The right to freedom of enterprise: reflection from the banking sector in Vietnam

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ASIAN CONSTITUTIONAL LAW:RECENT DEVELOPMENTS AND TRENDS

THE RIGHT TO FREEDOM OF ENTERPRISE:

REFLECTION FROM THE BANKING SECTOR IN VIETNAM

Pham Thi Hong Nghia1
PhD Candidate, School of Law, Vietnam National University, Hanoi

Abstract

The right to freedom of enterprise is recognized in Article 33 of Vietnam Constitution 2013, according
to which all entities, including individuals and organizations, have the right to do business in the
sectors and trades that are not prohibited by law. The right to freedom of enterprise inherited from the
Constitutions of 1946, 1959, 1980 and 1992 and continuing to be recognized in the 2013 Constitution
shows the constant attention that Vietnam has paid attention to the economic development of different
entities in the society. However, the banking sector always carries high systematic risks; only one credit
institution at risk may lead to the collapse of the whole system of credit institutions, the banking sector,
and even a national economy or the world economy. As a result, in addition to recognizing the right
to freedom of enterprise of business entities in the banking sector, the state also needs regulations to
limit the rights to ensure the stability and development of the money market, the banking system, the
economy of the sector considered as “lifeblood” of the national economy.

This paper aims to illuminate on the debate about the protection of the right to freedom of enterprise
in the banking sector by exploring two sets of issues. The first is how to recognize the right to freedom
of enterprise in the banking sector under Vietnam law. The second area for investigation is the nature
of constitutional protection, the meaning of the limit in the right to enterprise, freedom in the banking
sector, and how the protection is typically provided for this right. The paper will tackle these issues
based primarily on the analysis of the provisions of the 2013 Constitution and the 2010 Law on Credit
Institutions. It is concluded that the right to the freedom of enterprise in the banking sector is a basic

right, but shall be limited to ensure a stable and sustainable development of the banking sector.

Keywords: freedom of enterprise; banking sector; limited rights, Vietnam
1. The right to freedom of enterprise, according to Vietnam law

1.1. The recognition of the law on the right to freedom of enterprise in the banking sector

Mentioning enterprise is referring to freedom of agreement, so the demand for freedom of
enterprise exists in any economy, although the guarantee of the right varies in different historical and

1 This paper is a part of the doctoral thesis titled STATE MANAGEMENT IN BANKING SECTOR/ QUẢN LÝ NHÀ

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ASIAN CONSTITUTIONAL LAW: RECENT DEVELOPMENTS AND TRENDS
social periods. The Constitutions in 1946, 1959 and 1980 did not explicitly recognized the right to
freedom of enterprise, freedom, and this right was then somehow limited. Among human rights, the
right to freedom of enterprise is the right that was had been determined right from the first Constitution
of Vietnam in 1946, through the indirect recognition of the protection of citizens’ property ownership
rights1. By the 1959 Constitution and the 1980 Constitution, due to the policy of developing a

planned, centralized economy and the existence of only two basic economic sectors, namely the state
economics and the collective economics, the right to freedom of enterprise and operation of non-state
economics were not encouraged2. It was not until the 1992 Constitution that citizens’ right to freedom

of enterprise was officially recognized in Article 57: “The citizen enjoys freedom of enterprise as

determined by law”. However, it was the 2013 Constitution that created a stronger breakthrough

concerning the right to freedom of enterprise as asserted in Article 33: “Everyone has the right to

freedom of enterprise in the sectors and trades that are not prohibited by law”. This regulation covers

two important contents: firstly, to confirm the right to freedom of enterprise of all people; secondly,
to limit the freedom of enterprise in areas prohibited by law.

Concretising the freedom of enterprise in the banking sector, the banking law of Vietnam has
also demonstrated recognitions in accordance with the above Constitutions. Although the state began
to recognize banking business in 1951 with the Ordinance No. 15/1951 of President Ho Chi Minh
establishing the State Bank of Vietnam, like other businesses in the planned centralized economy,
the right to freedom of enterprise in the banking sector was just the freedom of doing business of the
State Bank of Vietnam with state-owned enterprises and cooperatives. However, the introduction of
the Ordinance on Banks, Credit Cooperatives and Financial Companies in 1990 with the recognition
of the existence of joint-stock commercial banks, foreign banks, and joint-venture banks, the right to
freedom of enterprise of legal entities was expanded. This is not only the freedom of doing business
of the State Bank of Vietnam but also of other banking business entities, although this freedom is still
limited due to the procedures for obtaining permission from the State Bank of Vietnam.

The change of the right to freedom of enterprise in the banking sector was marked by the 1997 Law on
Credit Institutions when the State affirmed for the first time the business autonomy of credit institutions3.

Such provision has created conditions for credit institutions to freely conduct business activities as well as
affirmed the State’s guarantee of the right to ownership of business results for credit institutions. Inheriting
this provision, the 2010 Law on Credit Institutions continued to affirm that the right to freedom of enterprise
of credit institutions is recognized, protected and guaranteed through the law provision on business
autonomy of credit institutions, affirming the state’s protection of business results and the requirement that
no organization or individual be allowed to interfere illegally and business autonomy.

1 Article 12 of the 1946 Constitution states: “Personal property ownership right of Vietnamese citizens are guaranteed”
2 Article 12 of the 1959 Constitution: “ The state economy is in the form of the ownership of the entire people, plays

a leading role in the national economy and is guaranteed by the State for priority development…”; Article 13 of the

1959 Constitution: “Cooperative economy is in the form of collective ownership of working people. Cooperative 
economy is in the form of collective ownership of working people. The State particularly encourages, guides and helps 
the development of the cooperative economy”; Article 18 of the 1980 Constitution: “… The state economy plays a key 
role in the national economy and is given priority to develop”.

3 Article 15 of the 1997 Law on Credit Institutions: “Credit institutions have the right to be independent from doing

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Thus, the freedom of enterprise is considered under two following unified aspects: (i) The
freedom of enterprise is the right of subjects/entities, covering a range of acts that subjects are allowed
to conduct, such as: (i) Selecting business lines, selecting the type of business, scale of business,
selecting customers; (ii) The right to freedom of enterprise is also understood as a combination of all
regulations and legal guarantees issued by the State in order to facilitate individuals (or legal entities)
to exercise the right mentioned above1.

In the banking sector, the freedom of enterprise is also understood in two aspects:

Firstly, freedom of enterprise in the banking sector is the right of banking business entities

to perform the following acts: selecting the type of operation (banks, financial companies, leasing,
finance companies, microfinance institutions, people’s credit funds); choosing the business model
(joint-stock company or limited liability company); selecting the scope of operation (receiving
deposits; lending; financial leasing ...); choosing clients; and so on.

Secondly, freedom of enterprise in the banking sector is also reflected in the provisions and legal

guarantees issued by the State in order to facilitate banking business entities to exercise the above

selection rights such as: Providing a series of documents guiding the implementation of each specific
activity of credit institutions2. In particular, ensuring the implementation conditions of the state plays

a very important role, being the basis for the freedom of doing enterprise in the banking sector.
1.2. Contents ensuring the freedom of enterprise in the banking sector

The freedom of enterprise in the banking sector is a system of rights attached to banking business
entities; the assurance of the freedom of enterprise for these entities is shown in the following contents:

- Ensuring the freedom to participate in enterprise in the banking sector

Ensuring the right to freedom of participating in the enterprise is the basic content in banking
enterprise because this is the basis for entities to start an enterprise and to be recognized by the
state as entities through business registration. In order to ensure the right to participate in enterprise
in the banking sector, the state has: (i) introduced a variety of business organization models for
entities to choose from, such as joint-stock companies and liability limited companies (multi-member
limited liability companies, one-member limited liability companies with wholly state-owned charter
capital)3; (ii) prescribed clear, specific and convenient procedures for establishing, licensing, and

business registration such as laying down clear requirements concerning the license application
documents, deadlines for returning documents, and responsibility to respond explicitly in writing if
the license application is refused 4…

- Ensuring the right to autonomously resolve internal problems in the banking enterprise

This assurance is recognized in Clause 1, Article 7 of the 2010 Law on Credit Institutions: “Credit 
institutions and foreign bank branches have autonomy in their business activities”. Accordingly, in

1 Bui Ngoc Cuong, Discussing about business freedom, Law Review No. 3, 1997.

2 See also Circular No. 39/2016/TT-NHNN regulating lending activities of credit institutions and foreign bank branches

to clients; Circular No. 48/2018/TT- NHNN regulating the Savings Deposit…

3 See also Article 6 of the 2010 Law on Credit Institutions.

4 See also Article 5 of Circular No. 40/2011/TT-NHNN prescribing the license issuance, organization and operation

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order for the business to be done most effectively, the State ensures that banking business entities
have the right to resolve issues by themselves through the recognition in the charter concerning:
hiring and using labour; selecting partners in cases of syndication (such as loan syndication, bank
guarantee syndication), selecting clients; deciding to continue business or to terminate a business;
deciding to expand or narrow the business; deciding on the distribution of profits, the division of
management rights; deciding to resolve internal disputes and resolve external disputes; mobilizing
capital in the business process, whereby the entities are entitled to decide whether to increase or
decrease the charter capital; ways to increase loans through various capital mobilization channels
(receiving deposits, issuing valuable papers, borrowing from other credit institutions, borrowing from
the State Bank of Vietnam)1.

- Ensuring the freedom of contract in the banking enterprise

All banking business activities from the beginning of a business, during the course of business,
as well as at business closure, must be passed under different types of contracts such as capital
contribution contracts (to start a business), labour contracts, credit contracts, loan contracts. Therefore,
ensuring the freedom of contract is also the basis to ensure other rights in the freedom of doing
business in the banking sector. Ensuring the freedom of contract is the assurance of the following
aspects: (i) no one has the right to intervene or impose on the signing of contracts of banking business
entities; (ii) banking business entities have the right to select partners in the contracts they sign

(even when choosing clients, choosing employees and choosing cooperative partners); (iii) banking
business entities are entitled to the right to negotiate measures to assure contract performance such
as mortgage of assets, third party mortgages when lending to clients; (iv) banking business entities
are free to negotiate changes in some contents of the signed contract such as changing the purpose of
using capital for clients, rescheduling the repayment period for clients2…

- Ensuring the right of property ownership during the course of banking enterprise

The requirement that credit institutions and foreign bank branches in Vietnam take
self-responsibility for their business results in Clause 1, Article 7 of the 2010 Law on Credit Institutions
has affirmed that the State of Vietnam guarantees the right of property ownership for entities doing
business in the banking sector. This regulation serves as a premise for the freedom of enterprise in the
banking sector because only when the property ownership, the business results are guaranteed, can
other rights to freedom such as freedom to establish credit institutions, freedom of contract, freedom
of competition ... be implemented.

- Ensuring freedom of competition in the banking sector

In the rules of the market economy, competition is one of the basic rules, playing an important
role in the process of making the economy healthy, promoting the development of the economy,
and the banking sector is not an exception. The state’s guarantee of freedom of competition in the
banking sector is affirmed in Clause 1, Article 9 of the 2010 Law on Credit Institutions: “1. Credit

institutions and foreign bank branches may cooperate and compete in banking operations and other 
business activities under the law; 2. Competition restriction or unfair competition threatening to harm

1 See also Clause 1, Article 31 of the 2010 Law on Credit Institutions.

2 See also Article 15, Article 19 of Circular No. 39/2016/TT-NHNN prescribing lending activities of credit institutions

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or harming the implementation of the national monetary policy, the safety of the credit institution 
system, the interests of the State and the lawful rights and interests of organizations and individuals 
are prohibited”. Ensuring the freedom of competition includes the following aspects: ensuring the

conditions for banking business entities to compete fairly; controlling anti-monopoly of banking
business, especially upon amalgamation, consolidation, acquisition of credit institutions; imposing
strict sanctions on anti-competitive practices and unfair competition practices in the banking sector;
The State Bank of Vietnam has an interest rate control mechanism (important element in the output
and input of the products provided by credit institutions, foreign bank branches)1.

- Ensuring the freedom of decision in resolving disputes in the banking sector

When banking business entities freely enter contracts, freely conduct business, conflicts and
disagreements leading to disputes are unavoidable. When disputes in the banking sector occur, the
law secures the right to freedom of decision by the provisions allowing credit institutions to set rules
for resolving their disputes in the Charter of the credit institutes2. Normally, when exercising this

right of freedom, credit institutions will be free to agree on methods of resolving disputes through
negotiation, mediation, via commercial arbitration or by the courts.

The 2013 Constitution recognized the right to freedom of enterprise and the 2010 Law on Credit
Institutions; the documents guiding the implementation of the Law have specified the recognition
of the freedom of enterprise in the banking sector and measures to protect the freedom of enterprise
in the banking sector. However, for some reasons such as to limit risks to the national economy, to
protect property ownership for other entities…. the law also has regulations to limit the right besides
ones to recognize and ensure it.

2. Limiting the right of freedom of enterprise in the banking sector in Vietnam today

2.1. The reason for limiting the freedom of enterprise in the banking sector

The state has set limits on freedom of enterprise in the banking sector due to the following
reasons:

- Restricting the right to freedom of enterprise in the banking sector to ensure other constitutional rights

Freedom of enterprise is one of the basic human rights recognized and protected by law.
However, as the reality shows, one’s freedom of doing business may restrict others’ freedom of doing
business. Therefore, setting the limits of freedom of enterprise in general and freedom of enterprise
in the banking sector in particular is the way in which the State ensures that the right to freedom of
enterprise of different entities can coexist and be simultaneously promoted. Therefore, right after
recognizing the right to freedom of enterprise in Article 33 of the 2013 Constitution, the State also
sets the limit of the right to be applied only “in sectors that are not prohibited by law”. In addition,
according to Clause 2 Article 14 and Clause 4, Article 15 of the 2013 Constitution, the exercise of

1 Article 12 of the 2010 Law on the State Bank of Vietnam states: “The Stale Bank shall announce the refinancing

interest rate, prime interest rate and other interest rates to serve the regulation of the monetary policy and the fight 
against usury; In case abnormal developments are seen in the monetary market, the State Bank shall provide for a 
mechanism for regulating interest rates applicable to credit institutions in their relations with others and their clients 
and in other credit relations”.

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the right to freedom of enterprise in the banking sector may not infringe upon national interests and
others’ lawful rights and interests, and due to national defence, national security, social order and
safety, social morality and community well-being, the State has the right to limit the freedom of

enterprise by a law1.

- The banking sector always involves high risks and may cause systematic risks and threaten 
national interests and legitimate interests of other entities

Credit institutions in the world or in Vietnam play the role of a hub for capital transfer to the
economy with a high level of capital investment, so there are many high potential risks 2 such as

clients’ failure or inability to perform part or the whole of debt repayment obligations under contracts
or agreements; credit institutions’ inability to fulfil their debt repayment obligations on due date; or
credit institutions able to fulfil its debt repayment obligations when due but having to pay a high cost
to perform such obligations …3

In particular, the banking sector may cause systematic risks that disrupt the operation of all credit
institutions and the whole economy 4. This is because : (i) With the role of credit intermediaries and

capital regulating stations in the economy, on the one hand, credit institutions use all of their resources
to mobilize idle capital of organizations and individuals in the economy; on the other hand, credit
institutions use the mobilized capital to provide credit to entities who need capital in the economy.
It’s this intermediary role that makes the credit institution liable to affecting depositors who lend
to credit institutions in the cases of credit risks that lead to insolvency. This would leave a negative
impact on monetary markets and the economy; (ii) Domestic and foreign credit institutions have a
close interrelationship which derives from: the relationship of receiving deposits when these credit
institutions deposit money into other credit institutions to enjoy the interest rate difference; relationship
of credit granting when credit institutions borrow from one another in the interbank market, or when
syndicated credit institutions provide credits as in projects of syndicated loans, syndicated bank
endorsement, syndicated financial leasing; payment relationship when credit institutions are banks
serving organizations and individuals in the society in their partnerships (such as in encashment order,
payment orders, letters of credit…); cross-ownership status in the banking sector when the owner of
this credit institution is also a shareholder of other credit institutions. Therefore, in the event that a

credit institution is exposed to a sufficiently high risk leading to the loss of its liquidity, risk will also
be posed to the remaining credit institutions in the system like the “domino” effect.

The fact about the world financial crisis in 2009 is the most obvious evidence of the systematic
risks in the banking sector. Because the crisis started in the US between 2008 and 2009, it was caused
by the US housing credit crisis (due to the expansion of subprime lending and the collapse of the real

1 According to Clause 2, Article 14 of the 2013 Constitution, “Human rights and citizens’ rights may not be limited

unless prescribed by a law solely in case of necessity for reasons of national defense, national security, social order and
safety, social morality and community well-being” and Clause 4 Article 15 of the 2013 Constitution, “The exercise of
human rights and citizens’ rights may not infringe upon national interests and others’ lawful rights and interests”.

2 According to Clause 7, Article 3 of Circular No. 08/2017/TT-NHNN on banking supervision order and procedures:

“The risk is the possibility of loss which reduces the equity capital, the income leads to a reduction in the capital 
adequacy ratio or limitation on the ability of credit institutions, foreign bank branches to achieve business objectives”

3 See also Clause 2, Article 8 of Circular No. 08/2017/TT-NHNN, amended and supplemented by Circular No. 04/2018/

TT-NHNN on banking supervision order and procedures.

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estate bubble, the securitization of mortgage loans). The consequences of the crisis are: The collapse
of many financial institutions, corporations in the US and around the world (USA (70), Europe (5),
Asia (4), Canada (3), Mexico (2), and Russia (1)); this financial crisis also dragged the whole world
economy into recession1.

In short, the limitation of freedom of enterprise in the banking sector is to ensure the freedom of
doing business of other entities; and importantly, it is because the high risks inherent in the banking
sector, which may cause systematic risks when not controlled, and may affect national interests, even
national economic security and affect the legal rights and interests of other entities. For the reasons
mentioned above, in the banking sector, credit institutions have the right to freedom of enterprise, but
that is the freedom under the limit.

2.2. The content of the right of freedom of enterprise in the banking sector as provided by the law of 
Vietnam

The law of Vietnam has restricted freedom of enterprise in the banking sector through the
following provisions:

- Limiting the freedom to engage in business in the banking sector

Limitation of the freedom to engage in business in the banking sector is expressed in the following
groups of regulations:

The first group comprises regulations on legal capital. According to these regulations, in order
to be able to do business in the banking sector, organizations and individuals must maintain the real
value of the charter capital or the allocated capital at a number at least equal to the legal capital level.
Depending on the types of credit institutions, credit institutions must maintain different levels of
legal capital as stipulated in Decree No.141/2006/NĐ-CP amended and supplemented by Decree No.
10/2011/NĐ-CP on promulgating the List of legal capital levels of credit institutions. Accordingly,
the legal capital of banks is VND 3,000 billion; of foreign bank branches is USD 15 million; of a
policy bank is VND 5000 billion, and of a finance company is VND 500 billion … 2 It can be seen that

this is a relatively high capital level compared to other businesses. This is a necessary requirement
because credit institutions are the entities of currency trading, so a certain amount of money is

required to maintain and develop currency business; at the same time, as mentioned above, since the
banking sector involves many high risks, credit institutions need sufficient capital to deal with rising
risks, contributing to ensuring the safety of the whole system and currency market and economy. If
a credit institution cannot maintain its legal capital level, its liquidity and business operation will
be affected. If the loss of a business credit institution leads to negative capital, the institution may
go bankrupt, causing severe consequences for the credit institutions system and the economy, such
as in the case of Financial Company II (ALC II) ALC II, which is 100% owned by Vietnam Bank
for Agriculture and Rural Development (Agribank). Due to the loss of ALCII’s business, negative
capital and overdue debts for many customers, on March 29, 2016, the State Bank of Vietnam issued
Decision No. 457/ QD-NHNN on the failure to apply the solvency restoration measure to ALCII and

1 Assoc.Prof.Dr. Nguyen Dang Don, Banking Currency, 2009, Publisher of National University, Ho Chi Minh City, p.

327, 328, 329.

2 See also the List of legal capital of credit institutions, Decree No. 141/2006/NĐ-CP amended and supplemented by

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require this business to implement bankruptcy procedures as prescribed by law1. The bankruptcy of

ALCII created false rumours, that is, Agribank (the owner of ALCII’s capital) also went bankrupt.
Therefore, in some localities, especially in industrial zones, it happened that workers quit their jobs
to withdraw money from banks. Such incidents might be further provoked by the malevolent, causing
anxiety among Agribank customers in particular and the society in general 2.

The second group consists of regulations on operating licenses. In order to participate in the
banking business, while other businesses such as stationery business, clothing business, individuals
and organizations only need to go to the business registration office and follow the registration
procedure, credit institutions must be licensed by the State Bank of Vietnam. The State Bank of
Vietnam only grants licenses when entities desiring to do banking business meet the following

requirements: The owner of a credit institution is a one-member limited liability company; Founding
shareholders, founding members are legal entities operating legally and having the financial capacity
to contribute capital; Founding shareholders or founding members are individuals with full civil act
capacity and financial capability to contribute capital; Having at least 2 founding shareholders who
are organizations3. The purpose of these requirements is to ensure the safety in the operation of credit

institutions, business organizations in a high-risk sector - the banking sector.

- Limiting the right to autonomously solve internal problems in the business process

Limitation of the right to independently solve internal problems in the business process of a
credit institution is expressed in the following two groups of basic regulations:

The first group consists of the regulations that require the permission of the State Bank of Vietnam 
during the course of doing business. Credit institutions who wish to make changes in name, location
of the head office, content, scope and duration of operation, transfer of the capital contribution portion
of the capital-contributing members; transfer of shares of major shareholders, transfer of shares
leading to major shareholders becoming common shareholders and vice versa; a temporary shutdown
of business operations for more than 01 working day, except for cases of temporary shutdown of
operation due to forced majeure reasons; listing of shares on domestic and foreign stock markets ...
requires the permission of the State Bank of Vietnam4. This is a relatively typical requirement of the

banking sector compared to other sectors, because in other areas, a company requiring changes in, such
as headquarter location, capital, business content... only has to notify the business registration office.
This requirement has reduced the freedom of self-solving internal problems of credit institutions, but
this is necessary for a high-risk sector - the banking sector.

The second group consists of regulations on the mandatory requirements that must be complied 
in the operation process, such as:

1 Khánh Linh,

05/11/2018.

2 Tuấn Nguyễn,

, 11/11/2018.

3 See also Article 20 of the 2010 Law on Credit Institutions; Article 9 of Circular No. 40/2011/TT-NHNN prescribing

the licensing, organization and operation of commercial banks, foreign bank branches, representative offices of foreign
credit institutions, other foreign institutions having banking activities in Vietnam.

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(i) Restrictions to ensure safety in the operation of credit institutions such as provisions on cases
of ineligibility for credit extension1, credit restrictions2; credit extension limits3; limits on capital

contribution and share purchase,4 … These are huge limits set for the freedom of enterprise in the

banking sector, contributing significantly to the prevention and reduction of NPLs (Non-performing
loans) - the biggest risk for credit institutions, credit operations, operational risks, strategic risks… of
credit institutions;

(ii) Provisions on protecting the interests of clients5. Accordingly, the law limits the right to

freedom of enterprise of credit institutions to protect the interests of clients with such restrictions
as: Preserve and insure deposits at relevant institutions by law, publicize their deposit preservation

and insurance in their head offices and branches; Publicize deposit interest rates, service charges and
rights and obligations of clients for each product and service provided; Publicize official transaction
time and may not halt transactions during this time. When halting transactions during the official
transaction time, a credit institution or foreign bank branch shall post up notices of such halt at
transaction places at least 24 hours before the halt…;

(iii) Provisions on responsibilities for preventing and combating money laundering and terrorism
financing 6. In order to ensure public security, credit institutions are responsible for preventing and

combating money laundering and terrorism financing, so the freedom of business of credit institutions
should be limited to, the following examples: Neither covering nor conducting business activities
related to amounts of proving illegal origin; Elaborating internal regulations on prevention and
control of money laundering and terrorism financing; Taking measures to prevent and control money
laundering and terrorism financing; Cooperating with competent stale agencies in investigating
money laundering and terrorism financing activities. These state regulations restrict the freedom of
doing business of credit institutions, but they are necessary to ensure the safety of credit institutions
and the freedom of other entities in society, the stability and sustainability of money markets, the
economy and national security. Money laundering or terrorism financing is now mostly carried out
through banks; therefore, enforcing legal means to limit it is also an effective way to detect and
prevent criminal acts. For example, according to Mr. Pham Gia Bao, Deputy Director of Anti-Money
Laundering Department - State Bank of Vietnam, in money laundering activities, the activities carried
through bank take up nearly 90% of the total number of suspicious transaction reports (STR) sent to
the Anti-Money Laundering Department. Although not all illicit proceeds are included in the money
laundering cycle, the figure shows that criminals choose banks to legalize illicit revenues. Criminals
often use bank accounts with false names to receive and transfer money from illegal sources7.

Therefore, when credit institutions cooperate with authorities to comply with the legal rights limits,
they contribute greatly to minimizing money laundering crime.

1 See also Article 126 of the 2010 Law on Credit Institutions.

2 See also Article 127 of the 2010 Law onCredit Institutions.
3 See also Article 128 of the 2010 Law on Credit Institutions.
4 See also Article 139 of the 2010 Law on Credit Institutions.
5 Article 10 of the 2010 Law on Credit Institutions.

6 Article 11 of the Law on Credit Institutions.

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- Limiting the freedom of contract in the banking business process

Freed and voluntary commitment of agreement are the legal principles imposed upon organizations
and individuals entering into and performing contracts in the society. However, in order to mitigate
risks, in the banking sector, the laws laid down regulations that must be followed during the process
of contract signing. These include regulations such as conditions of form of contract, the requirement
that all contracts signed between credit institutions and clients or partners must be in writing, in which
contracts signed with clients are usually in the form of template contracts, such as a loan agreement
that must be in writing1; regulations on prohibition of entering into a contract such as loan conditions,

demand for capital to use for unsatisfactory purpose2…; countervailing sanctions in the contract,

whereby if one of the involved parties violates the contract, the contract will be terminated 3,… this

limits the rights of participating in a contract of the entities.

If banks do not abide legal means in above limitations in performing contracts, there will be huge
consequences for themselves and the economy. For example, the violation of loan conditions in the
case of Ha Van Tham - former chairman of the board of directors of Ocean Commercial Joint Stock
Bank - OceanBank. Specifically, in the middle of December 2012, Ha Van Tham and Nguyen Van
Hoan (former Deputy General Director of OceanBank), allowed Trung Dung Trading and Services

One Member Company Limited (by Pham Cong Danh - former Chairman of the Board of Directors of
Vietnam Construction Joint Stock Commercial Bank - VNCB, Chairman of the Board of Members of
Thien Thanh Group) to borrow VND 500 billion. However, assets used as loan security are only nearly
VND 70.8 billion in 2012 and more than VND 156 billion at present. Violation of loan conditions due
to the borrower’s unsecured financial capacity (the value of collateral assets are many times lower
than the loan), i.e. the violation of the limit of contractual freedom by Ha Van Tham has caused a
damage of nearly 350 billion VND to OceanBank4.

- Limiting the freedom of competition in the banking sector

Vietnamese law guarantees the freedom of competition in the banking sector for entities to promote
the money market and economic development, but this freedom is within limits. The limitation of
freedom of competition is anti-competitive practices or unfair competition practices5. Specifically,

anti-competitive practices mean enterprises’ practices that cause or may cause anticompetitive
effects, including anti-competitive agreement, abuse of a dominant position on the market and abuse
of monopoly power; unfair competition practices mean competition acts performed by enterprises
against the principles of good faith, honesty, business norms, and standards, which cause or may cause
damage to the legitimate rights and interests of other enterprises6. For the competition restriction 
1 Clause 1, Article 23 of Circular No. 39/2016/TT – NHNN prescribing lending activities of credit institutions and

foreign bank branches to clients.

2 See also Article 8, Article 9 of Circular No. 39/2016/TT – NHNN prescribing lending activities of credit institutions

and foreign bank branches to clients.

3 See also Clause 1, Article 16 of Circular No. 02/2017/TT-NHNN prescribing payment activities of credit institutions

and foreign bank branches.

4 N. Quyết, 20170301092025086.

htm , 01/03/2017.

5 According to Clause 2, Article 9 of the 2010 Law on Credit Institutions, amended and supplemented in 2017, the law

prohibits acts of restricting competition or acts of unfair competition.

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acts and unfair competition acts mentioned above, if credit institutions commit violations in the
course of doing business, they will be subject to sanctions that increase the limit on their freedom of
doing business, such as: being suspended from operation for 06 months to 12 months, restriction on
ownership via confiscation of profits gained through the committed acts of violations1.

In fact, the State Bank of Vietnam has made several decisions to deal with unfair competition acts
of banks. For example, the State Bank of Vietnam has solved the acts of promotion that supported unfair
competition of Vietnam Technological and Commercial Joint Stock Bank (Techcombank) in 2010.
Specifically, early 2008, the State Bank of Vietnam asked banks not to mobilize VND with interest
rates exceeding 12% per year, and members of the Banking Association agreed to put a VND interest
rate cap at 11% per year. However, in two days from 7 December to 8 December 2010, Techcombank
launched a promotion program named “Three golden days” which allowed savings with interest rates 
of up to 17%. The Bank’s leader affirmed that Techcombank did not increase savings interest rates to
17% for all types of deposits, but only applied promotions to special customers - using Techcombank
cards. In details, all then existing cardholders of the bank and new cardholders of the back would
enjoy the savings interest rate of 13.5% per annum, plus additional promotional incentives. This
program had led to a sharp increase in deposit interest rates in Vietnam’s banking market in 17-18%

per annum, raising concerns about currency market instability. Prior to the promotional activities of
Techcombank, on December 9, 2010, the State Bank of Vietnam issued Official Letter No. 9577/
NHNN-CSTT requiring Techcombank to immediately stop implementing savings products “03
golden days” and published this information in the media to stabilize money markets. At the same
time, Techcombank promptly learned from the experience, applying capital mobilizing interest rates
in accordance with the provisions of law, the Government’s policies and the content of agreement
among members of the Vietnam Banking Association; not for their own interests, to avoid disturbing
the money market and adversely affecting the business activities of credit institutions2.

3. Recommendation

Vietnamese law, beside stipulating the recognition and assurance of freedom of enterprise in the
banking sector, also has established regulations to limit this freedom in order to reduce risks in this
sector. These regulations of Vietnam are quite similar to other countries in the world, for example:

- Group of regulations restricting the right to participate in business in the banking sector

Firstly, bank capital is one of the requirements in many countries. For example, in Russia, the
minimum requirement for own funds for banks from 2018 is set at 1 billion rubles for a universal
bank licence and 300 million rubles for basic banks licence, the minimum amount of own funds for
non-banking credit institutions is set at 90 million rubles3; In Switzerland, in order to obtain license

from FINMA, a bank must have a fully paid in-share capital of at least CHF 10 million. However, in

1 See also Article 3 of Decree No.75/2019/NĐ-CP prescribing on penalties for administrative violations in the field of

competition.

2 An Hạ,

09/12/2010.

3 Alexander Linikov, Sergel Sadovoy, Leonid Karpov, Banking Regalation 2019/ Russia, ballegalinsights.

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principle, FINMA requires a bank to have additional capital of at least CHF 10 million, but usually
more (which might be contributed e.g., in the form of a subordinated loan well), depending on the
intended scope of the banks’ activities1.

Secondly, regarding to the licensing regulations, the laws of most countries requires banks to
have a license before being put into operations. For example, in Singapore, to conduct business,
banks are required to be licensed by The Monetary Authority of Singapore (MAS). There are three
categories of bank licence, namely: (a) full bank licence; (b) wholesale bank licence; and (c) offshore
bank licence2; In Russia, banking regulation requires licensing; moreover, licence is used as a tool to

continue the “cleanup” of financially unstable credit institutions from the banking sector which was
unable to guarantee the integrity of funds of their creditors and depositors…

- Group of regulations restricting the right to self-solve internal problems in the enterprise process

The first group consists of regulations on capital adequacy, applying Basel standards, countries
such as China, the US, Germany, and Singapore to recognize Basel standards in the provisions of
banking law. For example, in the United State of America banking regulation, U.S. banks (banks
can be chartered by one of the 50 states or at the federal level) and BHCs (bank holding companies)
have long been subject to risk-based capital requirements based on standards adopted by the Basel
Committee (the “Basel Framework”). In July 2012, the U.S. regular authorities adopted a sweeping
overhaul of their regulation to implement both the Basel III Accord, including both advanced
approaches and standardised methodologies and requirements set forth in the Dodd-Frank Act. The
Revised Capital Framework took effect for all institutions subject to the rule (generally those with
more than $1 billion in total consolidated assets) on January 1, 2015, although several provisions

of the Revised Capital Framework was being phased over a period of several years. On November
21, 2017, U.S. regulators announced an indefinite extension of certain existing capital requirements
for banking organizations not subject to the advanced approaches in capital rules. U.S. banking
organizations with $250 billion in total consolidated assets, or $10 billion in on-balance sheet foreign
exposure, are subject to the advanced approach methodology as well as a capital floor established
under the standardised approach. Other banking organizations are subject only to the standardised
approach. U.S. top-tier BHC subsidiaries of FBOs generally became subject to minimum U.S. capital
requirements on July 1, 2015, although they may opt to use the U.S. standardised approach to calculate
their risk-based and leverage capital ratio regardless of their size3…

The second group consists of those concerning the deposit insurance scheme. To ensure the safety
of depositors, almost countries require deposit insurance in the law banking system. For example: In
Singapore, all full banks are required to participate in a deposit insurance scheme under the Deposit
Insurance and Policy Owners’ Protection Schemes Act (“DIPOPSA”). The DIPOPSA introduces
limited protection for depositors by insuring their deposits for up to S$50.000 per depositor per

1 Pete Hsu, Rashid Bahar, Banking Rugalation/ Switzerland, />

banking-and-finance-laws-and-regulations/switzerland, acess 16/12/1019.

2 Ting Chi Yen, Chow Yue Poon, Banking Regulation/ Singapore, />

banking-and-finance-laws-and-regulations/singapore, acess 16/12/2019.

3 Reena Agrawal Sahni, Timothy J. Byrne, Banking regulation 2019/ USA,

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member. The recently-tabled Deposit Insurance and Policy Owners’ Protection Scheme (Amendment)
Bill proposes to increase the maximum deposit insurance coverage to S$75,0001.

The third group is concerned with lending activity. In the United State of America, banks are
generally limited to extending credit to one person in an amount not exceeding 15% of the bank’s
capital. Banking laws generally permit banks to extend credit equal to an additional 10% of capital if
the credit is secured by readily marketable collateral2.

The fourth group consists of measures to prevent money laundering. In Austria, the due diligence
measures included in the Financial Market Laundering Act (FM-GwG) enhancing the risk-based
approach in anti-money laundering law, and the additional provisions to the beneficial owner in the
Economic Ownership Register Act (WiEReG) must be complied with. Data on the beneficial owners
of legal entities and trusts are available at a central register and institutions must conduct a client due
diligence when onboarding a client, and conduct regular reviews3.

The law provisions of the above countries show that, basically, all countries have regulations
to limit the freedom of doing enterprise in the banking sector to ensure the safety of the banking
system, clients, and the national economy. The law provisions of Vietnam are quite similar to those of
other countries in the world; this is also the reason why the Vietnamese banking industry has always
ensured stability and development over the past 60 years.

In summary, freedom of enterprise is a basic human right; Vietnam’s Constitutions over different
periods have recognized the right, creating a constitutional basis for legal documents to provide for
the exercise of enterprise rights in specific areas. Article 33 of the 2013 Constitution recognizes the
right to freedom of enterprise as the right for all people, creating a legal basis for the law on credit
institutions to specify the right to freedom of enterprise in the banking sector. However, the banking
sector always has high potential risks which, when out of control, would cause severe damage to the
rights and interests of the nation and other entities in society. Therefore, the Constitution and banking
laws have limited this right. Vietnam’s regulations on the limitation of freedom of enterprise in the
banking sector are quite similar to those of other countries in the world, showing the integration of
Vietnamese law, and also one way for the law, besides the obligation to recognize rights, to create
tools to guarantee the right to freedom of enterprise in the banking sector in reality.

References

Alexander Linikov, Sergel Sadovoy, Leonid Karpov, Banking Regalation 2019/ Russia, https://www.
globallegalinsights.com/practice-areas/banking-and-finance-laws-and-regulations/russia?fbclid
=IwAR1MP7WfxXcT6eZXcfoZvAy3HVkBlUq-j1J_wNv74IYE6vAgM5QPmNqqxOE Acess
16/12/2019.

1 Ting Chi Yen, Chow Yue Poon, Banking Regulation/ Singapore, />

banking-and-finance-laws-and-regulations/singapore , acess 16/12/2019.

2 Reena Agrawal Sahni, Timothy J. Byrne, Banking regulation 2019/ USA,

/>areas/banking-and-finance-laws-and-regulations/usa?fbclid=IwAR2uxYDsFQP5u6ggj_jBW6Lj5eidXKM4gLgzg-eZj79MB4HICyGZPACZf2w , access 16/12/1019.

3 Peter Knobi, Banking regulation 2019/ Austria,

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Bui Ngoc Cuong, Discussing about business freedom, Law Review No. 3, 1997.

Assoc.Prof.Dr. Nguyen Dang Don, Banking Currency, 2009, Publisher of National University, Ho
Chi Minh City.

Nguyen Thi Dieu, Measures to ensure the exercise of the right to business freedom according to the
law provisions of Vietnam, Master’s thesis in Law, 2013.

Nguyen Am Hieu, Legal legitimacy of restricting business freedom of citizens, Journal of Democracy
and Online Law, 2017.

Tan Khai Nhan, Protection of freedom of business under Vietnamese law, Master’s thesis in Law, 2013.

Peter Knobi, Banking regulation 2019/ Austria, />

banking-and-finance-laws-and-regulations/austria acess 16/12/2019.

Reena Agrawal Sahni, Timothy J. Byrne, Banking regulation 2019/ USA, https://www. globallegalinsights.
com/practice-areas/banking-and-finance-laws-and-regulations /usa?fbclid= IwAR2uxYDsFQP5u6ggj_
jBW6Lj5eidXKM4gLgzg-eZj79MB4HICyGZPACZf2w, access 16/12/1019.

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