Faced with the fluctuations in the global economy, especially the signs of recession that have spread to many countries around the world, Vietnam has implemented several tight monetary policies. These policies have affected the entire banking system, from revenues, profits, and non-performing loan ratios to liquidity, asset quality, and stock prices of banks, with the stock market experiencing a decline compared to 2021. However, overall, at the end of 2022, many banks still reported higher profits compared to 2021. Therefore, it can be said that the current government is generally effective in controlling inflation and has a flexible and appropriate monetary policy, which allows the Vietnamese banking system to continue to operate well and overcome the challenges of global inflation and tighter monetary policies.

In order to attract and utilize additional capital from domestic and foreign enterprises, especially major global financial institutions, to participate in the establishment and management of joint venture banks in Vietnam, the State Bank of Vietnam issued Circular No. 13/2023/TT-NHNN on October 31, 2023, amending and supplementing certain provisions of the circulars regulating the licensing, organization, operation and documentation, procedures and approval process for certain changes in commercial banks, branches of foreign banks ("Circular 13/2023/TT-NHNN"). This Circular will become effective on December 14, 2023. In this article, we will discuss some of the new points in Circular 13/2023/TT-NHNN that companies and joint venture banks need to pay special attention to.

1. Expansion of entities permitted to contribute capital to establish joint venture banks

One of the new provisions introduced by the Circular No. 13/2023/TT-NHNN is the expansion of entities eligible to participate in contributing capital to establish jointventure banks. Under the current regulations, a joint venture bank is defined as a commercial bank established in Vietnam with contributions from Vietnamese parties (including one or more Vietnamese banks) and foreign parties (including one or more foreign banks) based on a joint venture agreement1. However, as of the effective date of the Circular No. 13/2023/TT-NHNN, a join venture bank is defined as a commercial bank established in Vietnam with contributions from Vietnamese parties (including at least one Vietnamese bank and not more than one Vietnamese non-bank enterprise) and foreign parties (including at least one foreign bank and not more than one foreign non-bank enterprise) based on a joint venture agreement2.

With this regulation, it is evident that the State Bank of Vietnam has allowed enterprises, both domestic and foreign enterprises to participate in contributing capital to establish joint venture banks. This make it easier for non-banking enterprises with sufficient capacity to participate in the establishment and operation of banks.

However, it is important to note that this regulation still maintains the requirement for a joint-venture bank to ensure the participation of at least one Vietnamese bank and one foreign bank. This is designed to ensure that the joint venture bank is established and managed based on the existing experience of both domestic and foreign banks, while preserving the specific nature of credit institutions compared to non-banking enterprises.

2. Allow non-banking enterprises to acquire transferred capital contribution in joint venture banks

In addition to allowing domestic and foreign non-banking enterprises to participate in the contribution of capital for the establishment of joint venture banks as mentioned above, the Circular No. 13/2023/TT-NHNN also allows these non-banking enterprises to receive the transfer of capital contributions in joint-venture banks.

Specifically, Clause 1 Article 3 of the Circular No. 13/2023/TT-NHNN has added provisions regarding the conditions for new partners receiving the transfer of capital contributions in joint-venture banks, specifically non-banking enterprises. Accordingly, non-banking enterprises that wish to receive the transfer of capital contributions in joint-venture banks must meet the following conditions:

  • Established under Vietnamese law or foreign law.
  • In the case of a State-owned enterprise, it must be authorized in writing by the competent authorities to participate in capital contribution to joint venture banks in accordance with the law.
  • In the case of an enterprise licensed to operate in the fields of banking, securities, insurance, it must comply with the capital contribution regulations as stipulated by the law.
  • Have minimum owner's equity of VND 1,000 billion, minimum total assets of VND 2,000 billion for three consecutive years from the year of submission of the application for approval of the purchase, sale, or transfer of capital contributions exceeding 1% but less than 5% of the charter capital of the joint venture bank, or have minimum owner's equity of VND 200 billion, minimum total assets of VND 400 billion for three consecutive years from the year of submission of the application for approval of the purchase, sale, or transfer of capital contributions of 1% or less of the charter capital of the joint-venture bank.
  • For enterprises operating in business sectors with minimum capital requirements, they must ensure that the owner's equity less the minimum statutory capital required by law is equal to the committed capital contribution according to figures from independently audited financial statements with no adverse opinions from the auditing unit for the three consecutive years preceding the year in which the application for approval of the purchase, sale, or transfer of capital contributions is submitted.
  • Have a profitable business for the three consecutive years preceding the year in which the application for approval of the purchase, sale, or transfer of capital contributions.
  • Not use mobilized capital or borrow capital from other organizations or individuals to make capital contributions is submitted.
  • Fulfill all tax and social security obligations as required up to the date of submission of the application for approval of purchase, sale or transfer of capital contribution.
  • Not be a founding shareholder, owner, founding member, strategic shareholder of any other credit institution established and operating in Vietnam.

Although non-banking companies are now allowed to transfer capital contributions to joint-venture banks, the conditions they must meet are not straightforward, especially for domestic companies. However, these regulations are necessary to ensure the stability of business operations. Members of joint venture banks must not only have strong financial resources, but also maintain a healthy and transparent business history, which limits frequent transfers of capital contributions in joint venture banks.

Therefore, Circular No. 13/2023/TT-NHNN, by allowing non-banking enterprises to participate in the contribution of capital for the establishment of joint venture banks and by allowing them to receive the transfer of capital contributions in joint venture banks, has filled the current gap regarding the capital contribution rights of non-banking enterprises in joint venture banks. Specifically, according to the provisions of Clause 70 Article 1 of the 2010 Law on Credit Institutions, a contributing member of a credit institution must be a legal entity (except for cases where the credit institution is a microfinance institution). In addition, Clause 2 Article 4 of Circular No. 30/2015/TT-NHNN of the State Bank of Vietnam dated December 25, 2015, which regulates the licensing, organization and operation of non-banking credit institutions (effective from February 8, 2016), also provides that non-banking credit institutions may be established in the form of a limited liability company with at least two members, with capital contributions from Vietnamese parties (including one or more Vietnamese commercial banks, Vietnamese enterprises) and foreign parties (including one or more foreign credit institutions) based on a joint venture agreement. Thus, it can be observed that for non-banking credit institutions, since 2016, Vietnamese enterprises are allowed to participate in capital contributions for the establishment of these institutions. However, for joint venture banks, Vietnamese enterprises still had to wait until the effective date of Circular No. 13/2023/TT-NHNN to have the right to establish or receive the transfer of capital.

According to the statistics of the State Bank of Vietnam3, Vietnam has only two operating joint venture banks as of September 30, 2023: Indovina Bank Limited (IVB) and Vietnam-Russia Joint Venture Bank (VRB). Therefore, it can be said that the new regulations of the Circular No. 13/2023/TT-NHNN regarding the rights to establish and receive the transfer of capital contributions in joint venture banks for non-banking enterprises carry significant implications for encouraging more substantial investment by non-banking enterprises in the banking sector, especially in joint venture banks, in the context of the essential need for cooperation with major global financial institutions worldwide to develop Vietnam's banking system.

Footnotes

1. Clause 5 Article 2 of Circular No. 40/2021/TT-NHNN, which stipulates the issuance of licenses and the organization and operation of commercial banks, branches of foreign banks, representative offices of foreign credit institutions, and other foreign entities engaged in banking activities in Vietnam.

2. Clause 1 Article 11 of the Circular No. 13/2023/TT-NHNN.