Establishing Branches, Representative Offices, and Subsidiaries          

Conditions, documents, and procedures for establishing branches and representative offices, and subsidiaries of Finance Companies shall be applied in accordance with Article 33 of the Law on Credit Organizations and guidelines of the State Bank.

Article 16. Management, Operation, and Supervision

Management, operation, supervision, inspection systems, and internal auditing of Finance Companies shall be implemented in accordance with Section 3 and Section 4 of Chapter II of the Law on Credit Organizations and guidelines of the State Bank.

Chapter III

Activities of Finance Company

Section 1

Raising Capital

Article 17. Forms of Capital Mobilization:

Finance Companies may mobilize capital from the following sources:

1. Accept time deposits of one year or longer from organizations and individuals in accordance with the regulations of the State Bank.

2. Issue promissory notes, bonds, deposit certificates, and other negotiable instruments to mobilize capital from organizations and individuals within and outside the country in accordance with current laws.

3. Borrow from domestic and foreign financial and credit institutions and international financial organizations.

4. Receive entrusted capital from the Government, organizations, and individuals within and outside the country.

Section 2

Lending Activities

Article 18. Loans

Finance Companies may provide loans in the following forms:

1. Short-term, medium-term, and long-term loans in accordance with the regulations of the State Bank.

2. Loans under the entrustment of the Government, organizations, and individuals within and outside the country in accordance with the current provisions of the Law on Credit Organizations and entrustment contracts.

3. Consumer loans through installment purchase financing.

Article 19. Discounting, Rediscounting, Pledging of Commercial Bills and Other Negotiable Instruments

1. Finance Companies may provide credit in the form of discounting, pledging commercial bills, bonds, and other negotiable instruments to organizations and individuals.

2. Finance Companies and other credit institutions may rediscount, pledge commercial bills, bonds, and other negotiable instruments to each other.

Article 20. Guarantees

Finance Companies may guarantee by their reputation and financial capacity for the guaranteed party. The guarantee activities of Finance Companies must be conducted in accordance with Article 58, Article 59, and Article 60 of the Law on Credit Organizations and guidelines of the State Bank.

Article 21. Other Forms of Credit Provision

Finance Companies may provide credit in other forms in accordance with the regulations of the State Bank.

Section 3

Opening Accounts and Treasury Services

Article 22. Opening Accounts

1. Financial Companies are permitted to open deposit accounts at the State Bank where the Financial Company's main office is located and at banks operating within the territory of Vietnam. The opening of deposit accounts at banks outside the territory of Vietnam must be approved by the State Bank.

2. Financial Companies that accept deposits must open an account at the State Bank and maintain an average balance not lower than the level prescribed by the State Bank.

Article 23. Treasury Services

Financial Companies are allowed to provide cash collection and disbursement services for customers.

Section 4

Other Activities

Article 24. Other Permitted Operations in accordance with current legal regulations, including:

1. Contributing capital and purchasing shares of enterprises and other credit organizations.

2. Investing in projects under contracts.

3. Participating in the money market.

4. Providing remittance services, gold trading.

5. Acting as agents for issuing bonds, stocks, and other securities for enterprises.

6. Being authorized to act as agents in areas related to finance, banking, insurance, and investment, including managing assets and investment capital of organizations and individuals according to contracts.

7. Supplying advisory services on banking, finance, currency, and investment to customers.

8. Providing safekeeping services for valuable items, securities, renting safety deposit boxes, pawnbroking, and other services.

Article 25. Operations Requiring Approval from Competent State Management Authorities

1. Foreign Exchange Activities: The State Bank examines and issues licenses for Financial Companies to conduct certain foreign exchange activities in accordance with current foreign exchange management regulations.

2. Factoring Activities: The State Bank is responsible for issuing guidelines for factoring activities and examining and approving Financial Companies meeting the conditions to carry out these activities.

3. Other Activities.

Section 5

Restrictions to Ensure Safety in the Operations of Financial Companies

Article 26. Provisions and Use of Risk Reserves

Financial Companies must establish risk reserves and record these reserves as operational expenses. The establishment and use of risk reserves shall be carried out in accordance with the regulations of the State Bank.

Article 27. Situations Where Credit is Not Provided

Financial Companies may not provide credit to entities specified in Clause 1 of Article 77 of the Law on Credit Organizations and may not accept guarantees from such entities as a basis for providing credit to customers.

Article 28. Situations Where Credit is Restricted

1. Financial Companies may not provide unsecured credit or credit with preferential terms to entities specified in Clause 1 of Article 78 of the Law on Credit Organizations.

2. The total outstanding loans to entities specified in Clause 1 of this Article may not exceed 5% of the Financial Company's own capital.

3. The guarantee amount for a single customer and the total guarantee amount provided by the Financial Company may not exceed the ratio relative to the Financial Company's own capital as stipulated by the Governor of the State Bank.

Article 29. Limits on Capital Contributions and Share Purchases

1. The level of capital contribution and share purchase by a Financial Company in a single enterprise; the total level of capital contribution and share purchase by a Financial Company in all enterprises may not exceed the maximum level prescribed by the Governor of the State Bank.

2. The total amount of capital invested by a Financial Company in other credit organizations in the form of capital contributions and share purchases must be deducted from the Financial Company's own capital when calculating safety ratios.

Article 30. Safety Assurance Provisions

The Financial Company must comply with the following safety assurance provisions:

1. Maintain the safety ratio as prescribed in Article 81 of the Law on Credit Institutions and guiding documents of the State Bank.

2. Purchase and invest in fixed assets not exceeding 50% of the Financial Company's own capital.

3. Limit on lending to a single customer is stipulated as follows:

a) The total outstanding loan balance to a single customer shall not exceed 15% of the Financial Company's own capital, except for loans from entrusted funds of the Government, organizations, individuals, or when the borrower is another credit institution.

b) In cases where the capital requirement of a single customer exceeds 15% of the Financial Company's own capital or the customer requires funding from multiple sources, the Financial Company may conduct syndicated lending in accordance with the regulations of the State Bank.

4. Other relevant safety provisions under current laws.

Chapter IV

Finance, Accounting, and Reporting

Article 31. Finance

1. The financial year of the Financial Company begins on January 1 and ends on December 31 of each calendar year.

2. Financial income and expenditure of the Financial Company shall be carried out in accordance with the provisions of Article 84 and Clause 2 of Article 110 of the Law on Credit Institutions and the regulations of the Ministry of Finance.

Article 32. Accounting

1. The accounting of the Financial Company shall be conducted in accordance with the provisions of Article 86 and Clause 1 of Article 111 of the Law on Credit Institutions and guiding documents of the State Bank.

2. For new business operations of the Financial Company that have not been specified in accounts, the State Bank shall be responsible for supplementing new accounts into the accounting system of credit institutions.

Article 33. Establishment and Utilization of Funds       

1. The establishment, maintenance, and utilization of funds by the Financial Company shall be carried out in accordance with the provisions of Article 87 of the Law on Credit Institutions and the Ministry of Finance.

2. The Financial Company shall not use the funds specified in Clause 1 of this Article to pay dividends or distribute profits to shareholders in any form, except in the case of dissolution and liquidation of the company, but must prioritize repayment to creditors before returning to shareholders.

Article 34. Repatriation of Profits by Foreign Investors

The foreign party in the Financial Company may repatriate distributed profits and remaining assets after liquidation or cessation of operations in accordance with Article 112 of the Law on Credit Institutions and guidelines of the State Bank.

Article 35. Financial Reporting and Auditing System

The Financial Company must implement the financial reporting, auditing, and public disclosure of financial reports in accordance with the provisions of Article 89, Article 90, Clause 2 of Article 111, and Clauses 1 and 2 of Article 122 of the Law on Credit Institutions and guiding documents of the Ministry of Finance.

Chapter V

Supervision, Special Control, Bankruptcy, Dissolution, and Liquidation

Article 36. Inspection

1. The Financial Company must undergo inspection by the State Bank Inspectorate in accordance with the Law on Credit Institutions.

2. Rights and obligations of the inspected Financial Company shall be implemented in accordance with the provisions of Article 118 and Article 119 of the Law on Credit Institutions and regulations of the State Bank.

Article 37. Special supervision, bankruptcy, dissolution, and liquidation

The special supervision, bankruptcy, dissolution, and liquidation of Finance Companies shall be carried out in accordance with Chapter V of the Law on Credit Organizations and the regulations of the State Bank.

Article 38. Awards and Disciplinary Actions

The awards and handling of violations of Finance Companies shall be implemented in accordance with Chapter X of the Law on Credit Organizations and related legal documents.

Chapter VI

Implementation Provisions

Article 39. Effective date

1. This Decree takes effect fifteen days after the date of signature and replaces previous provisions contrary to this Decree.

2. The State Bank shall take the lead and coordinate with relevant agencies to guide the implementation of this Decree.

Article 40. Adjustments for Finance Companies licensed before the Decree takes effect

Finance Companies established and operating under licenses issued by the State Bank prior to the effective date of this Decree shall be regulated as follows:

1. They are not required to reapply for establishment and operation licenses.

2. The duration of their operations shall be applied as stipulated in the previously issued licenses.

3. Within twelve months from the date this Decree takes effect, they must adjust their Articles of Organization and Operation in compliance with this Decree.

Article 41. The Ministers, Heads of ministerial-level agencies, Heads of government agencies, Chairpersons of People's Committees of provinces and centrally governed cities are responsible for implementing this Decree./.