What is the required legal capital for finance companies in Vietnam according to current regulations?
What is the required legal capital for finance companies in Vietnam according to current regulations?
The levels of legal capital for credit institutions are stipulated in Article 2 of Decree 86/2019/ND-CP as follows:
Levels of legal capital
1. Commercial banks: VND 3,000 billion.
2. Policy banks: VND 5,000 billion.
3. Cooperative banks: VND 3,000 billion.
4. Branches of foreign banks: USD 15 million.
5. Finance companies: VND 500 billion.
6. Financial leasing companies: VND 150 billion.
7. Microfinance institutions: VND 5 billion.
8. People's credit funds operating in the area of a commune-level administrative unit (hereinafter referred to as a commune): VND 0.5 billion.
9. People's credit funds operating in the area of a ward; people's credit funds operating in the area of multiple communes, multi-communal wards, multi-ward: VND 1 billion.
Accordingly, the current legal capital for finance companies is VND 500 billion.
Required legal capital for finance companies in Vietnam according to current regulations.
Are finance companies in Vietnam allowed to provide loans?
According to Clause 4, Article 4 of the Law on Credit Institutions 2010 regarding non-bank credit institutions as follows:
A non-bank credit institution is a type of credit institution engaged in one or several banking operations as stipulated by this Law, except for accepting deposits from individuals and providing payment services via customers' accounts. Non-bank credit institutions include finance companies, financial leasing companies, and other non-bank credit institutions.
A financial leasing company is a type of finance company that primarily engages in financial leasing as stipulated by this Law.
According to Article 108 of the Law on Credit Institutions 2010 which stipulates the banking operations of finance companies as follows:
Banking Operations of Finance Companies
1. Finance companies are allowed to carry out one or several of the following banking operations:
a) Accept deposits from organizations;
b) Issue certificates of deposit, promissory notes, treasury bills, and bonds to raise funds from organizations;
c) Borrow funds from credit institutions, domestic and foreign financial institutions as stipulated by law; borrow from the State Bank of Vietnam in the form of re-financing as stipulated by the Law on the State Bank of Vietnam;
d) Provide loans, including installment loans and consumer loans;
dd) Provide bank guarantees;
e) Discount, re-discount transferable instruments and other valuable papers;
g) Issue credit cards, factoring, financial leasing, and other forms of credit extension after obtaining approval from the State Bank of Vietnam.
2. The Government of Vietnam stipulates specific conditions for finance companies to carry out the banking operations specified in Clause 1 of this Article.
As per the above regulations, finance companies are non-bank credit institutions and are allowed to carry out one or several banking operations as stipulated in Clause 1, Article 108 of the Law on Credit Institutions 2010, including loans activities.
Thus, finance companies are allowed to conduct loans activities.
Vietnam: Is a finance company required to meet the legal capital conditions to be granted a license?
Pursuant to Clauses 1 and 4 of Article 4 of the Law on Credit Institutions 2010:
Terminology Explanation
In this Law, the following terms are understood as follows:
1. A credit institution is an enterprise that performs one, several, or all banking operations. Credit institutions include banks, non-bank credit institutions, microfinance institutions, and people's credit funds.
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4. A non-bank credit institution is a type of credit institution that engages in one or several banking operations as stipulated by this Law, except for accepting deposits from individuals and providing payment services via customers' accounts. Non-bank credit institutions include finance companies, financial leasing companies, and other non-bank credit institutions.
Thus, finance companies are considered non-bank credit institutions and must meet the conditions for establishing a credit institution.
And according to Clause 1, Article 20 of the Law on Credit Institutions 2010 which stipulates the conditions for being granted a license to establish a credit institution as follows:
Conditions for Licensing
1. Credit institutions are granted licenses when the following conditions are met:
a) Have minimum charter capital, allocated capital equivalent to the legal capital;
b) The owner of the credit institution is a single-member limited liability company; the founding shareholders or members are legal entities that are legally operating and have sufficient financial capacity to contribute capital; founding shareholders or members are individuals with full civil capacity and sufficient financial capability to contribute capital.
Conditions for the owners of credit institutions being single-member limited liability companies, founding shareholders, and founding members are specified by the State Bank of Vietnam;
c) Managers, executives, and members of the Board of Supervisors meet the standards and conditions stipulated in Article 50 of this Law;
d) Have a charter in accordance with this Law and other relevant legal provisions;
dd) Have a feasible establishment Scheme and business plan, ensuring no impact on the safety and stability of the credit institution system; do not create monopolies or restrict competition or unfair competition in the credit institution system.
Thus, a finance company must have minimum charter capital and allocated capital equivalent to the legal capital to be granted a license, and must also meet other conditions stipulated by the laws mentioned above.
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