Not lending for purchase of shares from the shareholders of other credit institutions secured by the shares purchased as per Official Dispatch 8440/NHNN-TTGSNH

  Not lending for purchase of shares from the shareholders of other credit institutions secured by the shares purchased

Regarding the credit institutions lend borrowers for purchase/transfer of shares listed or unlisted shares from the shareholders of other credit institutions and mortgaged by the shares purchased/transferred, the State Bank of Vietnam has issued Official Dispatch No. 8440/NHNN-TTGSNH on 12 November 2013 providing guidelines on lending to contribute capital into other banks on the basis of receipt of security assets being shares of the credit institutions receiving such capital contribution as follows:

- Paragraph 24, Article 4 of the Law on Credit Institutions 2010 states "capital contribution and/or share purchase by credit institutions means a credit institution contributes  capital to form the charter capital of or purchase shares in other enterprises or  other credit institutions, including funding capital or contributing capital to a subsidiary companies or affiliated company of credit institutions; or contributing capital to a investment fund or entrusting capital to other organizations to make capital contribution and/or purchase shares in the above mentioned form"
- Paragraph 6 of Article 126 of Law 2010 stipulated credit "credit institutions shall not be permitted to provide a loan for a capital contribution to another credit institution on the basis of receipt of security assets being shares of the credit institutions receiving such capital contribution”

 In essence, the customers purchase/transfer the listed shares on the secondary market or unlisted shares from the shareholders of other credit institutions, though they not directly contribute capital to form charter capital initially, but after customers purchased/ transferred shares, they become shareholders. At the same time, the amount of purchase of shares or the transfer of shares (corresponding to face price of shares) became the charter capital of other banks on replace of capital contribution of shareholders which sold, transferred shares to customers.

 Therefore, the above transactions should be treated as capital contributions and loans for purchase/transfer of unlisted or listed shares from the shareholders of other banks and mortgaged by shares purchased/transferred is in violation of the provisions of Paragraph 6 of Article 126 of Law on Credit Institutions 2010