Regulations on Safety ratios for commercial banks in Vietnam

What is commercial bank?

Pursuant to Article 4 of the Law on Credit Institutions 2010, commercial bank means a type of bank which may conduct all banking operations and other business activities under the law in Vietnam for profit.

 Domestic commercial banks established and organized as joint-stock companies, except State commercial banks established and organized as one-member limited liability companies with wholly stale-owned charter capital.

Regulations on Safety ratios for commercial banks in Vietnam (Internet image)

Banking operations of commercial banks in Vietnam

Pursuant to Article 98 of the Law on Credit Institutions 2010, banking operations of commercial banks include:

(1) Taking demand deposits, time deposits, savings deposits and deposits of other types.

(2) Issuing deposit certificates, promissory notes, treasury bills and bonds to raise capital at home and aboard.

(3) Extending credit by:

+ Lending;

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

+ Providing bank guarantee;

+ Issuing credit cards:

+ Domestic factoring; international factoring. for banks licensed for international payment;

+ Other forms of credit after obtaining the State Bank's approval.

(4) Opening payment accounts for clients.

(5)  Providing payment instruments.

(6)  Providing the following payment services:

- Domestic payment services, including check, payment order, authorized payment, collection, authorized collection, letter of credit and bank card, and collection and payment services.

- Providing international payment services and other payment services after obtaining the State Bank's approval.

In addition, Article 107 of the Law on Credit Institutions 2010 stipulates that other business activities of commercial banks include:

- Provision of such services as cash management, banking and financial consultancy, asset management and preservation, and safe keeping.

- Consultancy of corporate finance, business acquisition, sale, consolidation and merger and investment.

- Trading in government bonds and corporate bonds.

- Monetary brokerage services.

- Securities depository, gold trading and other business activities related to banking operations after obtaining the State Bank's written approval.

Regulations on Safety ratios for commercial banks

According to the provisions of Article 130 of the Law on Credit Institutions 2010, the credit institutions and foreign bank branches shall maintain the following safety ratios:

- The solvency ratio;

 The minimum capital safety ratio of 8% or higher as prescribed by the State Bank in each period;

- The maximum ratio of short-term funds for provision of medium-term and long-term loans;

- The maximum foreign currency and gold status against own capital;

- The ratio of outstanding loans to the total balance of deposits;

- The ratio of medium- and long-term deposits to the total outstanding medium- and long-term loans.

Commercial banks and foreign bank branches participating in the national inter-bank payment system shall hold a minimum quantity of mortgage able valuable papers as prescribed by the State Bank in each period.

The total capital invested by a credit institution in other credit institutions and subsidiaries by capital contribution and share purchase in order to acquire the right to control enterprises operating in banking, insurance and securities must be deducted from its own capital when calculating safety ratios.

Mai Thanh Loi

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