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Restructuring credit institutions (CIs) - a comprehensive mechanism requiring the participation of the deposit insurer
Regarding the policy's objectives, the SBV said that Clause 13, Article 13 of the Law on Deposit Insurance stipulates the rights and obligations of deposit insurers to participate in the special control process of insured institutions according to the SBV regulations to participate in the management and liquidation of assets of insured institutions according to the Government's regulations.
Currently, the Law on Credit Institutions 2024 stipulates the participation of the deposit insurer in the restructuring process of credit institutions, such as providing special loans to support credit institution reimbursement, coordinating with the Special Control Board and the Cooperative Bank of Vietnam to assess the feasibility of the plan to restore the credit institution under the Special Control Board, coordinating with the Special Control Board to develop a plan to bankrupt the credit institution under the Special Control Board; purchasing long-term bonds of the transferee under the decision of the SBV...
In addition, Clause 2, Article 190 of the Law on Credit Institutions 2024 also adds a provision that the Deposit Insurance of Vietnam is entitled to special loans from the State Bank in case the amount in the deposit insurer's operational reserve fund is not enough to reimburse depositors after the credit institution's bankruptcy plan is approved. Meanwhile, this content is not yet regulated in the Law on Deposit Insurance. Regarding the provisions on special loans of the DIV, the Law on Credit Institutions 2024 only stipulates implementation in accordance with the law on deposit insurance.
For the above reasons, it is necessary to amend and supplement the Law on Deposit Insurance to ensure consistency, uniformity, and feasibility in implementing regulations on the participation of the DIV in the restructuring process of credit institutions.
In addition, according to Decision No. 689/QD-TTg dated June 8, 2022, of the Prime Minister approving the Project "Restructuring the system of credit institutions associated with bad debt settlement in the period 2021-2025", one of the restructuring solutions is: "Supplementing the functions and tasks of the DIV to participate in restructuring weak credit institutions (including using the operational reserve fund to restructure weak credit institutions).
Decision No. 986/QD-TTg, dated August 8, 2018, of the Prime Minister approving the Development Strategy of Vietnam's Banking Sector by 2025 and vision to 2030 with a vision to 2030, identified the following solutions for the DIV: "Enhancing financial capacity, improving operational capacity, perfecting the organizational model, improving staff qualifications, applying modern technology to effectively perform the tasks of supervision, examination, participating in special control, detecting and warning early of potential risks for insured institutions; participating in effective restructuring of weak credit institutions…".
According to the SBV, to achieve the above goals and tasks, it is necessary to research and develop a mechanism for DIV to participate more deeply in resolving weak credit institutions.
According to the SBV, practice shows that when risks arise that can spread and affect the safety of the system if there are no immediate and timely measures to stabilize the psychology of depositors, there is a risk of a rapid chain collapse that is difficult to overcome. Therefore, it is extremely necessary to have specific measures to respond to risks and prevent crises. The Law on Credit Institutions 2024 has added regulations on resolving cases where credit institutions are subject to mass withdrawals, including some response measures from the credit institutions themselves and measures from the management agency. "However, a comprehensive mechanism of many measures is still needed, including the participation of the deposit insurer, and this regulation needs to be added to the Law on Deposit Insurance," - the SBV commented.
On that basis, the SBV proposed amendments and supplements to the Law on Deposit Insurance on perfecting legal regulations for the DIV to participate in the restructuring process of weak credit institutions in Vietnam, specifically Amending and supplementing regulations on the participation of the DIV in the restructuring process of weak credit institutions, consistent with the provisions of the Law on Credit Institutions 2024 and promoting the role of the DIV in restructuring credit institutions as the goal set out in the Deposit Insurance Development Strategy; having mechanisms and measures to handle crises, in which the participation of the deposit insurer is mobilized.
Regarding policy implementation solutions, the SBV proposes to supplement detailed regulations on the deposit insurer for special lending to credit institutions that are subject to special supervision to implement recovery plans and compulsory transfer plans (in line with the Law on Credit Institutions 2024).
Supplementing regulations on the deposit insurer for special loans to commercial banks, cooperative banks, people's credit funds, and microfinance institutions that are subject to mass withdrawals (similar to special lending cases of the SBV and other credit institutions); accounting for reduction in the operational reserve fund for the amount of special loans that cannot be recovered.
Supplementing the regulation that the DIV shall decide on special loans for credit institutions that are insured by the SBV and are unable or at risk of losing their ability to pay deposits to depositors and are eligible for special loans from the SBV when the capital source is temporarily insufficient to lend to support reimbursement. The deposit insurer shall be reimbursed for the special loan amount in case the credit institution that borrows the special loan implements a compulsory transfer plan. The deposit insurer shall develop a plan to increase the deposit insurance premium to compensate for the special loan portion.
At the same time, research and develop new mechanisms for the deposit insurer to participate more deeply in the restructuring process of credit institutions; develop new mechanisms to utilize the DIV's resources in resolving incidents and crises in credit institution operations, avoiding the risk of systemic spread, and ensuring the stability and safety of the credit institution system.
Synchronize with the legal system, transparent in implementation mechanism.
Explaining the reasons for choosing the above solutions, the SBV said that they ensure constitutionality, legality, consistency with the legal system, synchronization between the provisions of the Law on Deposit Insurance and the Law on Credit Institutions 2024, and transparency and clarity in the implementation mechanism. At the same time, the above solutions also do not violate relevant international treaties to which Vietnam is a member.
Assessing the socio-economic impacts of the proposed solutions, the SBV said that the above solutions help create a sufficient basis to mobilize resources from the deposit insurer to resolve weak credit institutions, contribute to ensuring social order and safety, and limit mass withdrawals that have negative effects on the credit institution system.
Also, according to the SBV, the regulation that the DIV can decide on special loans to credit institutions to support deposit payments to depositors at credit institutions that the SBV regulates helps increase the autonomy and initiative of the DIV in deciding on special loans to credit institutions. The operational goal of the DIV is to protect depositors, therefore, the regulation that the DIV can decide on special loans will be more suitable to the operational goal of this organization.
Another positive aspect of the proposed solutions, according to the SBV, is to create a mechanism for the deposit insurer to have additional methods to ensure the rights of depositors in addition to the reimbursement mechanism. Accordingly, through participating in supporting the restructuring process of credit institutions, in case the credit institution successfully restructures and restores its operations, the depositors' deposits will be fully guaranteed (instead of receiving according to the limit from the deposit insurer).
In addition, a comprehensive mechanism for support from the deposit insurer will create a basis for timely resolving crisis cases, preventing systemic spread, and better protecting depositors' interests.
Regarding negative impacts, according to the SBV, for the deposit insurer, the proposed solutions may cause costs (financial, human resources, technology) to arise when participating deeply in the restructuring process of credit institutions. To handle this arising, it is necessary to perfect the financial mechanism to improve the efficiency and financial capacity of the deposit insurer (including policies on operating capital and policies on investment activities).
For insured institutions, the solutions may also incur additional costs for these units (through the mechanism of increasing fees). However, insured institutions will receive benefits from the system being guaranteed to be safe and stable.
According to the SBV's assessment, another possible negative impact is the need to develop criteria for DIV to decide on lending to credit institutions under special control at risk of insolvency. If the criteria are not clear, it will affect the timeliness of resolving weak credit institutions.
The SBV said that, based on the analysis and assessment of the impacts of the policy, the positive and negative aspects of the proposed solutions, to ensure the objectives of policy making, the SBV proposed to choose the above solutions, and at the same time proposed the necessity of submitting to the National Assembly to develop the Law on Deposit Insurance (amended). It is expected that the contents on strengthening the role of the DIV in the process of restructuring weak credit institutions in the draft Law on Deposit Insurance (amended) will bring positive changes to banking activities in the context of increasingly deep international economic integration.
Communication Department (Translation)
