Instruction of SBV Governor on accelerating safety and restructure of credit institution system

The main objectives of Instruction No.02 are to continue to maintain macroeconomic safety and stability, manage the inflation; ensuring economic balances; strengthening the safety and soundness of the system of credit institution; improving the effectiveness and efficiency of state management; consolidating the reform of finance, governance and performance of credit institutions that are appropriate with practical conditions of credit institutions and in line with market mechanism; and ensuring legal benefits and rights of depositors as well as maintaining the safe and sound performance of credit institutions.

 

The Instruction laid out the key tasks for banking sector including accelerating supervision and improving the quality of credit activities in combination with effective NPL resolution; completing the legal framework for NPL resolution and restructure of credit institution system in order to limit the newly rising NPLs and strengthening the role and functions of VAMC in term of NPL resolution in order to maintain NPL ratio at a safe and sustainable level.

The Instruction assigned specific tasks and solutions to SBV functional departments and entities, VAMC and credit institutions.

 

Improving the competitive capacity of credit institutions

According to the Instruction, the SBV encourages and creates favorable conditions for credit institutions to consolidate their capacity via mergers and acquisitions (M&A) and repurchase. The SBV encourages the investors who have sufficient conditions to participate in restructure of credit institutions in order to effectively extent the operational size and improve competitive capacity of credit institutions.

SBV Governor instructed to strictly supervise the performance of granting license to establish new people credit funds and the expanding network of commercial banks; to formulate and implement new standards to grant licenses for establishing credit institutions in prudent manner, concurrently ensuring the appropriateness with practical conditions of Vietnam, and matching with international agreements.

To focus on restructuring those banks which have been enforced by the SBV to undergo compulsory restructure. For those credit institutions that fail to meet the prudent standards, not able to have feasible plan of restructure or fail to implement the approved plan of restructure shall be enforced to comply with the interventional measures of the State via M & A, repurchase or other solutions in line with market mechanism and prudent principles to secure the legitimate benefits and rights of depositors and the safety and stability of the system.

To accelerate and redress the system of People credit funds (PCFs); decisively resolve weak credit institutions; to formulate the Scheme for PCF development to 2020 and the orientation for development of PCFs to 2030; continue to implement Scheme of strengthening micro finance organizations to 2020 with more focus on creating favorable conditions for establishing and developing micro finance organizations and micro finance projects.

To accelerate the restructure of state owned commercial banks in order to maintain the leading role of these banks in securing the stability for money market and safe performance of credit institution system. SBV will apply both encouraging and compulsory methods if the need be for the purpose of increasing charter capital to improve financial capacity and safety of credit institutions; To control the profit allocation of credit institutions.

To improve financial capacity for credit institutions, to apply Basel II and international standards of risk management, as well as boosting the application of informatics technology. SBV Encourage credit institutions to increase charter capital and using enforcement in specific cases if the need be, and to improve the transparency of credit institution performance.

Continue to decisively conduct synchronous solutions of the Scheme of restructuring credit institutions and NPL resolution

SBV Governor asked credit institutions to collaborate more effectively in conduction of NPL resolution and using preventive measures to mitigate new NPLs.

To detect and strictly handle all cases of violations in credit operations; to strictly supervise credit growth and credit quality of the system of credit institutions; decisively deal with credit institutions having big NPLs and inactive to resolve them, as well as credit institutions that fail to comply with the regulations on debt classification and risk provisioning. The SBV shall not approve the plan of network extension such as opening new braches, offices, ATMs, and put in strict control of divident paying of any credit institutions that violate the regulations on classifing debts and NPL resolution plan, and making insufficient risk provisioning.

To conduct effective solutions to sell and buy NPLs in line with market mechanism, concurrently gradually establish trading market and propose to the SBV an efficient scheme to create conditions for foreign investors to participate in this market.

To accelerate the collaboration with ministries and local authorities to deal with difficulties and legal obstacles relating to NPL resolution and supporting for credit institutions and VAMC to recover debts and collateral assets.

Improving institutional capacity

In this instruction, SBV Governor asked functional departments to provide advices to complete the legal framework to support for banking restructure, NPL resolution and accelerating the safety, the soundness and the stability for operations of credit institutions; to supplement the legal regulations in order to control the situation of cross ownership and misusing the rights of management, governance and the rights of a big stakeholder.

To continue to formulate and complete the synchronous framework on banking supervision, governance and other banking operations that better matching with international standards and meeting the requirements of global financial integration, the management and developments of banking system in current period, as well as creating favorable environment for business and operations and restructure of credit institutions and NPL resolution.

The top priorities shall be focused on issuance and execution of the regulations on process and procedures of banking supervision and inspection, the regulations on risk management of credit institution and Basel II implementation; the revision of prudent ratios and regulation on NPL purchasing.

To make research on and innovate organizational model and performance of Banking Supervision Agency; improve the collaboration of relevant departments and organizations with Banking Supervision Agency in order to increase the effectiveness and efficiency of supervision, management and licensing; Accelerating the reform of administrative procedures.

Improving the effectiveness of banking supervision and inspection

SBV Governor assigned Banking Supervision Agency to collaborate with SBV municipal branches to decisively and effectively implement the Supervision Plan of 2017 in line with the approval of SBV Governor under the Decision No.2336a/QD-NHNN dated November 25, 2016.

Focusing supervision on such areas as risky sectors, corruption, peculation and those activities relating to capital contribution, stock purchasing; governance, internal audit and inspection; the compliance with regulations on prudent banking operations and anti – laundering; lending and investment, and purchasing the OTC cooperate bonds;

Concentrating on supervision of the lending activities classified into sectors, industries and clients, especially focusing on supervision on such activities as lending to real estate business, consumption borrowing, medium and long term investment projects; providing credits higher than approved limit; lending to big customers and big customer groups; supervising the cross ownership and transferring stocks, divestment; debt classification and making risk provisioning, ensuring credit quality, credit growth and compliance with regulation on interest rates; foreign exchange management and gold trading; the conduction of scheme of NPL resolution and restructure of credit institutions.

In addition, the supervision performance also needs to focus on the security and safety of electronic payment system, the card settlement operations of payment service providers; the compliance with regulations on investment and effectiveness of informatics technology application made by credit institutions. It is necessary to strictly supervise people credit funds and implement inclusive supervision of people credit funds in the whole country with special concentration on risky and weak funds in term of cash, mobilizing capital, lending, debt collection, network and their governance capacity.

SBV banking supervision agency shall have to accelerate supervising SBV municipal branches on their implementation of responsibilities and mandates in term of license granting and management, and the tasks of supervising credit institutions in the locations, and the task of receiving citizens and responding to their complaints and accusation; and the results of handling those credit institutions that failed to comply with or intentionally not to comply with the conclusions of SBV supervision delegates.

To boost the information exchange with State Supervision, State Audit in order to collaborate in formulating supervision plan and supervising the execution of conclusion, instruction, warning of supervisors and inspectors of those agencies; drastically handle those credit institutions that fail to or intentionally not comply with and conduct the supervision conclusion.

Continuing to researching, completing, standardizing and implementing instruments and methods of monitoring in collaboration with enhancing information technology, developing database and the system of supporting criteria for inspection and risk alert; utilizing effectively information products of CIC for supervision and credit risk alert; strengthening specialized supervision, focusing on supervising unhealthy credit institutions and credit institutions which are under special control, and the implementation of plans and measures of handling with violations;

Enhancing cooperation and information exchange concerning with inspection results and license granting among entities of the banking sector. Strengthening communication and working with credit institutions to acquire operational situations and suggest measures of handling with violations;

Implementing the task of complaint and denunciation resolution in line with laws;

Strengthening the implementation of National Strategy on Anti-corruption towards 2020; continuing to implementing Decision No. 1491/QĐ-NHNN dated July 29, 2014 on implementation plan of Decision No. 312/QĐ-TTg dated February 28, 2014 on promulgating plan on implementing resolution on enhancing measures of preventing and combating terrorists in the banking sector; implementing Decision No. 425/QĐ-NHNN dated March 25, 2015 on assigning tasks of implementing National Action Plan on anti- money laundering and terrorism financing for 2015- 2020 period.

Enhancing cooperation among ministries and agencies, especially implementing effectively Regulations on Cooperation between the Party Committee of the SBV and the PCC Internal Affairs Commission to prevent corruption; continuing to coordinate with authorities to handle with legal violations related to banking operations; organizing the implementation of the task of judicial expertise in accordance with laws.

At the same time, the SBV Governor required VAMC to focus on implementing following tasks:

(i) Reviewing, classifying and reassessing dossiers of borrowers, collateral and purchased debts to assess the capacity of recovering debts and conduct proper measures;

(ii) Strictly implementing comprehensive measures of trading and resolving NPLs in line with market mechanism and laws as well as approved plans; conducting measures of minimizing risks when trading debts in accordance with market mechanism;

(iii) Cooperating with credit institutions which are debt sellers to accuse customers who intentionally not to pay debts; coordinating with authorities in the process of seizing property and implementing effective judgments;

(iv) Enhancing cooperation with credit institutions in the process of recovering, rescheduling, selling and resolving debts and collateral of purchased NPLs; financially supporting borrowers to recover production and business and complete on-going projects. Facilitating investors to purchase and resolve NPLs and collateral;

(v) Enhancing capacity of asset pricing and assessment; coordinating with credit institutions to regularly sell debts and collateral in line with laws;

(vi) Strictly inspecting and monitoring the implementation of those substances that are authorized by credit institutions, borrowers;

(vii) Coordinating with authorities and borrowers to complete procedures and legal dossiers concerning with NPLs and collateral;

(viii) Regularly and promptly publicizing NPLs trading and resolution in line with laws;

(ix) Cooperating with relevant entities to continue researching and completing organizational structure and operations, enhance staff, finance and technology to better meet requirements. Continuing to complete procedures, policies and internal regulations on functional operations, governance and management; promptly reporting to the SBV (via Financial Supervision Agency) difficulties, obstacles and recommendations in the process of trading NPLs.

Moreover, the SBV Governor required credit institutions to implement following key tasks:

Firstly, proactively researching and formulating plan of restructuring debts in stick to NPL resolution for 2016-2020 period in line with directives, objectives, orientations and measures as stipulated in Scheme on restructuring the system of credit institutions in collaboration with NPL resolution for 2016-2020 period, to be submitted to the SBV Governor for approval;

Secondly, formulating plan of solving NPLs and debts with risks of becoming NPLs for every quarter of 2017 and reporting to the SBV when be required.

Thirdly, continuing to complete organizational structure, improve governance and management effectiveness, systems of control and internal audit in order to mitigate risks and violations. Reviewing, promulgating and strictly implementing internal regulations on staff rotation, especially for positions of leaders, cashiers, credit, payment, capital mobilization, NPL resolution, forex trading, IT and etc; reviewing and revising internal regulations on vaulting safety, transaction password…; regularly inventorying vaulting and cash funds.

Fourthly, enhancing financial capacity, improving liquidity; actively restructuring assets and capital resources in the direction of narrowing mature gap between terms of capital resource and capital utilization;

Fifthly, strictly implementing requirements, recommendations, notifications and decisions on inspection and auditing of State Inspection Agency and State Auditing Agency; proactively implementing comprehensive measures of preventing, identifying and strictly solving violations made by individuals and subsidiaries.

Sixthly, proactively implementing measures of NPL resolution to handle with risks, support customers to overcome difficulties and develop production and business, continue to support capital, reduce interest rates and reschedule debts in line with laws; reforming procedures of credit extension to help customers easily get access to capital and banking services. Strengthening NPL resolution in accordance with market mechanism, especially for VAMC;

Seventhly, reviewing and reducing costs to centralize all funding resources for NPL resolution; credit institutions with a large amount of NPLs, insufficiently making risk provision and ineffective business should be strictly supervised and required to reduce management and operational cost, especially cost for promotion and customer services; not allowed to increase compensation, especially for management board, managers; at the same time, reduce or not pay dividends for shareholders and capital contributors. Credit institutions are required to report to the SBV dividend paying plan before the implementation.

Eighthly, controlling credit growth rate in line with scale, capital structure and risk management capacity; strictly controlling credit risks in order to ensure credit quality and minimizing arising NPLs. Implementing credit growth targets announced by the SBV, focusing credit on priority fields; reviewing and assessing credit for real estate and fields with potential risks; improving credit quality, controlling and limiting risks focusing on credit; limiting credit growth for medium and long term and credit extension for potential risk fields, especially for fields of real estate, security, BOT and BT projects.

Ninthly, strictly complying with regulations on credit extension, making risk provision of loans, especially the implementation of regulations on prudent ratios in accordance with roadmap as stipulated in Circulars No. 36/2014/TT-NHNN and No. 06/2016/TT-NHNN; classifying debts, provisioning and utilizing risk provisioning in line with laws, including risk provisioning for special bonds; credit institutions are not allowed to pursue unhealthy competitiveness concerning with banking operations and capital mobilization; not permitted to implement measures which violate ceiling interest rate or hide NPLS as well as reflect wrongly credit quality and business results.

Moreover, credit institutions are required to implement measures of controlling arising NPLs and improving credit quality; enhancing assessment capacity and risk management efficiency; regularly reviewing, assessing, monitoring and strictly check dossiers of borrowers, loans and collateral in order to take proper measures of handling violations; reviewing and reassessing rescheduled debts; improving efficiency of internal audit and control; developing and managing effectively banking staff, especially strengthening credit assessment capacity; improving transparency and publicity of credit institutions’ operations; strictly resolving the issues of cross owning and violations of capital owning limit; preventing and handle with issues of group benefit, large shareholders or group of larger shareholders controlling operations of credit institutions; promptly reporting to the SBV (via Financial Supervision Agency) difficulties, obstacles and recommendations for considering.

The Directive took effect from the date of signing.

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