The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.

This summary is, necessarily, selective and is no substitute for detailed legal advice.

1. All organisations offering services within the financial sector are known as credit institutions and must be licensed by the State Bank, whose overall powers are regulated by the Ordinance on the State Bank of Vietnam of 23 May 1990.

Its role is similar to that of any central bank:-

- to hold the country's gold and currency reserves, issue currency and manage currency circulation

- assist in the formulation of monetary policies and regulation of foreign exchange

- act as licenser and supervisor of all credit institutions

- act as banker for all credit institutions

- receive deposits from the Treasury and make loans to the State.

2. Credit organisations further sub-divide into a number of different categories:-

Credit Institutions

Credit Co-operative	Banks	Financial Companies

Collectively owned		Their main purpose is
by its members		to provide loans for the
whose contributions		sale and purchase of
are used to provide		goods and services.
finance to members.		They may be State
		owned or owned by

Development and Investment Bank		Commercial Banks

These are wholly owned by the State,		1. State Run
which provides capital, though it may		2. Joint Stock Banks
issue bonds to mobilise additional		3. Joint Venture Banks
capital. Its function is to provide loans		4. Foreign Bank Branches
for investment in State development
3. State Run/ Joint Stock Banks

State run banks are 100% owned by the State while Joint Stock Banks possess share capital but shareholders are restricted to a maximum percentage of equity, as set by the State Bank. These tend to be "specialist" banks , for example, the State owned Vietcombank, which specialises in foreign transactions.

4. Joint Venture/ Foreign Bank Branches

A Branch is wholly foreign owned and funded, whereas a Joint Venture Bank has a foreign and a Vietnamese partner, and is constituted under the laws on Foreign Investment. Both are permitted to offer the same range of services.

5. The main legislation governing their activities and their establishment is:-

- The Ordinance on Banks, Credit Organisations and Finance Companies, of 23 May 1990 ("The 1990 Ordinance"); and

- The Decree on Foreign Bank Branches and Joint Venture Banks Operating in Vietnam, No 189 HDBT of 15 June 1991, together with ancillary Regulations, issued on the same date ("The 1991 Regulations").

6. The precise scope and activities of a particular Branch of the Foreign Bank or Joint Venture Bank will be set out in its operating Licence issued by the State Bank. These activities are wide ranging. Only the main areas generally permitted are described below.

6.1 Foreign Exchange Transactions

A Branch of a Foreign Bank or a Joint Venture Bank (together "a Bank") may carry out dealings for customers in foreign currencies. It must, however, exercise care in doing so and check all documentation to ensure compliance with the laws on foreign exchange. For example, before carrying out a customer's instructions to transfer foreign currency abroad in respect of foreign loan repayments, a Bank must have evidence that the loan has been received. Also, before remitting capital (in foreign currency) of a foreign investment enterprise out of Vietnam on its dissolution, a Bank must first see confirmation from the Tax Authorities that all tax obligations in Vietnam have been met.

6.2. Deposits/Accounts

A Bank may, subject to the terms of its Licence, receive deposits in foreign currencies or VN Dong from Vietnamese individuals and enterprises; foreign individuals and enterprises or from overseas Vietnamese.

The minimum interest payable on such accounts is set by the State Bank.

The total of Dong deposits in a Bank must not exceed 2()% of the Bank's prescribed capital.

6.3. Cheque accounts are gradually being introduced. The issue of Dong cheques is regulated by Decision 22 QD-NH I of 21 February 1994, together with Circular 08 TT-NH 2 of 2 June 1994, in respect of 44 non-cash payments". Whilst the legislation relates only to Dong transactions it may be considered as indicative of the requirements applicable to foreign currency cheques also.

6.4 A number of types of cheque are permitted, including certified cheques, payment cheques, fixed amount cheque books and individual cheques. It is noteworthy that individual Dong cheques require to be certified before issue where the amount payable exceeds 5 million Dong.

6.5 New regulations on the use of cheques are presently in draft form, and under discussion.

6.6 Also governed by Decision 22 are matters relating to Letters of Credit which banks may negotiate and issue.

6.7 Lending and security

Banks may lend in dong or in a foreign currency. The maximum interest rates chargeable on all loans are set by the State Bank. Specific procedures are set out in the 1990 Ordinance for the granting of loans, requiring the Bank to obtain amongst other matters evidence of the purpose of the loan, and evidence of the value of security, before granting the loan. The 1991 Regulations restrict the total amount of loans permitted to be given to any one Vietnamese entity (including enterprises with foreign invested capital) to a maximum of 10% of the Bank's allocated capital. The total amount of loans to the Bank's 10 largest customers is limited to a maximum of 30% of the total loans made by the Bank.

The procedures for granting specific types of Short Term Loans in VN Dong and for discounting Dong securities is governed by Decision 198 QD-NH of 16 September 1994.

6.8 One of the major difficulties for Banks wishing to lend is obtaining sufficient security. The value of the right to use land and buildings constructed on the land may be used. However, the position regarding valuation and enforcement ire problematic.

6.9 Banks may issue guarantees. Decision 196 QD-NH 4 of 16th September 1994 regulates this, with separate legislation, Decision 23 QD-NH14, regulating guarantees in respect of loans from overseas lenders. In both, the borrower, must comply with set conditions, and the guarantee documentation must follow a prescribed format. Fees chargeable for guarantees may not exceed 1% of the sum guaranteed per annum (0.5 % in respect of cross guarantees. i.e. a bank guaranteeing part of another guarantee.)

7. The main provisions and safeguards regulating a Bank's activities are:-

7.1 The regulatory authority is the State Bank, which ultimately has the power to withdraw an operating licence. It may inspect at any time, without warning, where it has cause for concern as well as carrying out regular prearranged inspections.

7.2 A Foreign Bank Branch must have a minimum allocated capital of US$ 15 million. A joint venture Bank must have prescribed capital of US$ 10 million. Both have a maximum duration of 20 years, though extensions may be applied for.

7.3 A Bank must open an account with the State Bank or other bank authorised by the State Bank and maintain a compulsory minimum deposit fixed by the State Bank.

7.4 It must publish its charges and fees.

7.5 It must also maintain prescribed minimum reserve funds:-

(a) General Reserve Fund -This is established by annual contributions of 5% from the Bank's net profits (until a compulsory level determined by the State Bank has been reached) and is for the purpose of meeting the need for additional prescribed capital of the Bank.

(b) Special Reserve Fund - This is established by annual contributions of 10% of the Bank's net profits, (until the level of reserve is equivalent to the amount of the Bank's allocated capital) for the purpose of compensating for losses.

(c) Guarantee Reserve Funds- The Bank, on the basis of its authorised working capital will estimate the total amount of capital available for its Guarantee Reserve. Funds allocated for the Guarantee Reserve must be deposited in separate accounts for each guarantee issued, the minimum level being 5% of the total sum guaranteed.

7.6 Use of Reserve Funds is strictly regulated, though capital and reserve funds may be used to make capital contributions or purchase shares in another company providing the contribution or holding does not exceed 10% of the capital of' the other enterprise. Mobilised assets of the bank may not exceed 20 times its total allocated capital plus reserves.

7.7 A Bank must report on its performance monthly, quarterly and annually to the State Bank. It must also report quarterly and annually on the payments made and funds deposited in ally overseas accounts held by it. Additionally a Foreign Bank Branch is required to submit, along with its annual report, the Annual Report of its Parent Bank.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".