Conditions for contribution of capital and purchase of shares by credit institutions in Vietnam

Conditions for contribution of capital and purchase of shares by credit institutions in Vietnam (Image from the Internet)

Conditions for contribution of capital and purchase of shares by credit institutions are specified in Article 4 of Circular 51/2018/TT-NHNN prescribing conditions, necessary documents, order and procedures for approving the contribution of capital to and purchase of shares of credit institutions issued by the Governor of the State Bank of Vietnam. To be specific:

1. A credit institution is required to meet the following conditions for contributing capital to or buying shares for the purpose of establishing or acquiring a subsidiary as prescribed in Point a or Point c Clause 1 Article 1 hereof (except subsidiaries operating in debt and asset management):

a) The contribution of capital and/or purchase of shares by the credit institution must be licensed as specified in its License for establishment and operation;

b) The credit institution must meet the capital adequacy ratio as regulated in Point b Clause 1 Article 130 of the Law on credit institutions for a period of 24 months preceding the month in which the application is submitted and at the date of completion of the capital contribution or purchase of shares with the SBV’s approval;

c) The credit institution must meet the capital contribution or share purchase ratio as regulated in Article 129 of the Law on credit institutions for a period of 24 months preceding the month in which the application is submitted and at the date of completion of the capital contribution or purchase of shares with the SBV’s approval;

d) Its actual charter capital at the date of completion of the capital contribution or share purchase shall not be lower than the legal capital;

dd) It gains profit as shown in its financial statements of the year preceding the year in which the application is submitted. Such financial statements must be audited by an independent auditing firm;

e) It incurs no penalties for administrative violations against regulations on debt classification, setting and utilization of provisions for risk management, capital contribution and share purchase within 12 months before the month in which the application is submitted;

g) Its ratio of bad debts to total outstanding debts is lower than 3% within 12 months preceding the month in which the application is submitted;

h) Its organizational structure, the Board of Directors, the Board of Members, the Board of Comptrollers, and General Director (or Director) must be conformable with the Law on credit institutions and the SBV's regulations.

2. A credit institution is required to meet the following conditions for contributing capital to or buying shares for the purpose of establishing or acquiring an associate company as prescribed in Point a or Point c Clause 1 Article 1 hereof (except associate companies operating in debt and asset management):

a) It must meet the requirements stated in Point a, Point d, Point dd, Point e, Point g, and Point h Clause 1 of this Article;

b) It must meet the capital adequacy ratio as regulated in Point b Clause 1 Article 130 of the Law on credit institutions for a period of 12 months preceding the month in which the application is submitted and at the date of completion of the capital contribution or purchase of shares with the SBV’s approval;

c) It must meet the capital contribution or share purchase ratio as regulated in Article 129 of the Law on credit institutions for a period of 12 months preceding the month in which the application is submitted and at the date of completion of the capital contribution or purchase of shares with the SBV’s approval.

3. A credit institution is required to meet the following conditions for contributing capital to or buying shares for the purpose of establishing or acquiring a subsidiary or an associate company operating in debt and asset management:

a) It must meet the requirements stated in Point a Clause 1 of this Article;

b) It must meet the capital contribution or share purchase ratio as regulated in Article 129 of the Law on credit institutions at the date of completion of the capital contribution or purchase of shares with the SBV’s approval;

c) Its ratio of bad debts to total outstanding debts is higher than 3% within 12 months preceding the month in which the application is submitted.

4. A credit institution is required to meet the following conditions for contributing capital to or buying shares of an enterprise engaging in the business lines specified in Point b Clause 1 Article 1 hereof:

a) It must meet the requirements stated in Clause 1 of this Article;

b) It must meet the ratio of short-term funds used for granting medium- and long-term loans as prescribed in Point c Clause 1 Article 130 of the Law on credit institutions and the SBV's regulations within 24 months preceding the month in which the application is submitted.

5. A credit institution is required to meet the following conditions for conversion of debts into contributed capital as regulated in Point d Clause 1 Article 1 hereof:

a) It must meet the requirements stated in Point a, Point b, Point c, Point d, Point dd, Point e, and Point h Clause 1 of this Article;

b) Debts to be converted into contributed capital must be bad debts and such conversion of debts into contributed capital is made for the purpose of settling bad debts. Bad debts are determined according to the SBV’s regulations on classification of assets, ratio and method of establishment of provisions for credit losses, and utilization of provisions for handling credit losses by credit institutions and foreign banks’ branches.

Above is advice on conditions for conditions for contribution of capital and purchase of shares by credit institutions. For more detailed information, you can refer to Circular 51/2018/TT-NHNN. We hope that our advice will help you.

Best Regards!