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The Amended Credit Institution Law & Real Estate Business Law & Land Law

From challenges to opportunities

Background

  • The National Assembly of Vietnam has announced new Law No.32/2024/QH15 on Credit Institutions (“CI law”) which comes into effect from 1 July, 2024. This CI Law is designed to address several shortcomings identified in the current CI Law from 2010 (amended in 2017) and align with international standards that Vietnam is required to implement. 
  • The new Law No. 29/2023/QH15 on Real Estate Business* ("Real Estate Law") will take effect on 1 August, 2024, subject to National Assembly’s approval, with the objective of enhancing clarity and transparency within the Vietnamese real estate market. Additionally, it is important to take note of the new Land Law No. 31/2024/QH15 (“Land Law”), also scheduled to take effect on 1 August, 2024. This law aims to modernise land management, promoting fairness, and strives for sustainable socio-economic development.
  • These reforms reflect the government's commitment to aligning the sector with international best practices and contributing to the transparency, integrity and stability of the banking and real estate industries. Business should seize this opportunity to assess the regulatory impacts and use them to create distinct competitive advantages, as opposed to automatically viewing regulatory impacts as a roadblock. 

What’s new on Amended Credit Institution (“CI”) law?

The changes arising from the amended Law on Credit Institutions mean that all reporting entities need to upgrade their procedures and processes to meet the compliance requirements set by the National Assembly of Vietnam. Below are key changes that reporting entities should be aware of.

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  • The law introduces measures to mitigate risks associated with cross-ownership and manipulation, leading to a more stable and trustworthy banking sector. It reduces the permissible ownership stakes for Vietnamese organisational shareholders (including indirect shareholders) from 15% of the charter capital of the credit institution to 10% and for individual shareholders and related persons from 20% to 15%, impacting some individual shareholders and related persons with about a 16.6% stake and organisational shareholders with a 15% stake in the prominent players in Vietnam’s banking system*.

  • The current ownership limits provided under Decree No. 01/2014/ND-CP remain for foreign investors until a new provision is issued by the government.

  • The law also adds the responsibility to publicly disclose comprehensive information on shareholders holding 1% or more of a credit institution's charter capital, including details of the shareholder, their related persons and ownership detail.

  • The amended law stipulates a 5-year roadmap for commercial banks and foreign banks to gradually reduce credit limits for a single customer (from 15% to 10% of their equity) and groups of single customers and related persons (from 25% to 15%) to minimise the concentration risk. 
  • The law also requires non-bank credit institutions to limit their credit exposure to not exceed 15% of their equity for a single customer or 25% for a group of single customers and related persons, starting July 1st, 2024.
  • The amended law formalises the prohibition on Credit Institutions and their managers, executives or staff linking the sale of non-compulsory insurance products to the provision of banking services.
  • The State Bank of Vietnam will provide further guidance on bancassurance activities.
  • The amended law supplements scenarios where the State Bank of Vietnam (SBV) is granted authority to take early intervening actions against credit institutions that fail to meet regulatory requirements e.g., bank run; violation of the credit institutions against the solvency ratio.

What’s new on Amended Real estate (RE) business law?

The changes arising from the amended Law on Real Estate business require entities managing their businesses to meet the compliance requirements and look for new opportunities in the real estate market.

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  • The new Law broadens the definition of real estate products to include existing and future properties such as houses, commercial properties (e.g., educational, medical, commercial), separate floor areas within constructions, and entire real estate projects.
  • Buyers/transferees are entitled to land use rights certificates (LURCs) for these properties, ensuring legal ownership.
  • Real estate companies must be registered entities with a real estate business line specified in their Enterprise Registration Certificate.
  • Exceptions exist for small-scale transactions or non-profit activities, allowing individuals to engage in real estate business without incorporating a company.
  • While no fixed minimum charter capital is mandated, companies must demonstrate financial capability, including acceptable credit balance ratios and sufficient capital relative to the total investment.
  • Foreign-invested economic organisations are categorised based on their scope of real estate business activities, aligned with the 2020 Investment Law.
  • Limited activities are permitted for certain foreign-invested entities, including investing in real estate projects, leasing existing properties, or receiving transfers of projects for continuation.
  • Most properties can be sold off-plan, allowing developers to sell before completion, with exceptions for transactions involving only land use rights with technical infrastructure.
  • Restrictions are placed on deposit agreements, prohibiting developers from authorising third parties to sign agreements. Deposit amounts are capped at 5% of the total sale price.
  • Approval is required for project transfers, except for the specific cases outlined in the 2020 Investment Law.
  • Conditions for partial transfers are outlined, including the separability of project components and discharge of mortgages prior to transfer.

What’s new on Amended land law?

The new Land Law of 2024, together with the Law on Housing of 2023 and the Law on Real Estate Business of 2023, passed by the National Assembly in the fourth quarter of 2023, established a comprehensive legal framework for the real estate market.

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  • The new Land Law 2024 abolishes the previous land price framework, which had proven ineffective in reflecting true market values. Instead, it introduces a system of annual updates to the land price list. This change aims to ensure that land prices are more closely aligned with current market conditions, thereby promoting fairness and accuracy in land transactions.
  • Domestic organisations are now permitted to mortgage land use rights to entities other than licensed credit institutions, expanding financing options for land-related projects. However, foreign-invested enterprises are still restricted to mortgaging rights at licensed Vietnamese credit institutions. This differentiation reflects the government's cautious approach to foreign investment in land.
  • Vietnamese expatriates enjoy relatively full rights as Vietnamese citizens. The law states that Vietnamese expatriates and economic organisations with foreign investment are supplemented with rights to receive transfers and sublease land use rights within designated zones such as industrial zones and high-tech zones.
  • The new law allows for upfront land rental payments in specific circumstances, such as for certain investment projects or social housing constructions. This provision aims to incentivise long-term land use and investment in priority sectors, contributing to sustainable development goals.
  • Additional conditions are set for transferring land use rights, including the requirement to settle all financial obligations to the state. Moreover, when transferring land rights attached to technical infrastructure within real estate projects, investors must adhere to additional specifications outlined in real estate and housing laws. These conditions aim to ensure transparency and accountability in land transactions, protecting the interests of all parties involved.
  • The new law expands the options for compensation available to land users whose land is reclaimed by the state. Previously, compensation was limited to land of equivalent use or value. However, the new law allows for compensation in various forms, including cash, housing, or land with different use purposes. This change provides greater flexibility and fairness to land users facing displacement.

From challenges to opportunities

The Amended Law on Credit Institutions & Real Estate Business Law & Land Law

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Dinh Hong Hanh

Partner, Financial Services Leader, PwC Vietnam

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Edward Clayton

Partner, Deals Strategy & Operations, PwC Malaysia

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Nguyen Thuy Dung

Director, Financial Services, PwC Vietnam

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