Early intervention to reduce the risk of unsafe banking system

When a credit institution, a foreign bank branch (the “Credit Institution”) is found in one of the following cases but has not been placed under special control in accordance with the laws, the State Bank will consider applying early intervention, specifically when the Credit Institution: 

(a) Fails to maintain the solvency ratio in accordance with the laws for three consecutive months;

(b) Fails to maintain the capital adequacy ratio in accordance with the laws for six consecutive months; or

(c) Is ranked below the average level as prescribed by the State Bank.

If the Credit Institution fails to make a remedial plan or fails to remedy the above situation when the time limit for implementing such remedial plan is over, the State Bank will consider requesting the Credit Institution to carry out one or some of the following measures:

(a) To narrow the content and scope of activities and limit big transactions;

(b) To increase the charter capital; strengthen holdings of high-liquidity assets; selling, transferring assets and implementing other solutions to meet the requirements of ensuring safety in banking activities;

(c) To restrict payment of dividends, distribution of profits;

(d) To reduce operating costs, management costs; limit the payment of wages, salaries and bonuses to managers and executives;

(e) To strengthen risk management; reorganize the management apparatus and cut staff; or

(f) Other measures as prescribed by the laws.

The State Bank will terminate the application of early intervention after the Credit Institution has overcome the above-said situation or when such credit institution is placed under special control according to the laws.

This is one of the highlights of the Law amending and supplementing a number of articles of the Law on Credit Institutions passed by the XIV National Assembly at its fourth session on 20 November 2017. In addition, the said Law also provides new provisions on the restructuring plan of a specially controlled credit institution, including: (i) Recovery plan; (ii) Plan for merger, consolidation or transfer of all shares and capital contributions; (iii) Dissolution plan; (iv) Mandatory transfer plan; and (v) Bankruptcy plan. The 2017 Law amending and supplementing a number of articles of the Law on Credit Institutions will officially come into force on 15 January 2018.