On 18 January 2024, the National Assembly of Vietnam passed a new Law on Credit Institutions (Law No. 32/2024/QH15) (“New Law”).

In the New Law, a joint-stock credit institution's maximum ownership of an organizational shareholder and of a shareholder and its related persons has been lowered. Individual ownership remains at 5% of the charter capital, but organizational ownership has decreased to 10% (down from 15% in the current Law). Shareholder and its related persons are limited to ownership at 15% (down from 20%). The restriction is believed to hinder internal control and cross-ownership within credit institutions, enhance transparency, and establish a more secure financial system. The shareholding limits and conditions for foreign investors will be detailed by the Government in the future.

Another important development is the progressive reduction in the total balance of credit that financial institutions are permitted to extend to a single customer or to a single customer and its related persons. The reduction occurs in increments beginning on 1 July 2024 and ending on 1 January 2029. Specifically, the total balance of credit extension to a single customer will be reduced from 15% equity capital to 10%, and that to a single customer and its related persons will be reduced from 25% to 15%. This regulation aims to promote market stability and risk mitigation throughout the credit extension procedure.

The New Law also details mechanisms for coping with nonperforming loans (“NPLs”) and security enforcement pertaining to NPLs. To recover debt, credit institutions have the right to transfer all or part of a real estate project as secured assets without having to apply regulations on real estate business conditions to the transferor of real estate projects under the Law on Real Estate Business. This regulation empowers banks to manage substantial projects thereby facilitating the cash flow of real estate enterprises and mitigating the accumulation of bad debts.

Regulations regarding licensing procedures and/or requirements under this New Law have also been notably changed. Under current Law, credit institutions shall first apply for Establishment and Operation License issued by the State Bank of Vietnam (“SBV”). After being granted the Establishment and Operation License, they shall then apply for an Enterprise Registration Certificate at the Department of Planning and Investment (“DPI”). However, under the New Law, credit institutions no longer need to register with the DPI, as the Establishment and Operation License issued by the SBV will concurrently serve as the Enterprise Registration Certificate. This consolidated regulation represents a significant advancement in streamlining administrative processes for enterprises, aligning with the overarching policy of the Government with considerable efficiency and cost savings, thereby fostering a more advantageous investment climate.

The New Law also stipulates new regulations that prohibit credit institutions from tying optional insurance products to banking services and products. The implementation of this regulation is deemed essential to promote more stringent oversight of insurance sales operations and deter credit institutions from compelling customers to purchase insurance against their needs in exchange for loan access.

The New Law takes effect on 1 July 2024, with some exceptions regarding transfer of secured assets over real estate having effect on 1 January 2025.