What are specific objectives of “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam?

What are specific objectives of “Restructuring Of Credit Institutions Associated With Bad Debt Settlement In 2021 – 2025 Period” Scheme in Vietnam?

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

2. Specific objectives

a) Pilot the application of Basel II advanced approaches in commercial banks of which controlling shares are held by the State and joint-stock commercial banks of good administration quality that have successfully applied Basel II standardized approaches by the end of 2025; commercial banks are expected to achieve a CAR (capital adequacy ratio) of at least 10 – 11% and 11 – 12% by 2023 and 2025 respectively.

b) Credit institutions shall adopt appropriate measures for maintaining their charter capital amounts by 2025 as follows:

- With regard to operating credit institutions (excluding commercial banks, finance companies and finance lease companies that are given “poor” or “very poor” rating/placed under special control/are undergoing restructuring plans approved by competent authorities):

+ Minimum charter capital to be maintained by commercial banks: (i) large-scale domestic commercial banks having financial potential and competitiveness: VND 15.000 billion; (ii) small and medium-scale domestic commercial banks having financial potential and competitiveness, and foreign-invested commercial banks: VND 5.000 billion;

+ Minimum charter capital to be maintained by finance companies: VND 750 billion;

+ Minimum charter capital to be maintained by finance lease companies: VND 450 billion.

- With regard to commercial banks, finance companies and finance lease companies that are given “poor” or “very poor” rating/placed under special control/are undergoing restructuring plans approved by competent authorities: the charter increase plan shall be subjected to approval given by competent authorities.

c) At least 2 - 3 commercial banks are expected to be ranked in the top 100 strongest banks in Asia (in terms of strength criterion); joint-stock commercial banks are expected to complete procedures for listing of their shares on Vietnam’s securities market, and at least 1 - 2 banks are expected to have their shares listed on the international securities market.

d) Develop digital bank models, enhance utilities and customer experience, and achieve objectives concerning financial inclusion and sustainable development based on further application of new and advanced technologies to management and provision of services and products with professional operation optimization and automation.

dd) Make the best use of achievements of the fourth industrial revolution for upgrading and developing payment infrastructure and non-cash payment services so as to meet payment demands of both institutional and individual customers in a convenient and efficient manner; ensure security, safety and confidentiality in non-cash payment activities, and protect legitimate rights and interests of payment service users.

e) The ratio of incomes from provision of noncredit services to total incomes of commercial banks is expected to reach 16 - 17% by the end of 2025. The rate of banks’ loan capital invested in low-carbon manufacturing and consumption industries is expected to be increased.

g) Develop people’s credit funds according to objectives and principles of credit institutions operating in the form of cooperative in accordance with regulations of law and international practices; ensure that people’s credit funds are operated in a safe, efficient, stable and sustainable manner, meet capital demands and improve access to financial sources of their members with the primary aim of facilitating mutual assistance between their members to serve business operations and improve living standards, especially in rural, remote and disadvantaged areas.

h) Develop microfinance institutions that should be operated in a safe, efficient and sustainable manner towards serving the poor, low-income earners, women and microenterprises by means of providing diversified, flexible and appropriate financial products and services, and contributing to the implementation of policies and guidelines of Vietnamese Communist Party and State on assurance of social security and sustainable poverty reduction.

i) Complete the model, functions and operational mechanism of the co-operative bank that should be financially capable, has increased administration, management and control competence, and will be operated in a safe, efficient and sustainable manner to well play the role of a bank for all people’s credit funds (make interconnection, provide financial support, regulate capital as well as ensure safety of the system of people's credit funds), assist the promotion of development of collective economic types that are other cooperatives nationwide.

k) Strive to reduce the ratio of non-performing loans of credit institutions, bad debts sold to Vietnam Asset Management Company (VAMC) but yet to be settled or collected, and debts that may be turned into bad debts to less than 3% by the end of 2025 (excluding those of “very poor” rated commercial banks).

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

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

1. General solutions

a) Establish a complete legal framework on currencies and banking operations, restructuring and settlement of bad debts on the basis of strict compliance with the rules of market economy and international practices, and assurance of conformity with existing conditions of Vietnam.

- Regarding the legal framework on restructuring and settlement of bad debts of credit institutions:

+ Research, review and amend the Law on the State Bank of Vietnam, the Law on Credit Institutions, the Law on Deposit Insurance, and other relevant legislative documents as follows: (i) research, formulate and establish mechanisms for facilitating the participation by credit institutions in the restructuring of “very poor” rated credit institutions so as to minimize negative financial and operational effects; (ii) research and establish additional functions and duties of Deposit Insurance of Vietnam to participate in the restructuring of “very poor” rated credit institutions; (iii) research and formulate debt valuation standards (including bad debts) which shall be then used as legal grounds for performing and ensuring objectivity of debt valuation activities (including bad debts).

+ Review, amend and revise regulations on operation of VAMC and Vietnam Debt and Asset Trading Corporation (DATC) to enhance their roles and efficiency in settling bad debts.

- Regarding policies on assurance of safety for banking operations, inspection and supervision:

+ Research and amend regulations on legal capital of credit institutions which should be feasible.

+ Review, research and amend regulations on prevention of cross-ownership and abuse of management and administration rights or majority shareholder’s rights that aim at manipulating operations of credit institutions towards reducing the holding of a shareholder, shareholders and related persons to limit their dominance and influence as well as ensure the popularity of credit institutions.

+ Review and amend regulations, and provide guidelines on financial and accounting reports that facilitate credit institutions' application of International Financial Reporting Standards (IFRS) in conformity with the Scheme for application of financial reporting standards in Vietnam enclosed with the Minister of Finance’s Decision No. 345/QD-BTC dated March 16, 2020.

+ Continue establishing a complete legal framework on assurance of safety for operations, management, administration, risk management and other regulations applicable to people's credit funds in conformity with the Law on Credit Institutions (as amended).

- Regarding regulations on licensing for establishment and development of credit institutions: Review and amend current regulations on licensing, organizational and operational requirements (especially criteria regarding financial capability, management and administration, and compliance with regulations and laws) to be satisfied by credit institutions in general, and wholly foreign-invested credit institutions and foreign bank branches operating in Vietnam in particular.

- Regarding regulations on establishment and operation of digital banks, digital transformation and payment activities: Research, review and propose amendments to gradually establish a complete legal framework on establishment and development of models of digital banks, payment activities and relevant regulations and laws that aim at facilitating digital transformation in banking sector and payment activities.

- Regarding regulations on green credit and green banks that aim at promoting banks’ loan capital invested in low-carbon manufacturing and consumption industries: Research and promulgate incentive policies and mechanisms for supporting and encouraging credit institutions to promote green credit, green banks, and low-carbon manufacturing and consumption industries; develop non-cash payment services on the basis of taking advantage of achievements of the fourth industrial revolution to serve the greenification of banking operations.

- Regarding the legal framework on assistance for restructuring and settlement of bad debts:

+ Research, review and amend regulations on development of debt trading market, management and surveillance of debt trading market, encourage the participation in the debt trading market to establish a complete legal framework for trading and settlement of bad debts, and promote the development of the debt trading market.

+ Research, review and amend legislative documents on increase of capital of state-invested credit institutions.

+ Continue reviewing, amending and revising legislative documents on restructuring of credit institutions and settlement of bad debts of credit institutions so as to ensure the consistent and synchronous implementation thereof.

Best regards!