The Art of Financial Licensing: Crafting the Perfect Proposal for Credit Institutions and Foreign Bank Branches

Draft Decree on Licensing Conditions for Credit Institutions and Foreign Bank Branches The State Bank of Vietnam is drafting a decree proposing regulations on licensing conditions for founders of joint-stock commercial banks, owners of 100% foreign-owned banks, founding members of joint-venture banks, parent banks of foreign bank branches, and non-bank credit institution founders.

Conditions for Founders of Joint-Stock Commercial Banks

1. The founder must not be a founder, owner, founding member, or strategic shareholder of any other credit institution.

2. Founders must collectively hold a minimum of 50% of the charter capital when establishing the joint-stock commercial bank, with a minimum of 50% of the total shares held by founder entities that are legal persons.

In addition to the above requirements, individual founders must meet the following conditions:

– Be a Vietnamese citizen with full civil capacity; not subject to prohibitions under the Enterprise Law and the Law on Cadres and Civil Servants; must not use raised capital, loans, or corporate bond issuance proceeds to contribute capital.

They should either have managed a profitable business for at least three consecutive years before the year of the license application or hold a bachelor’s or higher degree in economics or law.

Besides the conditions set out in items 1 and 2 above, founder organizations must meet the following requirements:

– Be established according to Vietnamese law; must not use raised capital, loans, or corporate bond issuance proceeds to contribute capital; fully comply with tax and social insurance obligations up to the time of submitting the application.

Have a minimum owner’s equity of VND 500 billion in the five years preceding the year of the license application and be profitable in the same period.

For businesses in industries with prescribed legal capital requirements, the owner’s equity minus the legal capital must be at least equal to the committed capital contribution, as per audited financial statements for the year preceding the license application.

For state-owned enterprises, written approval from authorized state agencies is required to participate in contributing capital to establish joint-stock commercial banks, in accordance with the law.

For organizations licensed to operate in banking, securities, or insurance, capital contribution must comply with relevant legal regulations in these fields.

In the case of commercial banks, they must have total assets of at least VND 100,000 billion, fully comply with risk management regulations, and make adequate provisions as stipulated by the State Bank of Vietnam at the time of submitting the application and until the license is granted.

They must not violate the safety ratios in banking activities prescribed by the State Bank of Vietnam in the year preceding the year of the license application and until the license is granted.

They must also comply with the conditions and limits for purchasing and holding shares of credit institutions as prescribed in Clause 8, Article 111 of the Law on Credit Institutions and ensure the minimum capital adequacy ratio after contributing capital to establish a joint-stock commercial bank.

Conditions for Owners of 100% Foreign-Owned Banks

1. The owner must not have committed serious violations of banking regulations or other legal provisions in the country where the credit institution is headquartered in the last five consecutive years before the year of the license application and until the license is granted.

2. They should have international experience and be ranked by international credit rating organizations as follows:

a. A credit rating of at least AA- (according to Standard & Poor’s or Fitch Ratings) or Aa3 (according to Moody’s) as of the latest assessment before the year of the license application. If the international credit rating organization uses a different rating scale than Standard & Poor’s, Moody’s, or Fitch Ratings, they must convert the rating to the corresponding level of the aforementioned organizations.

b. The outlook for the credit rating specified in point a must be stable or better.

3. The owner must have been profitable for the last five consecutive years before the year of the license application and until the license is granted.

4. As of the end of the year preceding the year of the license application, the owner must have total assets of at least USD 10 billion.

5. The owner must be assessed by the competent authority of the country where the credit institution is headquartered as meeting the capital adequacy ratio, other safety ratios, risk management regulations, and adequate provisioning as prescribed by the law of that country in the year preceding the year of the license application and until the license is granted.

6. The owner must not be an owner, founding member, or strategic shareholder of any other credit institution in Vietnam.

7. Within five years from the date of being granted a license, the founding members must collectively own 100% of the charter capital of the 100% foreign-owned bank.

By Nhật Quang