Which agency is responsible for submitting the reserve ratio for credit institutions to the Governor of the State Bank of Vietnam for making a decision?

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• Which agency is responsible for submitted the reserve ratio for credit institutions to the Governor of the State Bank of Vietnam (SBV) for making a decision?
• When should commercial banks be considered to reduce the reserve ratio?
• Which country's currency is the foreign currency used as the basis for calculating the reserve requirements at commercial banks?

Which agency is responsible for submitted the reserve ratio for credit institutions to the Governor of the State Bank of Vietnam (SBV) for making a decision?

Pursuant to Article 6 of Circular 30/2019/TT-NHNN of Vietnam stipulating as follows:

“Article 6. Reserve ratios, interest rates on required reserves and excess reserves

1. Reserve ratios for credit institutions

a) The SBV’s Governor is accorded authority to decide the reserve ratio for each type of credit institutions and each type of deposits that corresponds to the national monetary policy goals and objectives in each period, except reserve ratios for VND deposits imposed on credit institutions prescribed in Point b of this Clause;

b) If a credit institution granting agricultural and rural development loans is supported via the reserve requirement tool, the reserve ratio for VND deposits will be subjected to SBV's specific regulations on use of monetary policy tools for supporting credit institutions granting agricultural and rural development.

2. Interest rates on required reserves and excess reserves applied to each type of credit institutions and each type of deposits shall be subject to the decision issued by SBV in conformity with national monetary policy goals and objectives in each period.”

Pursuant to Article 15 of Circular 30/2019/TT-NHNN of Vietnam stipulating as follows:

“Article 15. Responsibility of Monetary Policy Department

1. Based on monetary policy goals and objectives, request SBV’s Governor to make decision on:

a) The reserve ratio for each type of credit institutions and for each type of deposits in each period;

b) The interest rates on required reserves and excess reserves imposed on each type of credit institutions and each type of deposits in each period.

2. Play the leading role in dealing with any difficulties related to regulations herein.”

According to the above regulations, Monetary Policy Department has the responsibility for making decision on the reserve ratio for commercial banks.

Reserve requirements (Image from the Internnet)

When should commercial banks be considered to reduce the reserve ratio?

Pursuant to Article 7 of Circular 30/2019/TT-NHNN of Vietnam stipulating as follows:

“Article 7. Reduction in reserve ratios

The reserve ratios imposed on the assisting credit institutions defined in Clause 40 Article 4 of the Law on Credit Institutions (as amended in 2017) as prescribed in Clause 1 Article 6 hereof shall be reduced by 50% regardless of types of reservable deposits according to the approved recovery plan as prescribed Clause 7 Article 148dd of the Law on Credit Institutions (as amended in 2017).”

In Article 4 of the 2010 Law on Credit Institutions of Vietnam (supplemented by Clause 2 Article 1 of the 2017 Law on Amendments to the Law on Credit Institutions of Vietnam) as follows:

“Article 4. Interpretation of terms

…

40. “assisting credit institution” means credit institution appointed to manage, control or assists in the operation of the credit institution placed under special control.”

According to the above regulations, only supporting commercial banks will be entitled to a 50% reduction in the reserve ratio regardless of types of reservable deposits according to the approved recovery plan.

Which country's currency is the foreign currency used as the basis for calculating the reserve requirements at commercial banks?

Pursuant to Article 10 of Circular 30/2019/TT-NHNN of Vietnam stipulating as follows:

“Article 10. Reserve requirements for foreign currency deposits

1. Foreign currency deposits held by a credit institution which are used as the basis for calculating the required reserve to be satisfied by that credit institution are deposits in any foreign currency type, converted into USD and for which the required reserves must be kept in USD.

2. In case the average balance of reservable deposits in one of the following foreign currencies, EUR, JPY, GBP and CHF, at a credit institution accounts for more than 50% of its total reservable foreign currency deposits, reservable foreign currency deposits may be converted into this foreign currency and the required reserve may be made in the same currency.

3. Foreign currencies may be converted into USD as prescribed in Clause 1 of this Article or into the foreign currency prescribed in Clause 2 of this Article through VND according to the exchange rates from foreign currencies to VND used by the credit institution for making the balance sheet in accordance with SBV's regulations on chart of accounts of credit institutions in the month corresponding to the reserve computation period.”

According to the above regulations, regardless of the foreign currency used as the basis for calculating the required reserve at commercial banks, it must be converted into USD.