Originally published 22 April 2010

Keywords: new circular, merger, consolidation, acquisition, credit institutions, State Bank of Vietnam, SBV

On 11 February 2010, the State Bank of Vietnam ("SBV") issued Circular No. 04/2010/TT-NHNN regulating merger, consolidation and acquisition of credit institutions ("Circular 04").

A credit institution means a bank, finance company, finance leasing company or a credit co-operative.

A merger means one or more credit institutions merging with another credit institution; a consolidation means two or more credit institutions consolidating to become one new credit institution; and an acquisition means a credit institution purchasing another credit institution.

Circular 04 opens the door for future M&A deals in the financial sector and replaces an old circular issued in 1998 which applied only to the merger, consolidation and acquisition of joint stock credit institutions.

Overview

Circular 04 is significant in that it provides for a clearer legal framework for M&A transactions in the financial sector. Previously, a bank can only own up to 11% of the shares in another bank.

Circular 04 allows for mergers, consolidations and acquisitions of all types of credit institutions as long as a clear plan to do so is submitted and the Competition Law is complied with.

Circular 04 also applies to wholly foreign owned banks licensed in Vietnam and allows them to also merge, consolidate with and acquire other credit institutions.

Further details of Circular 04 are discussed below.

Governing scope

  • Circular 04 regulates merger, consolidation and acquisition by the following credit institutions established and operating in Vietnam:
    • Commercial banks
    • Finance companies
    • Finance leasing companies
    • Co-operative credit institutions.
  • The merger or consolidation of co-operative credit institutions must comply with the Regulations issued with Decision No. 24/2006/QD-NHNN of the Governor of the SBV dated 6 June 2006 on issuance and withdrawal of licences for establishment and operation of people's credit funds, on opening and termination of operation of transaction departments, branches, representative offices, trading offices and trading locations of people's credit funds, on separation, demerger, consolidation and merger of people's credit funds, and on liquidation of people's credit funds under supervision of the SBV.

Applicable entities

  • Credit organisations as stipulated in the governing scope
  • Provincial SBV branches
  • Banking Inspectorate
  • Finance-Accounting Department
  • Legal Department
  • Other related departments and divisions under the SBV

Competence to approve merger or consolidation of credit institutions and acquisition of a credit institution

Proposed merger or consolidation of credit institutions or acquisition of credit institution is subject to the consent of the Governor of the SBV.

Principles for merger or consolidation of credit institutions or acquisition of a credit institution

  • Principle regarding agreement: Credit organisations participating in a merger or consolidation of credit institutions or in an acquisition of a credit institution must reach agreement on resolution of rights and obligations as between the relevant parties in conformity with current law.
  • Principle on protection of clients: Credit organisations participating in a merger or consolidation of credit institutions or in an acquisition of a credit institution must ensure there is no adverse impact on the rights and interests of clients, especially the rights and interests of depositors at each credit institution participating in such merger, consolidation or acquisition.
  • Principle on confidentiality of information: Members of the board of management and of the board of controllers, the general director and organisations and individuals related to any credit institution participating in a merger, consolidation or acquisition will be responsible to protect confidentiality of information in order for such credit institution to operate stably prior to the merger, consolidation or acquisition plan being passed by the decision maker of the credit institution.
  • Principle on provision of information:
    • When conducting the procedures for the relevant merger or consolidation of credit institutions or acquisition of credit institution, the board of management of the credit institution will be responsible to promptly provide complete, uniform, truthful and accurate information about the process of such merger, consolidation or acquisition, including information on the financial, organisational and operational status of the credit institution, without discriminating against owners of the parties participating in such merger, consolidation or acquisition or against other authorised organisations.
    • Files, data and advertisements of credit institutions participating in a merger, consolidation or acquisition must comply with the principle that such information is honest and accurate, and does not cause misunderstanding.
  • Principle on the decision on merger, consolidation or acquisition:
    • The decision makers of any credit institution participating in a merger, consolidation or acquisition will pass a decision on such merger, consolidation or acquisition in accordance with the conditions and procedures for conducting meetings and voting as stipulated in current law.
    • Consolidating credit institutions will reach agreement on issues relevant to organisation of the consolidation and on the conditions and procedures for holding meetings and voting in order to pass the relevant decision, and will specify the same in detail in the consolidation plan and in conformity with current law.

Forms of merger or consolidation of credit institutions or acquisition of a credit institution

  • Forms of merger:
    • A bank, finance company and/or co-operative credit institution may merge with one bank.
    • A finance company may merge with another finance company.
    • A finance leasing company may merge with another finance leasing company.
  • Forms of consolidation:
    • A bank may consolidate with a bank, finance company and/or co-operative credit institution to become one bank.
    • Finance companies may consolidate to become one finance company.
    • Finance leasing companies may consolidate to become one finance leasing company.
  • Forms of acquisition:
    • One bank may acquire a finance company and/or finance leasing company.
    • One finance company may acquire another finance leasing company.

Conditions for eligibility to merge/consolidate/acquire

Conditions for eligibility to merge

Conditions for eligibility to consolidate

Conditions for eligibility to acquire

Not falling within the cases in which the Competition Law prohibits an economic concentration

Not falling within the cases in which the Competition Law prohibits an economic concentration

Not falling within the cases in which the Competition Law prohibits an economic concentration

Having a merger plan containing at least all the contents stipulated in the following table, and not containing any items inconsistent with the merger contract

Having a consolidation plan containing at least all the contents stipulated in the following table, and not containing any items inconsistent with the consolidation contract

Having an acquisition plan containing at least all the contents stipulated in the following table, and not containing any items inconsistent with the acquisition contract

The merged credit institution will, following the merger, have minimum charter capital equal to the amount of legal capital required by current law

The consolidated credit institution will, following the consolidation, have minimum charter capital equal to the amount of legal capital required by current law

The acquiring credit institution will, following the acquisition, have minimum charter capital equal to the amount of legal capital required by current law

Contents of a merger/consolidation/acquisition plan

Merger plan

Consolidation plan

Acquisition plan

Names, addresses and websites of the credit institutions participating in the merger

Names, addresses and websites of the consolidating credit institutions

Names, addresses and websites of the credit institutions participating in the acquisition

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the credit institutions participating in the merger

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the consolidating credit institutions

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the credit institutions participating in the acquisition

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the credit institutions participating in the merger

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the consolidating credit institutions

Names, addresses and contact telephone numbers of members of the boards of management and of the boards of controllers, and of the general directors of the credit institutions participating in the acquisition

Summary of the financial and operational status of the credit institutions participating in the merger up to the time of the audited financial statements which the decision makers of the credit institutions participating in the merger agreed to use when formulating the merger plan

Summary of the financial and operational status of the consolidating credit institutions up to the time of the audited financial statements which the decision makers of the consolidating credit institutions agreed to use when formulating the consolidation plan

Summary of the financial and operational status of the credit institutions participating in the acquisition up to the time of the audited financial statements which the decision makers of the credit institutions participating in the acquisition agreed to use when formulating the acquisition plan

Reason for the merger

Reason for the consolidation

Reason for the acquisition

Charter capitals prior to the merger of the credit institutions participating in the merger, and charter capital of the merged credit institution following the merger

Charter capitals prior to the consolidation of the consolidating credit institutions, and charter capital of the consolidated credit institution

 

List of major shareholders (in the case of a shareholding credit institution) or of owners (in the case of other credit institutions) of the merged credit institution following the merger

List of major shareholders (in the case of a shareholding credit institution) or of owners (in the case of other credit institutions) of the consolidated credit institution

 

Rights and obligations of the credit institutions participating in the merger, and of related organizations and individuals (if any)

Rights and obligations of the consolidating credit institutions, and of related organizations and individuals (if any)

Rights and obligations of the credit institutions participating in the acquisition, and of related organizations and individuals (if any)

Schedule for conducting the merger

Schedule for conducting the consolidation

 

Proposed staff, operational network and contents and other issues relevant to organization and operation of the merged credit institution following the merger

Proposed staff, operational network and contents and other issues relevant to organization and operation of the consolidated credit institution

Proposed staff, operational network and contents and other issues relevant to organization and operation of the acquiring credit institution after the acquisition

Proposed business plan of the merged credit institution for the three years following the merger. The business plan must include at least a list of total assets and a report on forecast business results, norms on minimum capital safety, norms on operational effectiveness and an explanation of the capability for implementing the plan during each year

Proposed business plan of the consolidated credit institution for the first three years. The business plan must include at least a list of total assets and a report on forecast business results, norms on minimum capital safety, norms on operational effectiveness and an explanation of the capability for implementing the plan during each year

Proposed business plan of the acquiring credit institution for the first three years after the acquisition. The business plan must include at least a list of total assets and a report on forecast business results, norms on minimum capital safety, norms on operational effectiveness and an explanation of the capability for implementing the plan during each year

Measures for converting and combining the information management systems, internal inspection and control, internal audit and the data transmission systems in order to ensure effective operation both before and after the merger

Measures for converting and combining the information management systems, internal inspection and control, internal audit and data transmission systems in order to ensure effective operation both during and after consolidation

Measures for converting and combining the information management systems, internal inspection and control, internal audit and data transmission systems in order to ensure effective operation both during and after the acquisition

Method and time-limit for conversion of capital contributions or shareholding capital; and form of conversion of such capital and the relevant conversion ratios

Capital contribution or shareholding capital conversion ratios; method and time-limit for conversion

Acquisition price, time-limit for and method of payment; time-limit for handover to the acquiring credit institution

Liability of the parties participating in the merger for expenses arising during the merger process

Conditions and procedures for holding meetings and voting in order to pass decisions relevant to the consolidated credit institution

Liability of the credit institutions participating in the acquisition for expenses arising during the acquisition process

Plan for dealing with a case where one or more of the credit institutions participating in the merger unilaterally rescind the agreement to merge

Plan for dealing with a case where one or more of the consolidating credit institutions unilaterally rescind the consolidation agreement

Plan for dealing with a case where one or more of the credit institutions participating in the acquisition unilaterally rescind the acquisition agreement

Application file requesting merger/consolidation/acquisition

The application for merger/consolidation/acquisition is to be conducted in two steps:

  • An application file requesting agreement in principle to a merger/consolidation/acquisition
  • An application file requesting consent to a merger/consolidation/acquisition

Responsibilities of relevant entities

Circular 04 devotes one chapter to prescribing specific responsibilities of credit institutions, provincial SBV branches, the Finance-Accounting Department, the Legal Department and other related departments and divisions under the SBV.

Effect of the Circular

The Circular takes effect 45 days after its issuance and replaces Decision No. 241/1998/QD-NHNN5 of the Governor of the SBV dated 15 July 1998 which issued regulations on merger, consolidation and acquisition of Vietnamese joint stock credit institutions.

If any provisions of a law which is referred to in this Circular are amended, supplemented or changed, then such new provisions will apply.

If any shareholding merging credit institution or shareholding acquiring credit institution has an operational term below five years, then shareholders who participated in the establishment of the credit institution must conduct share transfers in accordance with the law on issuance of establishment and operational licences for shareholding credit institutions.

If any credit institution participating in a merger, consolidation or acquisition is a public company, then in addition to compliance with the provisions in this Circular, such public company must also comply with relevant provisions in the law on securities and securities market regarding merger, consolidation and acquisition of credit institutions.

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