Following up and grasping the complexities of banking laws is a challenging task, particularly in a rapidly evolving financial landscape in Vietnam which the laws are constantly on the way to improve. For banking lawyers in Vietnam, following the lates update of law in various sectors and particularly in banking and finance sector is important.
The issuance of the Law on Credit Institutions 2024 recently introduces a number of changes to banking regulations, leading to implications for financial institutions, shareholders.
How such particular changes would be interpreted into implications for financial institutions, shareholders and other impacts if any will be discussed in the following.
Understanding How the New Law Will Impact the Financial Sector
For banking and finance lawyers, the Law on Credit Institutions introduces a host of new legal frameworks designed to stabilize the banking sector and ensure that credit institutions (CIs) operate within safer, more transparent parameters.
We will go through breakdown of some important legal changes, giving some insights that stakeholders better understand how these changes will affect .
From stricter rules on insurance sales to reduced credit limits, stakeholders must understand and update their operation practice to mitigate risks.
The new law is designed to curb unethical practices, improve financial stability, and prevent the manipulation of credit institutions by major shareholders.
A New Era in Vietnam
Imagine a more secure and transparent financial sector in Vietnam, where banks operate under clear, stringent guidelines, limiting risk while fostering growth. For banking lawyers in Vietnam, the Law on Credit Institutions offers both challenges and opportunities.
On one hand, the law imposes stricter controls on banks, placing a higher burden of responsibility on banking lawyers in Vietnam to ensure compliance.
On the other hand, it opens new avenues for legal services, as banks and financial institutions will increasingly rely on legal experts to help them understand and implement these regulatory requirements.
The Law on Credit Institutions 2024 deals with everything from shareholder transparency to debt handling, and credit allocation.
It’s a reform that will deal with many aspects of banking law, making it a focus area for banking lawyers in Vietnam.
With this new legislation, Vietnam’s financial sector is expected to enter a new era of sustainability, transparency, adaptability.
Key Insights for Banking Lawyers in Vietnam
The Prohibition of Non-Compulsory Insurance Sales
One of the most significant changes in the Law on Credit Institutions is the prohibition of linking the sale of non-compulsory insurance to the provision of banking services. Accordingly, credit institutions are now not allowed to “force” customers into purchasing non-mandatory insurance products when offering loans or other banking services.
For banking and finance lawyers, this regulation underscores the need to ensure their clients—especially those in the banking industry—adhere to this law.
However, the law doesn’t explicitly outline what constitutes “force,” leaving some room for interpretation. This ambiguity requires banking and finance lawyers to assist their clients develop clear, transparent procedures for offering insurance products, ensuring they don’t inadvertently violate the law.
Given the potential for banks to still somehow be interpreted as to pressure clients into buying insurance, banking and finance lawyers must advocate for more explicit regulations and guidelines from the State Bank of Vietnam to ensure fairness.
Expanded Information Disclosure Requirements for Shareholders
Another critical change in the Law on Credit Institutions is the expansion of information disclosure requirements for shareholders. Shareholders who own 1% or more of a credit institution’s charter capital must now provide detailed information about themselves and any related entities. This provision aims to prevent cross-ownership and manipulation by large shareholders, promoting greater transparency.
For banking lawyers in Vietnam, this represents both a challenge and an opportunity. Legal professionals must guide their clients—whether they are banks or shareholders—on the importance of adhering to these new disclosure requirements. It is also crucial for banking and finance lawyers to understand how these regulations will impact corporate governance structures within credit institutions, ensuring compliance while safeguarding the interests of their clients.
The law is a significant step towards increasing transparency in Vietnam’s banking sector, but it also imposes greater responsibilities on banking and finance lawyers to ensure accurate and timely disclosure of information. By helping their clients adhere to these requirements, banking and finance lawyers can play a pivotal role in fostering a more transparent and fair banking system.
Reduced Shareholding Limits for Shareholders
The Law on Credit Institutions introduces stricter limits on the amount of shares a single shareholder or related entity can hold in a credit institution. Under the new law, a shareholder may not own more than 10% of a credit institution’s charter capital, and no more than 15% when combined with related entities.
For banking lawyers in Vietnam, this change will necessitate a review of their clients’ current shareholding structures. Those with shares exceeding the new limits must adjust their holdings or risk being non-compliant. This provision is intended to limit cross-ownership and reduce the risk of market manipulation by large shareholders.
Banking and finance lawyers must now assist their clients in restructuring their shareholdings, ensuring they comply with the law while minimizing disruptions to their operations. Moreover, they must keep an eye on potential legal challenges that could arise from these changes, as shareholders may seek to contest the law’s restrictions on their rights.
Simplification of Credit Procedures for Small Loans
In an effort to streamline credit processes, the Law on Credit Institutions introduces simplified procedures for granting small loans. Credit institutions are now only required to verify the legal purpose of the loan and the borrower’s financial capacity for smaller loans, rather than the more extensive documentation previously required.
This change presents both opportunities and challenges for banking lawyers in Vietnam. On one hand, simplifying credit procedures could help economic activity by making it easier for individuals and small businesses to access credit. On the other hand, it places more responsibility on banking and finance lawyers to ensure that their clients properly evaluate the risks associated with these loans and maintain compliance with the law’s requirements.
Additionally, banking lawyers in Vietnam must assist their clients in establishing clear guidelines for monitoring the use of these smaller loans, ensuring that they are used for their intended purposes. This will help credit institutions control the risk of default while maintaining compliance with the law.
Early Intervention in Weak Credit Institutions
The Law on Credit Institutions introduces new provisions for early intervention in weak credit institutions, with the aim of stabilizing the banking system before problems escalate. This proactive approach gives regulators more tools to step in when a credit institution shows signs of financial instability.
For banking lawyers in Vietnam, this means that legal professionals will need to identify the criteria for early intervention and the legal processes involved. They must also be prepared to advise their clients—whether they are the institutions themselves or related entities—on possible interventions would be implemented.
This new framework places greater emphasis on the role of banking lawyers in Vietnam in safeguarding the stability of the banking system. By helping their clients understand and comply with these early intervention measures, banking lawyers in Vietnam can help prevent financial crises before they occur.
Gradual Reduction of Credit Limits
The law also introduces a gradual reduction in credit limits, starting in 2026. Credit institutions must begin reducing their exposure to individual borrowers and related entities, with the limits decreasing each year until 2029.
This is a significant change for banking lawyers in Vietnam, as it will require legal professionals to help their clients adjust their lending practices in accordance with the new limits. Credit institutions that currently have large exposures to individual borrowers will need to diversify their lending portfolios, and banking lawyers in Vietnam will help advising them on how to do so.
This change is intended to reduce the risk of financial instability by limiting the concentration of credit in the hands of a few large borrowers. For banking lawyers in Vietnam, this presents an opportunity to guide their clients towards more sustainable lending practices, ensuring compliance with the law while mitigating risk.
New Rules for Handling Bad Debts and Secured Assets
The Law on Credit Institutions introduces new rules for handling bad debts and secured assets, including the sale of bad debts and the transfer of real estate projects used as collateral. These changes aim to create a more transparent and efficient process for resolving bad debts, helping credit institutions recover their losses.
For banking lawyers in Vietnam, this presents an opportunity to provide valuable legal services to clients involved in debt recovery and asset sales. Legal professionals will need to understand the new rules for transferring secured assets and handling bad debts, ensuring that their clients comply with the law while maximizing their recovery.
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