New Law on Credit Institutions 2024 (Part 1)

Conditions are more stringent for independent members of the Board of Directors

LCI 2024 tightens standards and conditions for independent members of the Board of Directors of credit institutions. Specifically, an independent member of the Board of Directors of a credit institution may not represent and own any shares of that credit institution and, together with his or her related person, may not directly or indirectly own 1% or more of the charter capital of that credit institution.

Wider range of people involved

LCI 2024 expands the definition of related person to include the relationship between (i) the “grandparent” company/FIs and the “grandchild” company, (ii) the manager/controller of the parent company/FIs and the subsidiary, and (iii) an individual with more family members.

Change the definition of indirect ownership

Regarding the definition of “indirect ownership”, LCI 2024 replaces ownership through related persons with ownership through intermediary enterprises. Individuals/organizations must own more than 50% of the charter capital of the intermediary enterprise. However, it is unclear whether ownership of an intermediary enterprise is only direct ownership or can also be indirect ownership.

LCI 2024 remains unclear on the meaning of ownership through an investment trust (ownership ownership through investment waterfall ).

Lower share ownership limits

The limit on share ownership in a credit institution by institutional shareholders of that credit institution is reduced from 15% to 10% according to the provisions of LCI 2010. Both direct and indirect ownership are included in that limit.

The limit on stock ownership in a credit institution by major shareholders of that credit institution and its related persons is reduced from 20% to 15% according to the provisions of LCI 2010. The limit on stock ownership in another credit institution by major shareholders of that credit institution and its related persons remains at 5%. Similar to LCI 2010, the number of shares entrusted by that shareholder to other organizations or individuals is also included in that limit. The new point of LCI 2024 is: if that shareholder is a credit institution, then the shares of the subsidiary in which that shareholder owns more than 50% of charter capital ( CI’s 50% Subsidiary ) do not count toward that limit. It seems likely that such a new exception would allow a major shareholder (the CI itself) of a CI ( CI 1 ) owns 5% in another CI ( CI 2 ) while the majority shareholder’s 50% CI Subsidiary may own less than 5 % in CI 2. It appears that this new point is intended to prevent double counting of CI 50% Subsidiary ownership due to changes in the definition of indirect ownership.

LCI 2024 allows the ownership percentage to be maintained beyond its limits, except that the ownership percentage may increase in the event that CI pays a stock dividend.

Disclosure of information to the public by 1% of shareholders

LCI 2024 requires each CI shareholder to own 1% or more of that CI’s charter capital ( Shareholder 1% ) must provide that CI with information about its related persons and the share ownership ratio of 1% Shareholders and its related persons at the CI. 1% shareholders are also obliged to update CI when there is a change in share ownership ratio of 1% or more. CI must list such information at its headquarters. The list of 1% shareholders must be published on the website of the credit institution and sent in writing to the State Bank within 7 working days from the date of receiving the information.

New ban on buying shares and contributing capital to CI

LCI 2024 prohibits credit institutions and their subsidiaries from contributing capital and purchasing shares of companies/credit institutions that are related persons of major shareholders or capital contributing members of that credit institution. Relevant parties must have a plan to implement the ban according to regulations later issued by the Governor of the State Bank.

New regulations prohibiting bancassurance abuse

Due to the allegation of forcing borrowers to buy insurance, LCI 2024 clearly prohibits credit institutions, foreign bank branches and their managers, executives and officers from linking the sale of optional insurance with the provision of banking products and services in any form. form.