Regulations on operations of finance companies in Vietnam

Regulations on operations of finance companies in Vietnam (Internet image)

1. What is a financial company?

According to Clause 4, Article 4 of the Law on Credit Institutions 2010 (amended in 2017), a non-bank credit institution means a type of credit institution which may conduct one or some banking operations under this Law, except taking deposits of individuals and providing services of payment via client accounts.

Non-bank credit institutions include finance companies, financial leasing companies and other non-bank credit institutions.

Based on the above provisions, it can be seen that a financial company is a non-bank credit institution, which is a type of credit institution that is entitled to perform one or several banking operations, except for the following activities:

- Taking deposits of individuals

- Providing services of payment via client accounts.

2. Regulations on operations of finance companies in Vietnam

2.1 Banking operations of finance companies in Vietnam

Pursuant to Clause 1, Article 108 of the Law on Credit Institutions 2010 (amended in 2017), finance companies may conduct one or some banking operations below:

- Taking deposits of organizations;

- Issuing deposit certificates, promissory notes, bills or bonds to raise capital from organizations;

- Borrowing loans from domestic and overseas credit institutions and financial institutions under law; borrowing loans from the State Bank in the form of re-financing under the Law on the State Bank of Vietnam;

- Providing loans, including amortized loans and consumer loans;

- Providing bank guarantee;

- Discounting and re-discounting negotiable instruments and other valuable papers;

- Issuing credit cards, factoring, financial leasing and other forms of credit extension after obtaining the State Bank's approval.

2.2 Opening of accounts by finance companies in Vietnam

Article 109 of the Law on Credit Institutions 2010 (amended in 2017) stipulates opening of accounts by finance companies as follows:

- A finance company that takes deposits shall open a deposit account at the State Bank and maintain on this account an average credit balance not lower than the compulsory reserve ratio.

- A finance company may open a payment account at a commercial bank or foreign bank branch.

- A finance company licensed to issue credit cards may open accounts at foreign banks under the foreign exchange law.

- A finance company may open deposit accounts and loan accounts for their clients.

2.3 Capital contribution and share purchase by finance companies

Capital contribution and share purchase by finance companies according to the provisions of Article 110 of the Law on Credit Institutions 2010 (amended in 2017) as follows:

- Finance companies may only use their charter capital and reserve funds to contribute capital or purchase shares under Clauses 2 and 3 of this Article.

- Finance companies may contribute capital to. or purchase shares of, enterprises and investment funds.

- Finance companies may only establish or acquire subsidiaries or affiliated companies operating in insurance, securities and security asset management after obtaining the State Bank's written approval.

2.4 Other business activities of finance companies in Vietnam 

According to Article 111 of the Law on Credit Institutions 2010 (amended in 2017), other business activities of finance companies are as follows:

- Receiving capital entrusted by the Government, organizations and individuals for investment in production and business projects or licensed credit extension; entrusting capital to credit institutions for credit extension. The receipt of capital entrusted by individuals and capital entrustment to credit institutions for credit extension comply with the State Bank's regulations.

- Participating in the monetary market under Article 104 of this Law.

- Selling and purchasing government bonds and corporate bonds.

- Underwriting the issue of government bonds and corporate bonds; acting as agents to issue bonds, stocks and other valuable papers.

- Providing foreign exchange services under the State Bank's regulations.

- Acting as insurance agents.

- Providing banking, financial and investment consultancy services.

- Providing asset management and preservation services.

Van Trong

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