Vietnam: How many classes of compulsory insurance are there under current regulations? Is it compulsory to purchase loan insurance when borrowing from a bank?
- Vietnam: How many classes of compulsory insurance are there under current regulations? Is it compulsory to purchase loan insurance when borrowing from a bank?
- What is the administrative penalty for forcing entities to buy loan insurance in Vietnam?
- What are the lending rules in Vietnam according to current regulations?
Vietnam: How many classes of compulsory insurance are there under current regulations? Is it compulsory to purchase loan insurance when borrowing from a bank?
According to the provisions of Clause 2, Article 8 of the Law on Insurance Business 2022, regulations on classes of compulsory insurance include:
Compulsory insurance
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2. Classes of compulsory insurance, including:
a) Compulsory insurance against civil liability of vehicle owner;
b) Compulsory fire and explosion insurance;
c) Compulsory insurance in the construction industry;
d) Classes of compulsory insurance prescribed in other laws that meet the regulations laid down in clause 1 of this Article.
According to the above regulations, there are currently 4 classes of compulsory insurance including:
- Compulsory insurance against civil liability of vehicle owner;
- Compulsory fire and explosion insurance;
- Compulsory insurance in the construction industry;
- Classes of compulsory insurance prescribed in other laws that meet the regulations laid down in clause 1 of Article 8 of the Law on Insurance Business 2022.
In addition, Article 14 of Circular 39/2016/TT-NHNN stipulates fees related to lending activities as follows:
The credit institution and its customer must agree on collection of fees related to lending operations, including:
- Exit fee paid by a customer for repayment of debt before the due date.
- Fee paid for provisional credit limit.
- Fee paid for syndicated loan arrangement.
- Fee paid for a commitment to borrowed fund withdrawal during the period from the date of entry into force of the loan agreement to the date of initial disbursement of borrowed fund.
- Other fees related to lending operations which are specified in relevant legal documents.
In Article 15 of Circular 39/2016/TT-NHNN regulations on borrowed fund guarantee:
Borrowed fund guarantee
1. The credit institution and its customer shall agree on whether or not a security for a borrowed fund is implemented. Agreement on security for the borrowed fund between the credit institution and its customer must conform to regulations of the laws on security and relevant legislation.
2. The credit institution shall make its decision on and bear responsibility for any unsecured loan.
3. The customer and guarantor must liaise with the credit institution to treat assets pledged as collateral for loans when there are sufficient grounds for such treatment under terms and conditions of loan agreements, loan guarantee contracts, laws and regulations.
The State Bank of Vietnam responds to this issue as follows:
"The laws on insurance business have provisions to ensure that insurance participation is voluntary, based on the needs and financial capacity of customers, and strictly prohibit the abuse of positions and powers to coerce customers into entering into insurance contracts.
The State Bank of Vietnam also directs credit institutions to comply strictly with the provisions of the laws on insurance business, strengthen internal inspection and control of insurance activities throughout the system."
Therefore, based on these regulations, purchasing loan insurance when borrowing from a bank is not mandatory.
The decision for customers to purchase loan insurance when borrowing funds is an agreement between the bank and the borrowing customer based on the voluntary consent of both parties.
Source: Government Newspaper
Vietnam: How many classes of compulsory insurance are there under current regulations? Is it compulsory to purchase loan insurance when borrowing from a bank?
What is the administrative penalty for forcing entities to buy loan insurance in Vietnam?
Clause 2, Article 17 of Decree 98/2013/ND-CP is supplemented by Clause 7, Article 1 of Decree 48/2018/ND-CP as follows:
Penalties for violations against regulations on provision of life insurance and health insurance
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2. A fine of between VND 40,000,000 and 50,000,000 for any of the following violations:
a) Failing to provide sufficient information about the insurance contract; failing to explain the terms and conditions of the insurance contracts to the insurance buyer when concluding the insurance contract;
b) Failing to inform the insurance buyer of the status of the insurance contract as prescribed by law;
c) Forcing conclusion of auxiliary insurance contracts enclosed to the main insurance contracts;
d) Providing insurance products of investment-linked insurance, retirement insurance, or health insurance against the law.
dd) Forcing entities to buy insurance in any manner
3. Additional penalties:
Suspension of operation for 02 - 03 months, for a part of content and scope directly related to administrative violations, in license of establishment and operation, for violations specified in Clause 2 of this Article
4. Remedial measures:
Compulsory restoration of the original state, applicable to the violations in Point c Clause 2 of this Article.
According to the above regulations, the act of forcing entities to buy loan insurance when borrowing capital is a violation of the law on insurance business. Therefore, a fine of between VND 40,000,000 and 50,000,000 shall be imposed upon the act of forcing entities to buy loan insurance.
Note: The above fines apply to individuals. In case an organization violates the fine, the fine will be twice that of an individual.
What are the lending rules in Vietnam according to current regulations?
In Article 4, Circular 39/2016/TT-NHNN stipulates lending rules according to current regulations as follows:
- Lending transactions between a credit institution and a customer shall be performed according to an arrangement between that credit institution and customer and in conformity with regulations laid down herein and other relevant laws, including the legislation on environmental protection.
- The customer borrowing fund from the credit institution shall be bound to use these loans for the right purposes as stated in advance, make repayment of principal and interest amounts due within an agreed repayment period.
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