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Bank licensing

O n December 15 2011, the State Bank of Vietnam (SBV) issued Circular No. 40/2011/TT-NHNN regulating the licensing, organisation and operation of commercial banks, foreign bank branches, and representative offices in Vietnam of foreign credit institutions and of other foreign organisations with a banking operation.

Circular 40 re-defines certain categories of banking operations.

A bank with 100% foreign-owned capital is defined as a commercial bank established under Vietnamese law with its head office in Vietnam, with its charter capital in 100% foreign ownership as either a single member limited liability company owned by a foreign bank, or a multiple member limited liability company in which one foreign bank owns 50% of the charter capital;

A joint-venture bank means a commercial bank established and with its head office in Vietnam, with capital contributed by a Vietnamese party (comprising one or more Vietnamese banks) and a foreign party (comprising one or more foreign banks) on the basis of a joint-venture contract; in the form of a limited liability company with two to five members, of which one member (and its related persons) must not own more than 50% of the charter capital.

The SBV is the licensing body for the establishment and operation of commercial banks, foreign bank branches and bank representative offices in Vietnam. Under Circular 40, the licence will contain specific provisions setting out the parameters of the banking operations and other business activities of commercial banks and foreign bank branches, or the operational content of a representative office.

To obtain a licence, a credit institution has to satisfy a multitude of conditions set out in the Law on Credit Institutions and Circular 40. The criteria required to obtain a licence are strict. For foreign banks they include not having committed any serious breach of the regulations on banking operations or of the other laws of applicant's home country; being in profit; confirmation from its home country's competent authority that it satisfies requirements on capital adequacy, reserves, risk management regulations; total assets of at least the equivalent of $10 billion; and no involvement as owner, founding member or strategic shareholder of another Vietnamese credit institution.

To obtain a licence for the establishment of a foreign bank branch, the parent bank must satisfy all the conditions for the establishment of a joint-venture bank or bank with 100% foreign-owned capital, but the total capital requirement is raised to a minimum of the equivalent of $20 billion.

Under Circular 40 the head of the representative office of a foreign bank or other foreign organisation with a banking operation in Vietnam must not concurrently be the general director of a foreign bank branch in Vietnam. Additionally, under Circular 40, the head of the representative office is not permitted to sign (even under power of attorney) any business or investment contracts on behalf of the foreign bank with a Vietnamese organisation or individual.

The maximum duration of a licence is 99 years for a commercial bank or foreign bank branch, and five years for a representative office. Operations must commence within 12 months from the date of issuance of its licence, failing which the SBV may revoke the licence. Circular 40 came into effect on February 1 2012.

Juniper Cheng

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