One of the important additions in the draft Law is the early intervention measures for credit institutions and branches of foreign banks showing signs of weakness (but have not yet been placed under special control).
Article table of contents
According to the plan, at the 4th session of the XIV National Assembly, the draft Law amending and supplementing several articles of the Law on Credit Institutions (draft law) will be discussed and approved. This is an important law that creates a legal basis for implementing the solutions of the Scheme for restructuring the system of credit institutions in connection with handling bad debt for the period 2016-2020, which was approved by the Prime Minister of the Government of Vietnam in Decision No. 1058/QD-TTg dated July 19, 2017. The most important changes in the draft law focus on the following contents:
On enhancing the governance and administration capacity of credit institutions
To enhance the governance and administration capacity, the draft law has amended and supplemented provisions aimed at raising the standards and conditions for personnel holding governance and executive positions at credit institutions, particularly emphasizing higher requirements regarding management and operational experience of personnel. This regulation ensures that personnel involved in the governance and administration of credit institutions, especially the position of general director, must have management and operational experience in credit institutions.
The draft law has amended and supplemented regulations to prevent the abuse of cross-ownership and unhealthy cross-investment.
Simultaneously, to prevent violations, the draft law has added more subjects who are not allowed to hold governance and executive positions at credit institutions, specifically those responsible for leading to a credit institution or foreign bank branch being administratively fined at the highest penalty level for licenses, governance, administration, shares, equity, capital contributions, share purchases, credit provision, corporate bond purchases, safety ratio.
Regarding preventing cross-ownership and limiting the abuse of governance, executive rights, and the rights of major shareholders of credit institutions for related interests:
Based on summarizing the implementation process of the Law on Credit Institutions, the draft law has revised and supplemented regulations to prevent the abuse of cross-ownership and unhealthy cross-investment, such as:
Firstly, amending and supplementing regulations limiting the shareholding ratio of a major shareholder at a credit institution and related parties at another credit institution below 5% of charter capital to avoid the abuse of major shareholder positions to influence credit provision activities at multiple credit institutions;
Secondly, adding regulations on limits and conditions for credit provision to invest, trade corporate bonds to limit the “overcoming” of credit provision limits fraught with risks; simultaneously, adding a regulation prohibiting credit provision for purchasing, transferring shares of credit institutions to address the situation of "virtual" capital contributions from credit provision sources of credit institutions;
Thirdly, supplementing regulations that the chairman of the board of directors, chairman of the board of members, general director (director) of credit institutions shall not concurrently be the chairman of the board of directors, member of the board of directors, chairman of the board of members, member of the board of members, company chairman, general director, deputy general director of other enterprises to prevent the abuse of governance, executive rights to influence credit provision activities for related enterprises;
Fourthly, adding regulations requiring credit institutions to report information in writing about the related interests of managers and executives to the SBV to enhance the efficiency of inspection, supervision, and prevent the abuse of influence by these subjects.
On early intervention measures for credit institutions showing signs of weakness
One of the important additions in the draft law is early intervention measures for credit institutions and foreign bank branches showing signs of weakness (but not under special supervision) such as: failing to maintain the minimum capital adequacy ratio for six consecutive months; failing to maintain liquidity ratio for three consecutive months; ranking below average according to ratings for credit institutions, foreign bank branches. This is an important solution to address weaknesses of credit institutions early, avoiding special supervision status.
The draft law also clearly stipulates the duration and measures to be applied for credit institutions to self-rectify their weaknesses. These measures include narrowing down content and scope of activities, limiting large transactions; increasing charter capital; enhancing holdings of highly liquid assets, limiting dividend payments and profit distribution; reducing costs, limiting salaries, bonuses, and enhancing risk management; reorganizing the management apparatus...
On the mechanism for handling credit institutions under special supervision
Based on summarizing the practical handling of weak credit institutions according to the Scheme for restructuring the credit institution system for the period 2011-2015, the draft law has comprehensively revised regulations on special supervision to establish a unified legal framework for handling credit institutions under special supervision. The draft law specifically stipulates the handling process, the applicable options for handling credit institutions under special supervision according to the principle of fully specifying possible methods for handling weak credit institutions; the handling measures to ensure that competent authorities have sufficient legal grounds to choose the most appropriate methods for each weak credit institution.
In which, the draft law has added new cases where the SBV can consider placing a credit institution under special supervision, specifying the authority of the Government of Vietnam, the Prime Minister of the Government of Vietnam, and the SBV in the process of handling weak credit institutions; revising, supplementing more specific regulations on special loans, the authority to decide on special loans for credit institutions under special supervision; allowing microfinance institutions to receive special loans from the Deposit Insurance of Vietnam, people's credit funds to receive special loans from the Deposit Insurance of Vietnam, Cooperative Bank.
Simultaneously, to overcome inadequacies of current law, the draft law has supplemented specific regulations to adjust the business activities of weak credit institutions during the special supervision period.
Regarding the authority for handling credit institutions under special supervision, the draft law distinctly stipulates and specifies the authority of the Government of Vietnam, the Prime Minister of the Government of Vietnam, and the SBV depending on the complexity, potential risk of the proposed solution, the scale of operation, the impact on the credit institution system. According to this principle, the cases of handling credit institutions under special supervision mainly fall under the authority of the Prime Minister of the Government of Vietnam and the SBV. The draft law assigns the Government of Vietnam to decide on the policy and approve the bankruptcy plan, dissolution plan, compulsory transfer plan of credit institutions under special supervision or decide on applying special measures when handling credit institutions under special supervision and report to the National Assembly at the nearest session.
Regarding handling procedures, overcoming inadequacies of current law, the draft law specifically stipulates evaluating the actual status of credit institutions under special supervision to propose suitable handling policies for weak credit institutions.
Regarding the restructuring options for credit institutions under special supervision, one of the important contents of the draft law is clearly specifying 5 options for restructuring credit institutions under special supervision, including recovery plans; merger, consolidation, and transfer of all shares, contributed capital; dissolution plan; compulsory transfer plan; and bankruptcy plan.
Source: Banking Times
