First, it is important to clearly understand the legal nature of a foreign bank branch. According to Clause 5, Article 4 of the Law on Credit Institutions 2024, a foreign bank branch is an “economic organization without legal person status and is a dependent unit of the foreign bank, with the foreign bank guaranteeing full responsibility for all obligations and commitments of the branch in Vietnam.”
This means the branch is not an independent legal entity. All financial and legal obligations and commitments of the branch in Vietnam are guaranteed and borne by the parent bank. This binding relationship is the core factor governing the entire termination process.
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The termination of operations is not an arbitrary decision but must strictly comply with Vietnamese legal regulations. According to Article 202 of the Law on Credit Institutions 2024, there are three main scenarios leading to this outcome:
The branch’s license is granted for a fixed term. Upon expiration, if the branch does not apply for an extension, or applies but is not granted written approval by the State Bank of Vietnam, it must terminate its operations.
This is the most serious scenario, typically occurring when the branch violates legal provisions, fails to meet operational safety requirements, or commits other serious infractions.
The branch may propose to dissolve itself. However, it must prove its ability to settle all outstanding debts, and obtain written approval from the State Bank of Vietnam.
This is the most common scenario when the parent bank decides to restructure or withdraw from the Vietnamese market.
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Termination is a complex process. To understand it better, it’s necessary to recall the rigorous conditions required for a foreign bank branch to be established, which are stipulated in Clause 3, Article 29 of the Law on Credit Institutions 2024:
The allocated capital: The branch must have the allocated capital at least equal to the legal capital level, which is set at $15million (USD), as stated in Clause 4, Article 2 of Decree 86/2019/ND-CP. This benchmark guarantees financial capability and commitment to operations.
Owner/Member Capacity: Its owner and founding shareholders or founding members that are legal entities are lawfully operating and financially capable to contribute capital; or its founding shareholders or founding members who are individuals have full civil act capacity and commit to being financially capable to contribute capital, for single-member limited liability companies.
Managers, executive officers and members of the Supervisory Board: They must fully satisfy the criteria and conditions specified in Article 41 of Law on Credit Institutions 2024.
Parent Bank Commitment: The foreign bank must provide an official written guarantee for all obligations and commitments of its branch in Vietnam.
Feasible Business Plan: The branch must demonstrate a safe and sustainable business model that does not adversely affect the national credit system.
Home Country Compliance: The parent bank must be authorized to conduct banking activities under its own country’s laws.
Supervisory Arrangement: The banking regulator in the home country must have an arrangement with the State Bank of Vietnam for inspection, supervision, and information exchange.
Sound operations and compliance: The concerned foreign credit institution satisfies the conditions on total assets and financial status under regulations of the State Bank Governor, and complies with the regulations on operation safety assurance of the country where it is headquartered.
Meeting these requirements from the outset ensures transparency and safety. When terminating operations, all such commitments must be fully discharged, from repaying debts to fulfilling all legal obligations.
This process requires close coordination with regulatory authorities and a detailed, well-structured plan.
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If you represent a foreign bank branch and are facing the decision to cease operations, understanding and complying with legal regulations is extremely important.
A small mistake can lead to complex legal consequences and seriously impact the reputation of the parent bank.
CDR Counsels provides in-depth legal consulting services, offering comprehensive support to businesses in the financial and banking sector, including:
With a team of experienced experts, we are committed to ensuring that the termination process is conducted efficiently, lawfully, and with minimized legal risks.
Are you encountering difficulties with the legal procedures for dissolving a foreign bank branch? Contact CDR Counsels for professional and timely support.
