Banking activity in Vietnam is governed by the Law on the State Bank of Vietnam and the Law on Credit Institutions both passed on 16 June 2010, as well as a number of implementing decrees, circulars and decisions issued by the Government, the State Bank of Vietnam (“SBV”) and the Ministry of Finance.

Management Forms of Credit Institutions

Banks established in Vietnam must operate under one of the following permitted forms:

• State-owned commercial bank established and organized in the form of a SM-LLC where 100% of the charter capital is owned by the State;
• Joint stock commercial bank;
• Joint venture commercial bank established and organized in the form of an LLC; and
• Entirely foreign-owned commercial bank established and organized in the form of an LLC.

Restrictions on Foreign Ownership

The acquisition by foreign entities of a shareholding in a Vietnamese commercial joint stock bank is subject to significant restrictions. All such acquisitions must be approved in writing by the SBV.

As a rule, the total shareholding of any foreign organization must not exceed 15%, and the shareholding of any foreign individual may not exceed 5% of the charter capital of a Vietnamese bank. However, the law permits (i) a foreign “strategic investor” or (ii) a foreign investor and its affiliated persons to acquire up to 20% of the charter capital of a Vietnamese bank. The total aggregate shareholding of foreign investors in a Vietnamese bank may not exceed 30% of its charter capital (exceptions may be given by the Prime Minister to weak credit institutions for restructuring purposes on a case by case basis).

Entirely foreign-invested banks, in which one of the foreign shareholders is a parent bank holding a majority equity interest, may be established in Vietnam. The parent bank must have total assets of more than USD10 billion at the end of the year prior to application. Entirely foreign-owned banks must comply with Vietnamese prudential requirements on a stand-alone basis.

Foreign banks may also open branches as subsidiary units with no separate legal status. The parent bank must satisfy the following conditions:

• have total assets of more than USD20 billion at the end of the year prior to application;
• have not seriously violated regulations on banking activities and other laws of the home country within five consecutive years preceding the year prior to application;
• have experience in international operations, have been rated stable or higher by international credit rating organizations, be capable of fulfilling financial commitments and operating normally even when economic conditions change in an unfavorable direction;
• be profitable in five consecutive years immediately preceding the year prior to application; and
• be assessed by competent authorities of the home country to ensure capital adequacy ratios, other prudential ratios, and fully comply with regulations on risk management and full provisioning regulations of the native country in the year immediately preceding the year prior to application.

A foreign bank branch may not open transaction points at locations other than its registered branch office.

Representative offices of foreign banks are prohibited from conducting commercial operations in Vietnam. Its activity is generally limited to market research and the promotion and follow-up of the offshore parent entity’s activities involving Vietnamese credit institutions or companies.

The total shareholding level of foreign investors at a Vietnamese non-banking credit institution must comply with legislation applicable to public companies and listing companies.