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Acquisition of credit institutions

Mark Fraser

On February 11 2010, the State Bank of Vietnam (SBV) issued Circular No. 04/2010/TT-NHNN, regulating the merger, consolidation and acquisition of credit institutions in Vietnam (Circular 04). As one would expect, Circular 04 applies to all types of enterprises falling within the definition of credit institutions under the Law on Credit Institutions, namely, commercial banks, finance companies, finance leasing companies, and cooperative credit institutions, being licensed to operate in Vietnam.

Apart from regulations on conditions and procedures for merger and consolidation which are not much different from the existing regulations, Circular 04 provides further regulations on the acquisition of credit institutions. It is noted that a concept acquisition under Circular 04 means a form whereby one credit institution purchases the entire assets, rights, obligations and legal interests of another credit institution (subsequently, after the acquisition, the acquired credit institution becomes a subsidiary credit institution of the acquiring credit institution). Accordingly, we note that the words "acquisition" or "acquire" as referred to in this article means a purchase of 100% of the credit institution's capital only.

According to Circular 04, only two types of acquisition are permitted, those are:

i) a bank acquires a finance company(ies) or a finance leasing company(ies); or

ii) a finance company acquires a finance leasing company(ies).

We note that, following Circular 04, on May 10 2010, the SBV issued an Official Letter No. 3417/NHNN-TTGSNH stating that any credit institution which has not satisfied the required legal capital levels stipulated in Decree 141/2006/ND-CP dated November 22 2006 of the Government on the legal capital of credit institutions and which has no schedule to increase its legal capital approved by the SBV, must terminate its legal status, (including via merger, consolidation, acquisition or liquidation) and report to the SBV on its termination plan prior to September 30 2010. According to a statistic updated as to December 31 2009, there are at least 24 credit institutions which need to increase their capitalisation in one form or another, or face being shutdown in Vietnam. This presents opportunities for potential (foreign) investors who may wish to use this opportunity to acquire a stake in such credit institutions.

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