Changes and additions to regulations on finance
05-SEP-2008 Intellasia | VNA
Sep 5, 2008 - 7:00:00 AM
|
Compared to banks, licensing requirements for finance companies have become relatively simple thanks to Decree 81, with many companies recently beginning operations, however, there is still work to be done.
EVN Finance Joint Stock Company, Toyota Finance Services Vietnam Co Limited and GE Money Vietnam Finance Co Limited are among some of the new companies that have emerged as the State Bank of Vietnam (SBV) has tightened licensing procedures for new banks.
To set up, these institutions are required to have minimum capital of 300 billion dong (US$18.7 million) (from 2008) and 500 billion dong (US$31.2 million) (from 2010), but for banks it is at least 1 trillion dong (US$62.5 million).
On July 29, the government issued Decree 81 to amend and supplement a number of articles of a former decree from October 2002 concerning the organisation and operation of finance companies. The update brought domestic legislation in line with Vietnam's WTO commitments.
Decree 81 divides finance companies into two categories: general finance companies and specialised finance companies. general finance companies are allowed to perform all functions and operations in accordance with the law, while specialised finance companies mainly function in consumer credit or credit card businesses.
Under Decree 81, consumer credit is defined as providing credit for individuals through loans to purchase on instalment or through credit cards and loans in cash in compliance with SBV's regulations.
Specialised finance companies may raise capital in only a limited number of ways. Under Decree 81, specialised finance companies operating in the field of consumer credit or credit card businesses are not allowed to raise capital by making deposits from organisations or individuals for the medium or long-term. But they may issue bonds or certificates of deposit or borrow from domestic and overseas financial organisations or receive trust capital.
In compliance with the Law on Enterprises 2005, Decree 81 also provides new forms of establishment which are: (1) Limited liability finance companies with two or more members, (2) Single member limited liability finance companies, and (3) Joint stock finance companies.
These forms are transformed from the previously regulated forms of finance companies which are: State-owned finance companies, joint stock finance companies, finance companies which are subsidiaries of credit institutions, joint venture finance companies and wholly foreign-owned finance companies.
For joint venture companies, foreign parties may contribute no more than 49%. But with wholly foreign-owned finance companies allowed, a 49% cap on foreign capital for joint venture finance companies makes little sense. The cap also raises a question: Does Decree 81 comply with Vietnam's WTO commitment regarding foreign ownership?
According to Vietnam's WTO commitments, in particular the Schedule of specific commitments in services regarding finance companies, there can be no restriction on foreign capital contribution in a joint venture finance company. Hence, the decree is inconsistent with Vietnam's WTO commitments as long as there is a 49% cap.
Moreover, Vietnamese enterprises are not allowed to contribute more than 30% of the Vietnamese party's capital contribution in a joint venture finance company. The purpose of this regulation makes the participation of at least one Vietnamese credit institution compulsory in such finance companies. Under Decree 81, this type of finance company is allowed to set up as a limited liability company with two or more members.
In order to comply with Vietnam's WTO commitments, Decree 81 requires foreign credit institutions in joint ventures or 100% foreign-owned finance companies to have total assets of more than US$10 billion at the end of the year prior to its application (unless already existing bilateral national treaties deem otherwise).
Though Decree 81 brings advantages to Vietnam's financial investment environment, the cap on foreign ownership in joint venture finance companies is an obstacle for foreign investors, which raises questions about WTO compliance.
|
| |
|  |
|
Advertising
