1.         Lowering the limit on total credit balance

The LCI 2024 lowers aggregate credit limit over the CI’s equity capital for a customer, a customer and its related persons over different periods. Specifically:

For non-banking CIs, the total credit limit for one customer is 15% of the non-banking CI’s equity capital, and for one customer and their related persons is 25% of the non-banking CI’s equity capital.

2.         Security agent role

One welcome change of the LCI 2024 is that, subject to the SBV’s further guidance, it clearly allows CIs to act as security agent for international financial institutions, foreign credit institutions, credit institutions, and foreign bank branches.

Under the LCI 2010, the security agent is only recognized in the context of syndicated lending where security agent is one of the lenders and is authorised by the other lenders to hold this role.

3.         Transferring real estate project being security for debt recovery

a)         The LCI 2024 allows CIs to transfer the entire or part of a real estate project as security to recover debts under the Real Estate Business Law without applying the regulations on real estate business entity conditions for the transferee of the real estate project under the Real Estate Business Law, provided that:

i)          the real estate project must satisfy certain conditions (e.g. having investment in-principle approval, not being suspended, within the implementation term, having no dispute, having land lease/allocation decision); and

ii)        the transferee must satisfy real estate business entity conditions.

b)         To facilitate the recovery of debts by CIs, the LCI 2024 (as further amended on 29 June 2024) allows CIs and foreign bank branches to exercise the right to transfer a real estate project as security from 1 August 2024 (instead of 1 January 2025, as previously provided).

4.         No ERC requirement

Unlike the LCI 2010, the LCI 2024 no longer requires CIs, foreign bank branches and representative offices of foreign CI to obtain an ERC separately after being licensed under the banking laws. Accordingly, the license for establishment and operation of a CI, foreign bank branch, representative offices of foreign CI will also serve as an ERC. Similarly, approval for establishment of CI’s branches and representative offices will serve as certificate of registration for the operation of such branches, representative offices.

5.         Bank run

a)         The LCI 2024 introduces a new regime to deal with banks being subject to mass withdrawal of deposits. Mass withdrawal is defined as the situation where a credit institution experiences simultaneous withdrawals by many depositors, leading to the risk of insolvency or actual insolvency, as defined by the regulations of the Governor of the State Bank.

b)         CIs facing mass withdrawal of deposits must report the SBV and immediately take the following actions:

i)          not distribute dividends in cash;

ii)        cease or restrict credit-granting activities and other activities that use the funds of the CI;

iii)       implement other measures to meet the requirement of paying depositors; and

iv)       implement measures in the recovery plan.

c)         To deal with bank run, CIs can (a) sell valuable papers to SBV on the open market at a 0% interest rate; (b) conduct foreign exchange transactions with the BV to ensure liquidity; c) obtain special loans from the SBV, the deposit insurance organization or obtain CIs.

This post is written by Hoang Thi Thanh Thuy.