Cases of ineligibility for credit extension and credit restriction in Vietnam

Cases of ineligibility for credit extension and credit restriction in Vietnam (Internet image)

Regarding this issue, LawNet responded as follows:

1. Cases of ineligibility for credit extension in Vietnam

Cases of ineligibility for credit extension under Article 126 of the Law on Credit Institutions 2010 (amended 2017) include:

(1) A credit institution or foreign bank branch may not extend credit to the following organizations and individuals:

- Members of the Board of Directors, Members' Council or Control Board, the Director General (Director). Deputy Director(s) General (Deputy Director(s)) and holders of equivalent posts in the credit institution or foreign bank ranch; legal entities being shareholders whose capital share representatives are members of the Board of Directors or Control Board of the credit institution, for credit institutions being joint-stock companies, or legal entities being capital contributors or owners of the credit institution, for credit institutions being limited liability companies;

- Parents, spouses and children of members of the Board of Directors, Members' Council or Control Board, the Director General (Director), Deputy Directors General (Deputy Directors) and holders of equivalent posts.

(2) Provisions of (1) do not apply to people's credit funds and credit extension in the form of issuance of personal credit cards.

(3) Credit institutions and foreign bank branches may not extend credit to clients on the basis of guarantee provided by entities specified in (1). Credit institutions and foreign bank branches may not provide guarantee in any forms for credit extended to the entities defined in (1) by other credit institutions.

(4) Credit institutions may not extend credit to securities trading enterprises in which they have the right to control.

(5) Credit institutions may not extend credit on the basis of accepting their own securities or securities of their subsidiaries as guarantee.

(6) A credit institution or foreign bank’s branch must not extend credit for the purpose of contributing capital or buy shares of another credit institution.

(7) The credit extension specified in (1), (3), (4), (5) and (6) of this section includes purchase of and investments in corporate bonds.

2. Cases of credit restriction in Vietnam

According to Clause 1, Article 127 of the Law on Credit Institutions 2010 (amended 2017), a credit institution or foreign bank branch may extend neither unsecured credit nor concessional credit to the following entities:

(1) The audit institution and auditors that are auditing the credit institution or foreign bank branch; inspectors who are inspecting the credit institution or foreign bank branch;

(2) The chief accountant of credit institutions and branches of foreign banks; the president and other members of the Board of Directors, the head and other members of the Board of Controllers, the Director, Deputy Director and people holding equivalent positions of people's credit funds;

(3) Major shareholders and founding shareholders;

(4) An enterprise in which one of the entities specified in Clause 1, Article 126 of this Law owns more than 10% of its charter capital;

(5) The person who appraises and approves the credit extension;

(6) Subsidiaries and affiliated companies of the credit institution or an enterprise in which the credit institution has the right to control.

3. Regulations on credit extension limits in Vietnam

Regulations on credit extension limits under Article 128 of the Law on Credit Institutions 2010 (amended 2017) are as follows:

(1)The total outstanding credit of a commercial bank, foreign bank branch, people's credit fund or microfinance institution extended to a single client must not exceed 15% of its own capital;

The total outstanding credit of a commercial bank, foreign bank branch, people's credit fund or microfinance institution extended to a single client and affiliated persons must not exceed 25% of its own capital.

(2) The total outstanding credit of a non-bank credit institution extended to a single client must not exceed 25% of its own capital; the total outstanding credit of a non-bank credit institution extended to a single client and affiliated persons must not exceed 50% of its own capital.

(3) The total outstanding credit specified in (1) and (2) of this section do not include loans sourced from capital entrusted by the Government, organizations and individuals or loans to borrowers being other credit institutions.

(4)  The balance of credit extension mentioned in (1) and (2) of this section includes the purchase of and investments in bonds issued by the clients and their related persons.

(5) Limits on and conditions for credit extension for investment or trading in shares and corporate bonds of credit institutions and branches of foreign banks shall be specified by the State bank.

(6) In case a single client and affiliated persons need capital in excess of the limits specified in (1) and (2) of this section, credit institutions and foreign bank branches may extend syndicated credit under the State Bank's regulations.

(7) In special cases, for the purpose of serving socio-economic tasks, if the financial capacity of a credit institution or foreign bank’s branch fails to meet the need of a client, the Prime Minister will consider raising the credit extension limits mentioned in (1) and (2) of this section on a case-by-case basis.

The Prime Minister shall specify the conditions, necessary documents and procedures for raising the credit extension limits mentioned in (1) and (2) of this section.

(8) The total credit extended by a credit institution or foreign bank branch under (7) of this section must not exceed 4 times of its own capital.

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