Article conditions to implement bank guarantees for financial companies

1. Are financial companies allowed to carry out bank guarantee activities?

Regarding the scope of credit activities of financial companies specified in Article 108 of the Law on Credit Institutions 2010 as follows:

“Article 108. Banking activities of financial companies

1. Financial companies are allowed to carry out one or several of the following banking activities:

a) Receiving deposits from organizations;

b) Issuing certificates of deposit, promissory notes, bills, bonds to mobilize capital from organizations;

c) Borrowing capital from domestic and foreign credit institutions and financial institutions in accordance with the law; borrowing from the State Bank in the form of refinancing capital according to the provisions of the Law on the State Bank of Vietnam;

d) Loans, including installment loans and consumer loans;

dd) Bank guarantees;

e) Discounts and rediscounts of negotiable instruments and other valuable papers;

g) Issuing credit cards and factoring payment, financial leasing and other forms of credit after being approved by the State Bank.

2. The Government specifically stipulates the conditions for financial companies to carry out banking activities specified in Clause 1 of this Article.”

Accordingly, in terms of regulations, financial companies still have the right to provide bank guarantees. However, in order to provide a guarantee, the financial company must ensure the same requirements as banks.

2. What are the conditions for performing bank guarantees for financial companies?

Financial companies are allowed to perform bank guarantee activities when they fully meet the conditions in Article 10 of Decree 39/2014/ND-CP, amended by Clause 2, Article 2 of Decree 16/2019/ND-CP, specifically as follows following:

“Financial companies may carry out bank guarantee activities when they fully meet the following conditions:

1. Conditions specified in Article 5 of this Decree.”

Referring to the provisions in Article 5 of Decree 39/2014/ND-CP, amended by Clause 2, Article 2 of Decree 16/2019/ND-CP, the conditions include:

– Having a team of qualified staff, professional capacity, facilities, technology, vehicles, equipment and regulations internal regulations according to the provisions of law to carry out banking activities stated in the License.

– Fully meet the professional conditions for banking activities prescribed by the State Bank.

3. In addition to the above activities, what other activities can a financial company carry out?

Other activities of a financial company are specified in Article 14 of Decree 39/2014/ND-CP as follows:

“Financial companies are allowed to carry out other activities specified in Articles 109 to 111 of the Law on Credit Institutions application.”

Referring to the provisions in Article 109, Article 110 and Article 111 of the Law on Credit Institutions 2010, other activities of financial companies include:

(1) Opening an account of a financial company

– Financial companies that receive deposits must open a deposit account at the State Bank and maintain on this deposit account an average balance not lower than the required reserve level.

– Financial companies are allowed to open payment accounts at commercial banks, foreign bank branches.

– Licensed financial companies carrying out credit card issuance activities are allowed to open accounts at foreign banks in accordance with the provisions of foreign exchange laws.

– Finance companies are allowed to open deposit accounts and loan management accounts for customers.

(2) Contributing capital and buying shares of financial companies

– Financial companies can only use charter capital and reserve funds to contribute capital and buy shares according to the provisions of Clauses 2 and 3 of this Article.

– Financial companies can only contribute capital and buy shares of enterprises and investment funds.

– Financial companies can only establish and acquire shares. Subsidiaries and affiliated companies operating in the fields of insurance, securities, debt management and asset exploitation after receiving written approval from the State Bank (replace the phrase “security asset management” with “debt management and security asset exploitation” according to the provisions of Clause 18, Article 1 of the Law on Credit Institutions Amended 2017)

– The State Bank specifically regulates the conditions, documents, order, and procedures for approving the establishment of subsidiaries and affiliated companies of financial companies specified in Clause 3 of this Article.

Conditions, order, and procedures for establishing subsidiaries and affiliated companies of financial companies comply with the provisions of relevant laws quan.

(3) Other business activities of financial companies

– Receiving trust capital from the Government, organizations, and individuals to carry out investment activities in production, business, and permitted credit granting projects; entrust capital to credit institutions to grant credit. Receiving entrusted capital from individuals and entrusting capital to credit institutions granting credit shall comply with the regulations of the State Bank.

– Participate in the currency market according to the provisions of Article 104 of this Law.

– Buy and sell Government bonds and corporate bonds.

– Underwrite the issuance of Government bonds and corporate bonds career; agent for issuing bonds, stocks and other valuable papers.

– Trading and providing foreign exchange services according to the regulations of the State Bank.

– Acting as an insurance business agent.

– Providing consulting services in the fields of banking, finance and investment.

– Providing services management and preservation of customers’ assets.

Thus, financial companies are allowed to perform bank guarantee activities in case they meet the conditions for performing bank guarantee activities according to the provisions of current law. Besides, financial companies can also carry out a number of other activities within the scope of their operations according to law.