Prohibition of Forcing Customers to Purchase Insurance When Taking Out Bank Loans

Voters from Khanh Hoa province have raised concerns with the State Bank of Vietnam (the “SBV”) about a recent trend where, when applying for bank loans, particularly from commercial banks, they are “forced” to purchase insurance products such as life insurance, health insurance, or fire insurance as a condition for loan disbursement.

For many years, selling insurance through banks has become a lucrative business, generating hundreds of trillions of VND in revenue annually.  The first-year commissions on insurance contracts are often very high, ranging from 25% to even 40%, depending on the insurance company.  Between 2018 and 2022, income from acting as life insurance agents contributed significantly to the profits of many commercial banks.  As a result, selling insurance has become a key business target for bank employees, with increasing targets each year.

This pressure is passed on to customers, who are often forced to purchase insurance as an additional fee in order to secure a bank loan.  This practice has undermined customers’ trust in both banks and insurance companies.

In response to voter concerns, a representative from the SBV affirmed that current laws prohibit the act of “forcing” customers to purchase or enter into insurance contracts.  Specifically, Clause 5, Article 9 of the 2022 Law on Insurance Business prohibits the act of “threatening or coercing individuals into entering into insurance contracts”.  Furthermore, Clause 5, Article 15 of the 2024 Law on Credit Institutions prohibits “credit institutions, foreign bank branches, managers, executives, or employees of credit institutions and foreign bank branches from linking the sale of non-compulsory insurance products with the provision of banking products or services in any form.”

Previously, the SBV and the Ministry of Finance took strong actions, such as setting up hotlines to promptly address concerns and complaints from the public, organizations, and businesses regarding the insurance services provided by credit institutions (during business hours).  They also issued regulations on administrative penalties in the insurance business sector, aiming to clarify violations and enhance punitive measures.