Draft revised Law on Credit Institutions: Mobilizing support resources from Deposit Insurance of Vietnam

Agreeing that a special loan (Article 146) is  necessary to ensure system safety and create trust among customers, however, delegate Pham Van Hoa (Dong Thap delegation) noted that the Drafting Committee needs to be clear between “mass withdrawal incidents” or “risk of system breakdown, destabilizing society”. For lenders, especially the DIV, the Cooperative Bank of Vietnam, delegate Pham Van Hoa said that it is essential to consider that the DIV is allowed to reduce the reserve fund, and the Cooperative Bank of Vietnam to reduce the safety fund of the handling special loan funds without fees. At the same time, it is necessary to stipulate that special lending credit institutions must freeze loans until they are recovered and will be repaid, because "otherwise it will be unfair to effective credit institutions" - delegate Pham Van Hoa emphasized.

Besides agreeing on 6 cases of applying early intervention measures to avoid the risk of bankruptcy of credit institutions if abnormal phenomena are detected, delegate Pham Van Hoa also proposed additional measures not to allow credit institutions making investments and clarifying to what extent there is a need for the intervention of the SBV.

With the point of view is completely dispose of weak credit institutions, delegate Pham Thi Thanh Mai (Hanoi delegation) suggested that it is necessary to review and supplement regulations on special control of credit institutions (Clause 5, Article 160) of the draft law in the direction of specifying the time limit, the corresponding plan in case credit institutions cannot recover after the time limit for special control. On the other hand, credit institutions are required to apply early intervention measures, quarterly report on the implementation of the remedial plan to ensure the urgency and effectiveness of early intervention.

Clarifying the contents of interest to the National Assembly deputies, SBV Governor-Ms. Nguyen Thi Hong said that early intervention is a new issue in the Draft revised Law on Credit Institutions. With a credit institution established and licensed when it meets the criteria and conditions, during its operation, due to objective and subjective factors, there will be periods when the credit institution encounters difficulties. During the examination and supervision process, the management agency will warn of risks so that credit institutions can correct them in a timely manner. If credit institutions are worse off and being insolvent, the management agency needs to be more aggressive through early intervention. In the process of early intervention, shareholders and bank owners must first have a plan to overcome difficulties; management agency will present limitations in their activities, especially in this period needing supportive solutions.

The current law has provisions for early intervention, but the time limit is only 1 year and there are no supportive measures, so in practice it is very difficult to implement. Therefore, the draft law adds supporting measures, including support from the SBV as the lender of last resort when credit institutions face liquidity difficulties to meet the payment needs of the people; including mobilizing support resources from other credit institutions, from the DIV and the  Cooperatives Bank of Vietnam. Thereby, increasing the responsibility of credit institutions for the safety of the system in general and reducing financial costs for the management agency in resolving credit institutions.

The international experience shows that, it is not necessary to wait until credit institutions have difficulty in liquidity to resolve them. SBV Governor Nguyen Thi Hong cited two US banks as an example, namely Silicon Valley Bank and First Republic Bank - 2 banks with total assets of over US$200 billion, with very low bad debts - just under 1%, and provisions for bad debt is 4.6 - 6 times higher. These are banks that have been profitable for at least 53 consecutive quarters, from 2010 to now, but still face the risk of bank run. Especially, with the development of technology, people use phone at home instead of to go to the bank. In just a few days, the bank faced with withdrawal of more than 100 billion USD. After that, the US central bank had to lend over 100 billion USD, other banks in the system also had to lend several tens of billion USD. It shows that banks  are operating normally, for some reason subject to withdrawals, are included in the early intervention process. If waiting until the credit institution is under special control to implement supporting solutions, it will difficult to ensure the safety of the banking system's operations.

According to Vice Chairman of the National Assembly- Mr Nguyen Duc Hai, through discussion, the National Assembly deputies agreed that the Law on Credit Institutions should be amended to ensure the safety, health and stability of the credit institution system, promote the role of an important capital conduit of the economy. The Standing Committee of the National Assembly will direct the verifying agency to closely coordinate with the drafting agency and relevant agencies to reasearch, absorb and complete the bill and submit it to the National Assembly for consideration.