Vietnam’s banking sector: Substantial innovations in Vietnam’s credit operations

Vietnam’s banking sector is changing. The Vietnamese government has therefore passed a law for credit institutions. It aims to strengthen the regulatory framework for credit institutions and improve consumer protection. The law came into force on 1 July 2024. Ecovis consultants explain the background and details.

The banking sector and related activities in Vietnam have been experiencing robust and rapid growth. This presents both opportunities and risks for businesses, as well as for the overall stability of the financial system. Cyber threats and data breaches have become increasingly prevalent, posing significant challenges to the security and integrity of financial institutions. With the new law, the government wants to solve the problems and increase the resilience of the banking sector.

Notable changes under the law on credit institutions

• Enhanced transparency in corporate governance: Shareholders holding 1% or more of a credit institution’s shares are required to disclose their personal information, the number of shares held, and the proportion of shares held by related parties. Credit institutions must publicly disclose this information and submit reports to the State Bank of Vietnam. Additionally, the law sets limits on the ownership of a credit institution by a shareholder and their related parties.
• Data protection and privacy: The Law imposes stricter requirements on credit institutions regarding the collection, storage, and protection of customer data. Credit institutions are now obligated to provide accurate, complete, and timely information to customers. Moreover, the scope of protected customer information has been expanded to include all customer-related information, not just account-related information.
• Unbundling of credit and insurance products: Credit institutions are prohibited from tying the sale of insurance products to the provision of credit. This provision aims to prevent coercive selling practices and protect consumers from being pressurised into purchasing insurance products that they do not need or want.
• Credit ceiling reduction: The Law has introduced a gradual reduction in the credit ceiling for individuals. Specifically, the total outstanding loans to an individual will be capped at 10% of the credit institution’s equity by 2029, down from 14% currently. Similarly, the ceiling for loans to a related group of individuals will be lowered from 23% to 15%.
• Development of digital banking: The Law encourages the development of digital banking channels. This includes a wide range of digital banking activities such as digital account opening, remote loan processing, digital transaction history, and digital signature for credit contracts.

We support companies in complying with the new regulations and thus ensuring sustainable growth.

Vu Manh Quynh, Managing Partner, ECOVIS Vietnam Law, Ho Chi, Minh City, Vietnam

Advantages and challenges for customers

Advantages

• Enhanced customer protection: Customers will enjoy greater protection with stricter regulations governing data privacy, transaction security, and dispute resolution. A stable and secure financial system is crucial for individuals and businesses to conduct their economic activities with confidence.
• Wide range of products and services: Increased competition will drive banks to offer a wider variety of products and services, giving customers more choices.

Challenges

• More complex procedures: Customers may face more complex procedures to comply with new regulations, such as providing more detailed information about loan purposes and meeting stricter eligibility criteria.
• Potential instability of digital systems: As digital banking systems are still under development, customers may encounter technical difficulties, which could disrupt their banking activities.
• Enhancing human capital: In an ever-changing legal and business environment, enterprises must continually develop their workforce to ensure they are equipped to adapt and comply with new regulations.

For further information please contact:

Vu Manh Quynh, Managing Partner, ECOVIS Vietnam Law, Ho Chi Minh City, Vietnam
Email: quynh.vu@ecovislaw.vn

Nguyen Nhuan, Partner, ECOVIS Vietnam Law, Ho Chi Minh City, Vietnam
Email: nhuan.nguyen@ecovislaw.vn