According to the State Bank of Vietnam (SBV), after 4 years of implementing the Scheme on “Restructuring credit institutions (CIs) for the period 2011-2015” promulgated with Decision No.254/QĐ-TTgdated March 1, 2012.Basically, the restructuring of CIs has achieved significant results. However, during the implementation process, the resolution of troubled CIs still encountered many difficulties; and posed potential risks to the financial system and the economy. One of the main reasons is the lack of legal ground for weak CIs resolution; new and complicated issues have not yet been regulated by law. Due to the realities mentioned above and to implement the Scheme on restructuring CIs system in association with bad debt settlement for the period 2016-2020, it was urgent to amend the Law on CIs in order to create a legal framework for handling weak CIs.
Key contents of the Amended Law
The Law on amendments and supplements to some articles of the Law on CIs was passed by the National Assembly on November 20, 2017 and promulgated by the State President. The Amended Law covers many important contents.
First, regarding the interpretation of terms (amended and added Article 4 in the Law on CIs), while the Law amends and supplements definitions of related person, some terms of CIs resolution are also added, such as early intervention, special control, restructuring plan, recovery plan, plan for merger, amalgamation, transfer of 100% of shares/stakes; mandatory transfer plan; the transferee; assisting credit institution.
Second, concerning amendments and supplements to some articles relating to improving administrative and organizational capacity, the Amended Law added the objects banned from holding posts (Point h, Clause 1, Article 33): The person responsible for the violation against banking regulations according to the conclusion of inspectors that results in a fine in the maximum bracket will not be allowed to hold executive posts in CIs. This stipulation aims to prevent managers and executives of CIs from violating law. The Law supplemented one object banned from concurrently holding different posts for the positions of President of Board of Directors/Board of Members, General Director (Director) of CIs (Clause 4, Article 34). This regulation aims to restrict the abuse of power by managers and executives of CIs in carrying out investment activities, granting credit without market-based analysis, which poses great risks to CIs’ activities. Criteria and conditions for member of Board of Directors/Board of Members and General Director (Director) of CIs are amended and supplemented (Clause 1 and Clause 4, Article 50); adding provisions on approval of list of managerial, organizational and internal control personnel of people’s credit fund (PCF), Cooperative bank (Clause 2 Article 75). These provisions aim to enhance the managerial capability for administrative, operational and controlling personnel of CIs. Besides, CIs shall notify the SBV about information about relating benefits of their manager and executives (Clause 4 Article 39).
Third, the Amended Law supplemented several stipulations on clarifying the sources of funding for contribution in order to prevent and limit cross holdings. Specifically, the regulation requires shareholders to take legal responsibility for the legitimacy of the sources of funding for contributing, buying, receiving shares at the CIs; do not use credit extended by the CIs or foreign bank’s branch to buy or receive shares from the CIs; do not contribute capital or buy shares of a CI in the name of another individual or legal entity (Point c Clause 1 Article 54). The regulation prohibits a major shareholder and related persons in a CI from owning 5% or more of charter capital of another CI (Clause 3 Article 55).Amendments of regulations on ineligibility for credit extension, credit restrictions and credit extension limits mentioned in the Article 126, 127 and 128 of Law on CIs.
Fourth, with respect to improving the legal framework for handling weak CIs, there are a number of amendments and supplements, namely: adding Article 130a on early intervention in a weak CI that has not been placed under special control to reduce new problem CIs and foreign bank’s branches; amending and supplementing the provisions on special control (Section 1 Chapter VIII) in order to solve obstacles during the course of SBV’s recent control over CIs : conditions to place a CI under special control; supplementing provisions on defining decision power of the Government, the Prime Minister and the SBV in the approval of guidelines and restructuring plans of credit institutions under special control; amending and supplementing provisions on termination of special control; rights and obligations of the SBV, special control board, agencies that administer and operate the credit institutions placed under special control; adding a provision on special loans, administration and operation of credit institutions under special control.
To ensure the chosen resolution plan to meet the current situation of a CI, the Amended Law added Sections 1a after Section 1 of Chapter VIII on assessment and restructuring guidelines of the CI placed under special control. This section provides detailed provisions on the assessment procedures, personnel in charge of proposing and deciding appropriate restructuring guidelines for each CI under special control based on overall assessment of CI situation.
The Amended Law also added Section 1b, 1c, 1d, 1đ, 1e regulating the restructuring plans for CIs placed under special control to form a legal framework for related authorities to select an appropriate restructuring plan for each problem CI’s situation. Accordingly, the restructuring plans of CI under special control include: (i) recovery plan; (ii) merger, amalgamation plan, transfer of 100% of shares/stakes of CI placed under special control; (iii) plan for dissolution; (iv) plan for mandatory transfer; (v) plan for bankruptcy. Restructuring plan for each DI under special control will be chosen upon the principles: to ensure the stability and safety of the credit institutions system; to maintain the social order and security; to fortify the confidence of depositors in the banking system; to protect legitimate rights and interests of depositors.
The Amended Law regulates the transition resolution for the CIs under special control before the effective date of this Law, such as resolution plans in case of amendment, supplement or replacement or development of resolution plan for commercial banks that under compulsory transfer and the principles on transferring of these banks to other credit institutions or investors. The Amended Law also provides regulations on the transition resolution of managers, executives due to changes on the standards for CIs’ managers and executives, credit provisions and excessive stake holdings according to this Law.
Enhancing the role of DIV in the CIs restructuring process
The Law on amendments and supplements to some articles of the Law on credit institutions stipulated various contents concerning the roles, functions of the DIV, creating a legal framework for the DIV to engage deeply in the phase 2 of the restructuring process. Especially, DIV is one of the agencies entitled to provide financial assistance to small and medium sized problem CIs, thereby protecting the CIs system and depositors. The DIV is allowed to use its operational reserve fund to grant special loans to financial companies, PCFs, and microfinance institutions according to approved recovery plans, with terms not exceeding the special control periods. As for these special loans, DIV may write down its operational reserve fund for the irrecoverable loans (Article 146d; Article 148b).
Regarding PCFs under special control, DIV shall cooperate with the Special Control Board and the Cooperative Bank of Vietnam in assessing the feasibility of the recovery plans for them. For microfinance institutions or financial companies, the Special Control Board shall cooperate with DIV in assessing the feasibility of their recovery plans (Clause 2 Article 148).
Besides, regarding the CIs which take part in the assistance to CIs under special control, DIV mayprovide financial assistanceto the assisting credit institutions by buying their long-term bonds under a decision by the SBV, (Clause 10 Article 148đ).
According to the SBV, in order to implement the amended Law, the SBV is zealously completing guiding documents for prompt promulgation. The SBV is expected to hold a meeting to disseminate the contents of the amended Law to the whole banking industry./.