What are cases where credit institutions are subject to special control in Vietnam?

Regarding this matter, LawNet would like to answer as follows:

1. What is special control?

According to the provisions of Clause 2, Article 1 of the Law amending the Law on credit institutions 2017, the definition of "special control means a situation in which a credit institution is put under direct control of the State bank as specified in Section 1 Chapter VIII of this Law."

2. What are cases where credit institutions are subject to special control in Vietnam?

According to the provisions of Article 4 and Article 5 of Circular 11/2019/TT-NHNN, credit institutions may be subject to special control in the following two cases:

Case 1: Case of insolvency due to low liquid assets

- A credit institution will be considered facing insolvency due to low liquid assets when it lacks 20% or more of highly liquid assets at the time of calculation of its solvency ratio and thus it has failed to meet the required solvency ratio as regulated in Point a Clause 1 Article 130 of the Law amending the Law on credit institutions 2017 and State Bank of Vietnam (SBV)’s regulations for a period of 03 consecutive months.

- A credit institution will become insolvent when it is unable to meet its debt obligations within 01 month as they come due and has the ratio of sum of its bad debts as regulated by SBV, debts restructured as potentially bad debts and debts sold to VAMC as bad debts yet to be disposed of to sum of its debts as regulated by SBV and debts sold to VAMC as bad debts yet to be disposed of at 10% or higher after 01 month as debt obligations come due.

- The credit institution becomes insolvent or is facing insolvency due to low liquid assets must quickly submit reports to SBV on its actual status, reasons and remedial measures that have been or will be adopted, and suggested solutions.

Case 2: Case of insolvency due to low tier-1 capital adequacy ratio

- A credit institution will be considered likely to lose solvency due to low tier-1 capital adequacy ratio when its tier 1 capital ratio has fallen below 4% for a period of 06 consecutive months and it has the ratio of sum of its bad debts as regulated by SBV, debts restructured as potentially bad debts and debts sold to VAMC as bad debts yet to be disposed of to sum of its debts as regulated by SBV and debts sold to VAMC as bad debts yet to be disposed of at 10% or higher after the period of 06 consecutive months during which its tier 1 capital ratio has fallen below 4%.

- A credit institution will become insolvent when it is unable to meet its debt obligations within 03 months as they come due.

- The credit institution that becomes insolvent or is facing insolvency due to low tier-1 capital adequacy ratio must quickly submit reports to SBV on its actual status, reasons and remedial measures that have been or will be adopted, and suggested solutions.

Thus, in both of the above cases, the credit institution must promptly report to the State Bank about the situation and handling measures for the State Bank or the Director of the State Bank branch to consider and decide whether to place that credit institution under special control or not.

3. Forms of special control for credit institutions in Vietnam

According to Article 7, Circular 11/2019/TT-NHNN, forms of special control are as follows:

- Based on the facts and level of operational risks of a specific credit institution, the SBV’s Governor or Director of SBV’s branch shall consider making decisions on:

+ Putting that credit institution under special control in the form of special supervision or comprehensive control;

+ Contents, scope, methods and works relating to operational control specified in the Decision on special control which must be conformable with the form of special control and contents prescribed in Clause 1 Article 15 of Circular 11/2019/TT-NHNN.

- Special supervision means a situation in which a credit institution is placed under direct control of SBV through its remote direction and direct control, or the on-site inspection by the special control board of all operations of the credit institution that is placed under special control.

- Comprehensive control means a situation in which a credit institution is placed under direct control of SBV through the on-site direction and direct control by the special control board of daily operations of the credit institution that is placed under special control.

Change in the form of special control

According to the provisions of Clause 4, Article 7, Circular 11/2019/TT-NHNN, the form of special control shall be changed as follows:

- Based on the facts and level of operational risks of the credit institution that is placed under special control, the special control board shall request the SBV’s Governor (via the Banking Inspection and Supervision Authority) to change the form of special control over the credit institution placed under special control as prescribed in Clause 1 Article 6 of Circular 11/2019/TT-NHNN or request the Director of SBV’s branch to change the form of special control over the credit institution placed under special control as prescribed in Clause 2 Article 6 of Circular 11/2019/TT-NHNN;

- Within 20 days from the receipt of the request from the special control board as regulated in Point a of Clause 4, Article 7, Circular 11/2019/TT-NHNN, the SBV’s Governor or the Director of SBV’s branch shall consider making decision on change of form of special control over the credit institution placed under special control within their competence as prescribed in Article 6 of Circular 11/2019/TT-NHNN.

According to the regulations, the Governor of the State Bank of Vietnam or the Director of the SBV shall base their decision on the facts and level of operational risks of a specific credit institution, to consider and decide on the form of special supervision or comprehensive control for the credit institution.

However, the form of special control may change when the special control board, based on the facts and level of operational risks of a specific credit institution, recommends to the Governor of the SBV (through the Banking Inspection and Supervision Authority) or the Director of the SBV's branch to change the form of control.

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