Capital increase regulation proposed to ensure safety for Vietnam credit institutions

Vietnam’s credit institutions, which have a bad debt ratio of the total outstanding loan of more than 3%, will not be allowed to increase capital for their subsidiaries and affiliated companies to ensure the safety of the institutions.

The proposal is under a draft circular of the State Bank of Vietnam (SBV) amending and supplementing Circular 51/2018/TT-NHNN on conditions and procedures for approval of capital contribution and share purchase of credit institutions.

The draft circular, which has been released for public comments, supplements regulations on conditions for increasing capital at subsidiaries and affiliated companies of credit institutions.

Under the draft circular, to be qualified for capital increase, both credit institutions and their subsidiaries and affiliated companies must meet a number of requirements. Specifically, for credit institutions in addition to having a bad debt ratio below 3%, they need to ensure the minimum capital adequacy ratio and the ratio of capital contribution and share purchase.

In addition, the actual value of charter capital at the time of capital increase and at the time of completion of the capital increase, must not be lower than the legal capital.

At the same time, credit institutions must be profitable according to the financial statements of the year immediately preceding the year of capital increase.

They should not have any sanctions for administrative violations regarding debt classification, provisioning and use of provisions to handle risks, capital contribution, or share purchase in the 12 months immediately preceding the month of capital increase.

Members and managers of credit institutions need to adhere to all legal regulations and the credit institutions may not have any administrative sanctions in terms of operating.

For subsidiaries and affiliated companies of credit institutions, to be qualified for capital increase, they need to be profitable for three years before increasing capital, or to be profitable from the time of establishment until the capital increase and there is no accumulated loss by the time the credit institutions increase capital.

According to the SBV, the revision of the draft circular will meet existing legal regulations on capital contribution and share purchase and ensure the safety of credit institutions, avoiding cases in which credit institutions increase capital when their subsidiaries and affiliated companies are operating inefficiently.