In Vietnam, what are supporting solutions for “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme?

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• What are supporting solutions for “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam?
• What are solutions for restructuring of credit institutions in “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam? 

What are supporting solutions for “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam?

Pursuant to Subsection 1.b, Section III, Article 1 of the Decision 689/QĐ-TTg stipulating supporting solutions for “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam as follows:

b) Supporting solutions

- Regarding solutions for regulating the implementation of monetary policies:

+ Regulate the implementation of monetary policy tools in a flexible and synchronous manner which should be in harmony with other financial and macroeconomic policies so as to control inflation, contribute to the macroeconomic stability, and support the sustainable economic growth.

+ Actively regulate the implementation of credit solutions to control the credit scale and growth according to orientation objectives and in association with improvement of credit quality and restructuring of credit institutions. Direct credit institutions to develop credit effectively and focus on extending credit in prioritized business and production sectors; closely control credit extended in high risk-prone areas. Continue implementing solutions for dealing with difficulties in accessing the banks' credit, facilitate the application for loans by enterprises and people, and prevent black credit.

+ Research and adopt appropriate solutions for encouraging banks to apply Basel II advanced approaches towards applying Basel III when credit institutions meet financial and personnel requirements.

- Regarding improvement of efficiency and validity of banking inspection and supervision; improve competence and service quality of banking inspection and supervision staff:

+ Intensify and innovate inspection tasks with a view to quickly and robustly shifting from the inspection of compliance to risk–based inspection, closely associating risks with banking inspection tasks, gradually applying the inspection and supervision methods to the entire system of credit institutions and foreign bank branches in a consistent manner; focus on thematic, targeted and focused inspections of sectors, entities and contents posing high risks to safety of banking sector.  Intensify technological investments to support banking inspection and supervision.

+ Continue innovating supervision tasks with a view to (i) enhance the efficiency of microprudential supervision and macroprudential supervision on the basis of implementation of new tools and methods of risk oversight associated with boosting operation and application of technical infrastructure, information technologies, and database on operations of credit institutions; (ii) build and develop database serving inspection, supervision, management, software and tools for supporting inspection and supervision tasks (in which effective use of existing database of banking sector is paid attention); (iii) improve capacity to detect, analyze, give early warnings and propose measures for preventing risks and crises that may affect the safety and stability of the monetary and banking system.

+ Formulate and implement recruitment plans for strengthening banking inspection and supervision forces; intensify professional training courses to enhance competence of banking inspection and supervision forces.

What are solutions for restructuring of credit institutions in “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam? 

Pursuant to Subsection 2, Section III, Article 1 of the Decision 689/QĐ-TTg stipulating solutions for restructuring of credit institutions in “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam as follows:

2. Solutions for restructuring of credit institutions

Credit institutions shall formulate and organize implementation of plans and solutions appropriate to each group of credit institutions, including: increase of charter capital, increase of capital adequacy ratio to increase financial capacity and safety of banking operations, management and administration capacity, and credit quality, etc.; they are encouraged to participate in acquisition, merger, consolidation of credit institutions on voluntary basis to expand scale and scope of operation as well as their competitiveness; develop and apply Base II advanced approaches with a view to achieving development level of ASEAN-4 countries by 2025. Credit institutions given "poor" or "very poor" rating shall adopt remedial measures in accordance with regulations of law to ensure the safety of system of credit institutions, political security and social order and safety. The followings shall be considered key solutions:

a) Commercial banks over 50% of charter capital of which is held by the State (excluding compulsorily acquired banks) shall:

- Develop plans for improvement of operational efficiency and quality, and organize implementation of such plans according to charter capital increase solutions for improving and enhancing their financial capability, piloting application of Basel II advanced approaches (particularly, Agribank shall continue applying standardized approaches). To be specific: (i) In 2022 – 2023 period: increase charter capital with after-tax profits that remain after setting aside funds in the 2021 – 2023 period for joint-stock commercial banks over 50% of charter capital of which is held by the State and with funding derived from state budget for Agribank; (ii) In 2024 – 2025 period: research and consult competent authorities about capital increase in accordance with regulations of law to ensure the system’s safety.

- Agribank shall proactively develop plans for comprehensive restructuring to improve its operational efficiency and quality, and play the leading role in the field of agricultural and rural development credit; increase charter capital according to the plans approved by competent authorities; make preparations for equitization after the Ministry of Finance completes approval for the plan for the bank's house and land arrangement; carry out listing of shares on Vietnam’s securities market.

b) Compulsorily acquired commercial banks shall:

- Carry out restructuring according to the plans approved by competent authorities in conformity with regulations of law.

- Intensify inspection and internal control of banking operations, promptly detect, prevent and take actions against shortcomings and risks during their operations.

- Speed up settlement of bad debts; carry out debt classification in accordance with regulations of law; speed up and improve efficiency of settlement and recovery of debts and assets for banks.

c) Joint-stock commercial banks, financial companies and finance lease companies shall:

- Based on supervision data, inspection and assessment results given by independent audit organizations and ranking results, joint-stock commercial banks, financial companies and finance lease companies shall be classified in the following 03 groups, including: Group 1: Large-scale joint-stock commercial banks, financial companies and finance lease companies having financial potential and competitiveness; Group 2: Small and medium-scale joint-stock commercial banks, financial companies and finance lease companies having financial potential and competitiveness; Group 3: Joint-stock commercial banks, financial companies and finance lease companies that are given “poor” or “very poor” rating and pose risks to safety, for implementing the following solutions:

+ Continue developing and improving financial capacity in terms of both scale and quality, operational efficiency and competitiveness according to the market mechanism, ensure public disclosure and transparency, and strict conformance to banking management and safety standards as prescribed in laws and international practices; develop and provide modern banking products and services;

+ Increase capital and improve the quality of equity of credit institutions so as to ensure that the charter capital of a credit institution shall not be lower than its legal capital in accordance with regulations of law, and increase the capital adequacy ratio according to international standards;

+ Encourage the participation in acquisition, consolidation and merger of credit institutions on their voluntary basis to increase their scale and scope of operation, and competitiveness;

+ Develop and apply Basel II advanced approaches with the aim at reaching the development level of ASEAN-4 countries by 2025;

+ Credit institutions given "poor" or "very poor" rating shall be considered for implementing early interventions, special control and other measures in accordance with regulations of law to ensure the safety of system of credit institutions, political security and social order and safety.

d) With regard to cooperative banks, people’s credit funds and microfinance institutions:

- Improve financial capability for cooperative banks, including increase of charter capital of cooperative banks from lawful funding sources; elevate roles and responsibilities of cooperative banks to perform inspection, supervision and support for operations of the system of people's credit funds; improve capacity to regulate capital, inspect and supervise the use of borrowed funds of people's credit funds; proactively get involved in dealing with people's credit funds given “very poor” rating, facing difficulties or showing the sign of unsafe credit operations.

- Continue reinforcing, correcting and gradually reducing the quantity of people's credit funds (especially those given “very poor” rating) with the aim to ensure that people's credit funds are operated according to objectives and principles of credit institutions existing in the form of cooperative, improve safety, efficiency, stability and sustainability of operations of people's credit funds in conformity with demands, scale and areas of operation as well as economic growth of local areas. To be specific:

+ Review, assess and classify people's credit funds into 02 groups as follows: (i) Group of normally operating people's credit funds; (ii) Group of people's credit funds given “very poor” rating and posing potential risks to safety of banking sector, security and social order of local areas.

+ Consider permitting pilot implementation of measures for handling juridical persons of people's credit funds that are given “very poor” rating, small-scale (based on deposit amounts and number of depositors) people's credit funds placed under special control or those receiving no deposit or having a deposit balance falling within the coverage of deposit insurance under bankruptcy plans after having completed a adequate assessment of impacts and potential risks to political security and safety of the system.

- Promptly establish a complete legal framework on and gradually develop a safe and sustainable market-oriented system of microfinance institutions; ensure that family households, low-income earners and microenterprises may have access to diversified financial services of acceptable quality; implement policies and guidelines of Vietnamese Communist Party and State on assurance of social security and sustainable poverty reduction. To be specific:

+ Establish a complete management mechanism and legal corridor for microfinance institutions, microfinance programs and projects, and facilitate operations of microfinance institutions.

+ Facilitate the connection between operations of credit institutions existing in different forms and those of microfinance institutions.

dd) With regard to foreign credit institutions (joint-venture or wholly foreign-owned credit institutions):

Continue providing foreign credit institutions with advantageous conditions for doing business and fairly competing with Vietnamese credit institutions; encourage foreign credit institutions to get involved in supporting and dealing with difficulties and weaknesses of Vietnamese credit institutions; encourage foreign credit institutions to play the leading role in developing and applying modern technologies and launching new products and services in Vietnamese market; assist Vietnamese credit institutions in accessing new procedures, products and technologies to meet demands of customers for more and more diversified products and services.

Best regards!