The Vietnamese financial market is increasingly developing, and interbank transactions have become an important tool for banks to optimize capital flows, manage risks, and improve business efficiency. However, opaque accounting and management can easily lead to legal risks, tax arrears, or directly affect profits. Simultaneously, based on current legal regulations such as... Decree 132/2020/ND-CP and Decree 20/2025/ND-CP Amendments and additions from Decree 132, aiming to provide businesses with a comprehensive, accurate, and practical overview of related-party transactions with banks.
Concept and characteristics of bank-linked transactions
To understand how it works and is managed, let's first explore the basic concepts of linked bank transactions.
What are bank-linked transactions?
Related-party transactions are financial activities, services, or borrowing between a bank and directly or indirectly related parties, including: parent bank – branches, subsidiary banks, subsidiaries, or financial institutions within the same group. These transactions may include internal lending, guarantees, money transfers, provision of internal financial services, or payments and derivative transactions between related parties.
The unique aspect of interbank transactions is that they are not simply ordinary market transactions but are subject to strict control from regulatory authorities, including:
- State Bank
- Tax authorities and regulations on accounting and cost deduction.
- In particular, interest costs with prices, interest rates or transaction conditions need to be set according to market principles (arm's length principle) to ensure transparency, avoid transfer pricing and protect the financial interests of banks as well as shareholders.
The key point is that these transactions must be controlled in terms of value, transaction conditions, and associated costs according to market principles to limit transfer pricing risks and tax evasion.
See also: Is taking out a bank loan considered a related-party transaction?
What types of transactions typically occur in bank-related transactions?
Bank-related transactions typically encompass various types, each with its own characteristics and risks, and requiring transparent cost management mechanisms.
Internal lending
- Loans between parent banks and branches, subsidiary banks, or between subsidiaries of the same group.
- With the aim of optimizing cash flow, supporting working capital activities and reducing external borrowing costs.
- If the interest rate, or loan terms do not comply with market principles, it may result in taxes or be deemed illegal by regulators.
Guarantee
- Banks provide guarantees to related parties to secure financial obligations or contract performance.
- Characteristics: Usually accompanied by a guarantee fee, costs need to be clearly accounted for and controlled to avoid affecting credit risk.
- Guarantee fees and conditions must be transparent according to market standards.
Interbank money transfer
- Transactions between subsidiaries, branches or other banks in the same group to optimize cash flow and balance capital.
- Risks: errors in accounting and illegal money transfers can cause losses, affecting capital safety ratios and financial reports.
Internal financial services
Includes services such as payments, cash flow management, derivatives services, foreign exchange or interest rate risk management between affiliates.
- Characteristics: These services need to be priced according to market principles and have transparent cost accounting, especially regarding the mechanism. forward interest expense if any
Characteristics of bank-linked transactions
Below is a summary table of the key characteristics of bank-linked transactions, including risks, applicable principles, and related party interest expense. This table provides banks and businesses with a basis for transparency, cost optimization, and legal compliance.
| Characteristic | Detail | Meaning |
| Clear linkage. | Arising between the bank and its direct or indirect affiliates: parent bank – branch, subsidiary bank, subsidiary or financial institution of the same group. | Helps determine the legitimacy and legal basis for the transaction. |
| Special nature and financial risks. | Transactions come with cash flow commitments, guarantees, internal loans; interest expenses can exceed the ceiling if not controlled. | Banks need to monitor expenses carefully to avoid the risk of being excluded when settling taxes. |
| Market principles. | Interest rates, service prices, and transaction conditions must follow market principles to be transparent and avoid transfer pricing. | Ensure financial benefits and reputation with the management agency. |
| Tight legal control. | Subject to supervision by the State Bank and tax authorities; detailed records and accounting according to Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. | Helps with legal compliance, reduces legal risk and tax collection. |
| Transparency and cost pass-through mechanism. | Costs, especially the carryforward of overdue interest costs, must be clearly accounted for and fully recorded for easy inspection by the regulatory agency. | Optimize cash flow and tax obligations, while improving financial reporting transparency. |
From the table above, banks can clearly understand the characteristics and risks in managing interbank transactions, ensuring transparency and compliance with the law.
Risks and challenges in bank-related transactions
Interbank transactions offer numerous benefits in terms of capital flow, cost optimization, and internal financial management support. However, they also come with a range of risks and challenges that need to be clearly identified and managed transparently to ensure legal compliance and protect shareholder interests. Below is a summary of the risks and challenges in interbank transactions.
| Risks and challenges | Content | Management measures |
| Credit and cash flow risk. | Internal loans or guarantees can create cash flow pressure, if the borrower fails to repay on time it will affect bad debts and profits. | Monitor, evaluate debt repayment capacity and apply internal credit limits. |
| Tax risks and cost accounting. | Interest rates, service fees, or trading conditions that do not comply with market principles may be excluded from taxable expenses, especially interest expenses. | Accurate accounting and tracking of interest expenses., Create related party transaction records fully comply with Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. |
| Legal risks. | Violation of capital limits, safety ratios, or failure to complete records will result in legal prosecution and reputational damage. | Comply with Banking Law, Corporate Income Tax Law, current decrees, regular internal monitoring and review. |
| Management and control challenges. | The variety of transactions (lending, guarantees, internal financial services) makes internal controls complex; costs need to be tracked and reported thoroughly. | Build a tight internal control system, transparent costs and prepare accurate reports to serve management agency inspections. |
Based on the table above, banks can proactively manage risks, control costs, and apply a mechanism for carrying forward overdue interest expenses in related-party transactions with the bank, thereby improving financial efficiency and legal credibility.
Solutions for managing and complying with bank-related transactions.
To ensure that bank-related transactions are both effective and legal, banks need to implement a comprehensive set of solutions for risk management, control, and legal compliance:
Establish a transparent trading policy.
Develop internal regulations on borrowing, guarantees, money transfers and internal financial services, and ensure that all transactions comply with market principles. This is to limit transfer pricing risks and control reasonable costs, especially interest costs.
Accurate cost accounting and management
Apply a detailed and transparent accounting system, and clearly classify the costs arising from each transaction to ensure accuracy in financial reports. In particular, for overdue interest expenses, it is extremely necessary to monitor and apply a transition mechanism when exceeding the prescribed control level. This approach not only helps businesses optimize cash flow and tax obligations, but also ensures compliance with important legal bases stipulated in Decree 132/2020/ND-CP and Decree 20/2025/ND-CP.
Complete documentation and reporting.
Complete Affiliated transaction records, Accurately recording expenses, interest rates, transaction terms, and even guarantee commitments ensures transparency in financial management. Simultaneously, timely updating and submitting reports as required by the State Bank and tax authorities is crucial for businesses to minimize legal risks, avoid tax arrears, and maintain their reputation.
Regular review and monitoring
Conducting periodic internal audits to promptly detect and correct errors or violations in the accounting and management of related-party transactions. At the same time, training accounting, internal audit and related personnel on legal regulations, accounting standards and tax policies is an important solution to improve management capacity.
Overall, understanding the characteristics and risks, and implementing transparent management solutions, is key to optimizing efficiency and minimizing risks in related-party transactions with banks, while protecting shareholder interests and the bank's reputation in the market.
Frequently Asked Questions about Bank-Linked Transactions
Why do transactions linked to banks need to be tightly controlled?
Because related-party transactions often occur between parties with controlling or dependent relationships in terms of capital and management, there is a risk of price adjustments not reflecting market conditions. Control measures help ensure that incurred costs are properly recorded; interest rates and service fees are in line with market rates; the risk of expenses being disallowed by tax authorities is reduced; and transparency in financial reporting is ensured. In particular, interest expense in related-party transactions is a crucial aspect that needs close monitoring as it can directly impact tax obligations.
What is the market price principle in related-party transactions with banks?
Market principles require that transactions between related parties be conducted under equivalent conditions to transactions between comparable independent parties. For example, the interest rate on internal loans should be consistent with the interest rate the bank might apply to independent parties; guarantee fees should accurately reflect the value of the services provided; and payment terms and loan terms must be reasonably sound. Applying this principle helps businesses and banks demonstrate the reasonableness of transactions during regulatory inspections.
Are transactions linked to banks affected by regulations on interest expense?
Yes. Interest expenses incurred in related-party transactions may be subject to control under regulations on deductible interest expenses when determining taxable income. Therefore, banks and businesses need to monitor related-party loans; identify incurred interest expenses; prepare documentation to support the transaction; and manage any excess interest expenses (if any) according to the transitional mechanism permitted by law.
What are the common risks involved in transactions related to banks?
Some common risks include internal loan interest rates that are not in line with market rates; financial service fees lacking sufficient justification; incomplete related-party transaction documentation; incorrect accounting of interest expenses; and failure to properly track controlled or carry-forward expenses. These issues can lead to tax authorities adjusting expenses, collecting back taxes, or requesting further explanations.
Conclude
Understanding the characteristics of related-party transactions with banks, the risks involved, and applying transparent management solutions along with mechanisms for carrying forward interest expense payments are key to optimizing efficiency, reducing risks, and ensuring legal compliance in all related-party transactions with banks.
In MAN – Master Accountant Network, Our team of experienced affiliate transaction experts is always ready to support and partner with businesses in implementing cost management solutions., Transfer pricing consultancy, This helps businesses confidently optimize their cash flow and tax obligations.
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Responsible for production and professional content review by: Grandfather Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network. He is a CPA Vietnam auditor with over 30 years of in-depth experience in accounting, auditing, taxation, and corporate legal consulting.