Roadmap to reduce limits on credit extension to a single client in Vietnam as of July 1, 2024

What is credit extension?

Pursuant to the Law on Credit Institutions 2024 (effective from July 1, 2024), credit extension means an agreement that allows an organization or individual to use a sum of money or a commitment to allow use of a sum of money on the repayment principle by lending, discounting, finance lease, factoring, bank guarantee, letter of credit or another credit extension operation.

Extending credit by:

- Lending;

- Discounting or re-discounting;

- Bank guarantee;

- Issuance of credit cards;

- Domestic or international factoring for banks licensed for international payment;

- Letter of credit;

- Other forms of credit extension according to regulations of the Governor of the State Bank;

Roadmap to reduce limits on credit extension to a single client in Vietnam as of July 1, 2024 (Internet image)

Roadmap to reduce limits on credit extension to a single client in Vietnam July 1, 2024

Pursuant to Article 136 of the Law on Credit Institutions 2024, the total balance of credit extension to a single client or a single client and his/her related persons of a commercial bank, cooperative bank, foreign bank’s branch, people’s credit fund or microfinance institution must not exceed:

(1) From July 1, 2024 to before January 1, 2026: 14% of its equity for a single client; 23% of its equity for a single client and his/her related persons;

(2) From January 1, 2026 to before January 1, 2027: 13% of its equity for a single client; 21% of its equity for a single client and his/her related persons;

(3) From January 1, 2027 to before January 1, 2028: 12% of its equity for a single client; 19% of its equity for a single client and his/her related persons;

(4) From January 1, 2028 to before January 1, 2029: 11% of its equity for a single client; 17% of its equity for a single client and his/her related persons;

(5) From January 1, 2029: 10% of its equity for a single client; 15% of its equity for a single client and his/her related persons;

In addition, with regard to a non-bank credit institution, the total balance of credit extension to a single client must not exceed 15% of its equity; the total balance of credit extension to a single client and his/her related persons must not exceed 25% of its equity.

Note

- The total balance of credit extension specified above excludes loans sourced from capital entrusted by the Government, organizations and individuals where the entrusted credit institutions or foreign bank branches do not bear the risk, or loans granted to borrowers that are other credit institutions or foreign bank branches.

- The total balance of credit extension specified above includes purchase, hold of and investments in bonds issued by the client and his/her related persons.

- In case a single client and his/her related persons need capital in excess of the limits on credit extension specified above, the credit institution or foreign bank’s branch may extend syndicated credit under regulations of the Governor of the State Bank.

- In special cases, for the purpose of performance of socio-economic tasks, if the financial capacity of the 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 in case the total credit extension balance exceeds the limits mentioned above on a case-by-case basis.

The Prime Minister shall specify the conditions, necessary documents and procedures for raising the credit extension limits in case the total credit extension balance exceeds the limits mentioned above.

The total credit extended by a credit institution or foreign bank’s branch must not exceed 4 times of its equity.

Mai Thanh Loi

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