VI According to regulations, what is the legal capital of a credit institution? Which agency has the authority to regulate the legal capital of a credit institution? What are the conditions for granting licenses to credit institutions? Through today’s article, let’s learn about this issue with Pham Consult!
What is the legal capital of a credit institution?
Pursuant to Clause 44, Article 4 of the Law on Credit Institutions 2024, the definition of legal capital is as follows:
Explanation of terms
In this Law, the following terms are construed as follows:
… 43. The capital granted to a foreign bank branch is the amount of money granted by a foreign bank to a foreign bank branch.
44. Legal capital is the minimum capital required by law to establish a credit institution or a foreign bank branch.
45. Equity capital includes the actual value of the charter capital of a credit institution or the capital granted to a foreign bank branch, plus a number of reserve funds, plus a number of other liabilities, minus the amounts that must be deducted. The determination of equity capital is implemented according to the regulations of the Governor of the State Bank.
Accordingly, the legal capital of a credit institution is understood to be the minimum capital required by law to establish a credit institution or a foreign bank branch.
Which agency has the authority to regulate the legal capital of credit institutions?
Pursuant to Clause 1, Article 28 of the Law on Credit Institutions 2024, the following provisions are made:
Legal capital
1. The Government regulates the legal capital of each type of credit institution and foreign bank branch.
2. Credit institutions and foreign bank branches must maintain the actual value of charter capital or granted capital at least equal to the legal capital level.
3. The actual value of charter capital or granted capital is determined by charter capital or granted capital and capital surplus, plus undistributed accumulated profits, minus unresolved accumulated losses reflected in the accounting books.
4. The Governor of the State Bank regulates the handling of cases where the actual value of the charter capital of a credit institution or the granted capital of a foreign bank branch falls below the legal capital level.
Thus, the Government is the competent authority to determine the legal capital of each type of credit institution and foreign bank branch.
What are the conditions for granting licenses to credit institutions?
According to Article 29 of the Law on Credit Institutions 2024, it is stipulated as follows:
Accordingly, the conditions for granting licenses to credit institutions are stipulated by law, including:
(1) A credit institution is granted a license when it fully meets the following conditions:
– Has a charter capital at least equal to the legal capital;
– The owner of the credit institution is a one-member limited liability company, the founding shareholder, the founding member is a legal entity operating legally and has sufficient financial capacity to contribute capital; the founding shareholder, the founding member is an individual with full civil act capacity and has a commitment to have sufficient financial capacity to contribute capital;
– Managers, operators, and members of the Board of Supervisors must meet all the standards and conditions specified in Article 41 of the Law on Credit Institutions 2024;
– Charter in accordance with the provisions of the Law on Credit Institutions 2024 and other relevant legal provisions;
– Establishment plan, feasible business plan, ensuring that it does not affect the safety and stability of the credit institution system, does not create monopoly or restrict competition or unfair competition in the credit institution system.
(2) Joint venture credit institutions and 100% foreign-owned credit institutions shall be granted a License when fully meeting the following conditions:
– Conditions specified in Clause 1, Article 29 of the Law on Credit Institutions 2024;
– Foreign credit institutions are permitted to conduct banking activities in accordance with the laws of the country where the foreign credit institution has its head office;
– The activities expected to be carried out in Vietnam must be activities that the foreign credit institution is currently permitted to carry out in the country where the foreign credit institution has its head office;
– The foreign credit institution must satisfy the conditions on total assets and financial status as prescribed by the Governor of the State Bank, and meet the regulations on ensuring operational safety as prescribed by the country where the foreign credit institution has its head office;
– The foreign credit institution must have a written commitment to support in finance, technology, administration, management, and operations for the joint venture credit institution and the 100% foreign-owned credit institution; ensure that this credit institution maintains the actual value of its charter capital not lower than the legal capital level and implements the regulations on restrictions to ensure operational safety as prescribed by the Law on Credit Institutions 2024;
– The competent authority of the country where the foreign credit institution has its head office has signed an agreement with the State Bank on inspection, supervision of banking activities, exchange of information on banking safety supervision and has a written commitment to conduct consolidated supervision in accordance with international practices for the activities of foreign credit institutions.
(3) A foreign bank branch is granted a License when it fully meets the following conditions:
– Having capital allocated at least equal to the legal capital level;
– The conditions specified in Points b, c and d, Clause 1 and Points b, c, d and e, Clause 2, Article 29 of the Law on Credit Institutions 2024;
– The foreign bank must have a written guarantee to take responsibility for all obligations and commitments of the foreign bank branch in Vietnam; ensure that the actual value of the granted capital is not lower than the legal capital level and implement the regulations on restrictions to ensure safety in operations according to the provisions of the Law on Credit Institutions 2024;
– In case of a request to establish a second or more foreign bank branch in Vietnam, the foreign bank must ensure that the foreign bank branch operating in Vietnam for 03 consecutive years prior to the year of the request to establish a new branch does not violate the provisions of law, safety ratios and has profitable business results.
(4) A foreign representative office is granted a License when fully meeting the following conditions:
– The foreign credit institution or other foreign organization with banking activities is a legal entity permitted to conduct banking activities abroad;
– The legal provisions of the country where the foreign credit institution or other foreign organization with banking activities has its head office permit the foreign credit institution or other foreign organization with banking activities to establish a representative office in Vietnam. (5) The conditions for the owner of a credit institution being a single-member limited liability company, founding shareholders, founding members as prescribed in Point b, Clause 1, Article 29 of the Law on Credit Institutions 2024 and the conditions for granting a License to a people’s credit fund or microfinance institution shall be prescribed by the Government.
(3) A foreign bank branch is granted a License when it fully meets the following conditions:
– Having capital allocated at least equal to the legal capital level;
– The conditions specified in Points b, c and d, Clause 1 and Points b, c, d and e, Clause 2, Article 29 of the Law on Credit Institutions 2024;
– The foreign bank must have a written guarantee to take responsibility for all obligations and commitments of the foreign bank branch in Vietnam; ensure that the actual value of the granted capital is not lower than the legal capital level and implement the regulations on restrictions to ensure safety in operations according to the provisions of the Law on Credit Institutions 2024;
– In case of a request to establish a second or more foreign bank branch in Vietnam, the foreign bank must ensure that the foreign bank branch operating in Vietnam for 03 consecutive years prior to the year of the request to establish a new branch does not violate the provisions of law, safety ratios and has profitable business results.
(4) A foreign representative office is granted a License when fully meeting the following conditions:
– The foreign credit institution or other foreign organization with banking activities is a legal entity permitted to conduct banking activities abroad;
– The legal provisions of the country where the foreign credit institution or other foreign organization with banking activities has its head office permit the foreign credit institution or other foreign organization with banking activities to establish a representative office in Vietnam. (5) The conditions for the owner of a credit institution being a single-member limited liability company, founding shareholders, founding members as prescribed in Point b, Clause 1, Article 29 of the Law on Credit Institutions 2024 and the conditions for granting a License to a people’s credit fund or microfinance institution shall be prescribed by the Government.
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