BRIEF NEW BANKING REGULATIONS 2010

1. Tighter and more banking regulations on establishment and organization of commercial

banks

● Licensing: Circular 09/2010/TT-NHNN (“Circular 09”) of the State Bank of Vietnam (the
“SBV”) issued on 26 March 2010 regulates issuance of licenses for establishment and
operation of commercial banks and took effect from 10 May 2010, replaces Decision
24/2007/QD-NHNN dated 07 June 2007 (as amended by Decision 46/2007/QD-NHNN)
(“Decision 24”). In general, Circular 09 inherits basic structure and content of Decision 24.
Nevertheless, it sets out stricter requirements for shareholders, especially founding
shareholders, who wish to establish a joint stock commercial bank, and new longer
timeframes of the application process for a license.

● Corporate governance of commercial banks: Decree 59/2009/ND-CP (“Decree 59”) of the

Government dated 16 July 2009 regulates organization and operation of commercial banks
and Circular 06/2010/TT-NHNN (“Circular 06”) of the SBV issued on 26 February 2010
provides guidelines on organization, management and executive operation, charter capital,
assignment of shares, and amendment of and addition to license and charter of commercial
banks. Decree 59 and Circular 06 provides many clearer and more specific regulations on
organization of commercial banks. Circular 06 also tidies up loose ends set out different legal
instruments of the SBV.

Law on Credit Institutions was passed by the National Assembly of Vietnam on 16 June 2010 and
will take effect on next January 1 (the “New Law on Credit Institutions”). The New Law on
Credit Institutions also includes general regulations on establishment and organization of credit
institutions.

2. Uncertainty of interest rate mechanism

The interest rate is recently the most uncertain and controversial legal issue that has been
concerned and discussed among bankers and legislators. Civil Code 2005 generally provides a
cap on interest rates for lending being 150% basic rate announced by the SBV from time to time.
The credit institutions had been permitted by the SBV to be not subject to any cap for their
lending and raising banking activities. According to Decision 16/2008/QD-NHNN (“Decision
16”) of the SBV dated 16 May 2008, VND interest rates of credit institutions must be no higher
than the cap. The VND interest rates have been released from the cap. In January 2009 the SBV
issued Circular 01/2009/TT-NHNN permitting the free negotiation of lending interest rate for
“loans for every living” and “lending via credit cards”. Following this, in February 2010, the
SBV issued Circular 07/2010/TT-NHNN (“Circular 07”) permitting credit institutions to charge
“negotiated” lending interest rates on loans used for certain purposes. With the issuance of
Circular 12/2010/TT-NHNN (“Circular 12”) of the SBV dated 14 April 2010 which repealed
Circular 07 and partly Decision 16), the cap on VND lending interest rate has now been removed
for all forms of VND loans. Circular 12 does not remove the cap on VND raising interest rate.
 Article 91.2 of the New Law on Credit Institutions provides that the credit institutions and clients
are entitled to negotiate on interest rates and fee for loans in accordance with the laws of
Vietnam. According to published explanatory document dated 09 December 2009 of the SBV
draft 5 of the New Law on Credit Institutions that Article 91.2 is to abolish the cap on credit
institutions’ interest rates. A cap on interest rate and fee of credit institutions may be imposed by
the SBV in order to ensure the safety of the banking system where there is any extraordinary
situation as set out in Article 91.3 of the New Law on Credit Institution. However, it is uncertain
to confirm that the cap on VND raising interest rate is removed since effect date of the New Law
on Credit Institution or still subject to prevailing regulations of the SBV (i.e. Decision 16).

3. Special control

Circular 08/2010/TT-NHNN of the SBV dated 22 March 2010 regulating special control in
respect of credit institutions took effect on 6 May 2010 and replace Decision 215/1998/QD-
NHNN dated 23 June 1998 promulgating regulations on special control applicable to credit
institutions licensed in Vietnam. Circular 08/2010 sets out circumstances in which a credit
institution may be put under special control of the SBV as follows:

● The credit institution is under the threat of illiquidity manifested by 3 consecutive failures to
ensure a minimum ratio of 1 between total assets capable of being paid out immediately
within the next seven days and total liabilities which are liable to be paid out within the next
seven days in respect of each currency or gold;

● The credit institution is in under the threat of insolvency due to failure of collection of its
debts manifested as bad debts accounting for 10% or more of the total debt balance, or 100%
or more equity, for 3 consecutive months; or

● The credit institution’s total accrued loss exceeds 50% of its paid up charter capital and
funds.

The maximum duration of special control will be 02 years from the effective date of the
Governor’s decision. The failure of special control will trigger the credit institution’s bankruptcy
procedures.

4. Prudential Ratios

Circular 13/2010/TT-NHNN (“Circular 13”) of the SBV dated 20 May 2010 regulating
prudential ratios in operations of credit institutions replaces a number of decisions and circular of
the SBV on prudential ratios. Certain higher requirements on prudential ratios are set out in
Circular 13. The minimum capital adequacy ratio (CAR) applicable to credit institutions,
excluding foreign banks’ branches, is increased to 9% from 8%. The foreign banks’ branches
however are going not to be excluded from such CAR where the New Law on Credit Institutions
will take effect on 1 January 2011. Credit institutions are also required to maintain the capital
adequacy ratio of at least 9% between the consolidated capital and credit assets of the parent
 company and their subsidiaries. According to the SBV, such new requirement is to cope with the
current practice in the banking sector where more commercial banks are operating under the
model of parent – subsidiary bank. This is also to comply better with the 25 standard inspection
rules of Basel Committee. New insolvency ratio and ratios of lending over raised capital are
included in Circular 13.

Although Vietnam Business Forum presented a comment draft 6 of the New Law on Credit
Institutions that lending limits for a single borrower or group borrowers applied to a foreign
bank’s branch should be determined based on equity of parent bank as a foreign bank’s branch is
dependent branch. However, there is no change in the passed law.

5. Notable points of the New Law on Credit Institutions

[to be developed]

6. Coming banking regulations

[to be developed]