What is banking supervision? 05 things you should know about banking supervision in Vietnam

What is banking supervision? 05 things you should know about banking supervision in Vietnam (Internet image)

1. What is banking supervision?

According to Clause 12, Article 6 of the Law on the State Bank of Vietnam 2010, banking supervision means activities carried out by the State Bank to collect, synthesize and analyze information on supervised subjects through a information and reporting system so as to promptly prevent, detect and handle risks to the safety of banking operations, violations of regulations on safety of banking operations and other relevant laws.

2. Entities subject to banking supervision in Vietnam

The State Bank shall conduct banking supervision of all operations of credit institutions and branches of foreign banks.

When necessary, the State Bank shall request competent state agencies to supervise or coordinate with it in supervising subsidiary companies and associated companies of credit institutions.

(Article 56 of the Law on the State Bank of Vietnam 2010)

3. Contents of banking supervision

Clause 1, Article 23 of Decree 26/2014/ND-CP stipulates the contents of banking supervision as follows:

- Collect, consolidate and process documents, information and data of the supervised entity on request; combine supervision of safety of the whole system of credit institutions with the supervision of safety of each credit institution or branch of a foreign bank;

- Consider and monitor the compliance with regulations on safety of banking operations and other relevant regulations of law; compliance with conclusions, proposals and decisions on inspection and recommendations and warning about banking supervision;

- Regularly analyze and assess financial condition, operation, management and level of risks of credit institutions and foreign banks’ branches, systemic risks; annually rank credit institutions by their safety level;

- Detect and warn about factors, negative changes, risks that threaten operational safety of each credit institution and foreign bank’s branch and system of credit institutions; possible violations against the finance and banking laws;

- Request and propose measures for preventing and handling the supervised entities' risks and violations of law as prescribed by law.

4. Rules for banking supervision in Vietnam

Rules for banking supervision specified in Article 4 of Decree 26/2014/ND-CP are as follows:

- Centralization and uniformity shall be ensured in providing instructions and performing tasks at the central level through the local level.

- Laws must be observed; accuracy, objectivity, truthfulness, openness, democracy, promptness shall be ensured; there shall be no overlapping issues in terms of the scope, targets, contents and duration of inspection among authorities charged with inspection; activities of organizations and individuals that are inspected and supervised entities must not be obstructed.

- A banking inspection shall be carried out by an inspectorate or banking inspector.

- Banking supervision shall be carried out on a regular basis.

- Inspection and supervision of compliance with policies and laws must be carried out simultaneously with the inspection and supervision of risks in operations of inspected and supervised entities; banking inspection must be closely linked with banking supervision.

- Inspection and supervision of operations of credit institutions shall be carried out.

- Regulations of the Law on the State Bank of Vietnam 2010 and other relevant regulations of law shall be complied with; in the cases where banking inspection and supervision regulations of the Law on the State Bank of Vietnam 2010 are different from those of other laws, the regulations of the Law on the Sate Bank shall prevail.

- The Governor of the State Bank shall specify procedures for carrying out banking inspection and banking supervision.

- Other rules as prescribed by the law on inspection.

5. Handling of entities subject to banking supervision in Vietnam

- Entities subject to banking inspection and supervision that violate the monetary and banking laws shall, depending on the nature and severity of their violations, be disciplined, administratively sanctioned or examined for penal liability. If causing damage, they shall pay compensation under law.

- Depending on the nature and degree of risks, the State Bank shall also apply the following handling measures to entities subject to banking inspection and supervision:

+ Restricting the distribution of dividends, transfer of shares or transfer of assets;

+ Restricting the expansion of the scale, scope and areas of operation;

+ Restricting, terminating or suspending one or several banking operations;

+ Requesting credit institutions to increase their charter capital to meet prudential requirements in banking operations;

+ Requesting credit institutions to transfer their charter capital or equity capital; or requesting major shareholders or shareholders holding control or dominant shares to transfer their shares;

+ Deciding on a credit growth limit applicable to credit institutions in case of necessity so as to ensure the safety for credit institutions and the system of credit institutions;

+ Applying one or several prudential ratios higher than the prescribed ones.

(Article 59 of the Law on the State Bank of Vietnam 2010)

Thanh Rin

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