Circular No. 08/2010/TT-NHNN on special supervision of credit institutions

 CIRCULAR

Provisions on special supervision of credit institutions

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BASED ON THE Law on the State Bank of Vietnam 1997 and the Law Amending and Supplementing Certain Articles of the Law on the State Bank of Vietnam 2003;

BASED ON THE Law on Credit Organizations 1997 and the Law Amending and Supplementing Certain Articles of the Law on Credit Organizations 2004;

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam stipulates special supervision measures for credit organizations as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular stipulates special supervision measures for credit organizations established and operating under the Law on Credit Organizations, including:

- State-owned credit organizations;

- Joint-stock credit organizations;

- Joint venture credit organizations;

- Foreign-owned credit organizations with 100% foreign capital.

Article 2. Applicability

1. Credit organizations as specified in Article 1 of this Circular.

2. Organizations and individuals related to the special supervision activities of credit organizations.

Article 3. Explanation of Terms

In this Circular, the following terms are understood as follows:

1. "Special supervision" means placing a credit organization under direct supervision by the State Bank of Vietnam (hereinafter referred to as the State Bank) due to the risk of losing its ability to pay out or the risk of losing its ability to settle debts.

2. "Special Supervision Board" is an organization consisting of members established by the Governor's Decision (hereinafter referred to as the Governor) to directly supervise credit organizations placed under special supervision.

3. "Special loan" is a loan provided by the State Bank or another credit organization or the Deposit Insurance Corporation to a credit organization placed under special supervision in urgent cases to ensure the ability to pay deposits to customers. Special loans are prioritized for repayment before all other debts of the credit organization.

4. "Period of special supervision" is the time from when the decision to place a credit organization under special supervision is made until the decision to terminate special supervision of that credit organization is made.

5. "Representative of the credit organization" is a person from the credit organization placed under special supervision or a State Bank officer designated by the Governor to represent the credit organization in managing, supervising, and operating the credit organization in cases where the positions of members of the Board of Directors, members of the Supervisory Board, General Manager (Director) are vacant.

6. "Strengthening plan for organizational structure and operations" is the plan to strengthen the organizational structure and operations of a credit organization placed under special supervision.

Article 4. Authority of the Governor

1. Deciding on special supervision, the period of special supervision, extension of the period of special supervision, termination of special supervision for credit organizations.

2. Deciding on the establishment of the Special Supervision Board and assigning officers to participate in the Special Supervision Board according to the provisions of this Circular.

3. Designating another credit organization to participate in the special supervision of a credit organization placed under special supervision while designating an officer from that credit organization to join the Special Supervision Board.

4. Designating a representative of the credit organization to participate in managing, supervising, and operating the credit organization in cases as prescribed in Clause 9, Article 3 of this Circular.

5. Deciding on the State Bank providing a special loan to a credit organization according to the provisions of Clause 7, Article 3 of this Circular.

Article 5. Principles for Record Keeping

1. Documents must be prepared in Vietnamese. Vietnamese copies and translations from English to Vietnamese must be certified by authorized agencies according to the law.

2. Documents of credit organizations requesting issues related to this Circular shall be signed by the Chairman of the Board of Directors (in case the position of Chairman is vacant, then one of the Board of Directors' members, Supervisory Board member, or General Director signs) or the representative of the credit organization as prescribed in Clause 9, Article 3 of this Circular. The signatory bears responsibility for the accuracy and truthfulness of the documents within their authority.

3. Documents of credit organizations sent to the State Bank, the State Bank Branch in the province or city where the credit organization is headquartered (hereinafter referred to as the State Bank branch) may be submitted through one of the following methods: direct submission; postal service; fax or email (with telephone confirmation), followed by submitting the original documents to the State Bank for inspection and retention.

Chapter II

SPECIFIC PROVISIONS

PART I

 SPECIAL SUPERVISION

Article 6. Conditions for placing credit institutions under special supervision

A credit institution may be placed under special supervision when it falls into one or more of the following situations:

1. There is a risk of losing the ability to meet payment obligations, manifested by failing to maintain a minimum ratio of 1 between total assets "Have" that can be settled within the next 7 days and total liabilities "Owe" that must be settled within the next 7 days for each type of currency, gold for three consecutive times.

2. Non-performing debts pose a risk of losing the ability to settle payments, manifested by non-performing loans accounting for 10% or more of the total outstanding loans or 100% or more of the total equity capital for three consecutive months.

3. The cumulative losses of the credit institution exceed 50% of the total subscribed capital and reserves.

Article 7. Special Supervision of Credit Institutions

1. During the process of management, inspection, examination, and supervision of operations or through reports from credit institutions, if it is found that there is a risk of the credit institution falling into a state requiring special supervision or serious violations of laws governing banking activities or other cases leading to unstable and unsafe operations of the credit institution, the Governor may apply special supervisory measures to the credit institution.

2. The State Bank may apply the following special supervisory measures:

a) Dispatching State Bank staff directly to the credit institution to supervise its daily operations.

b) Directing the credit institution to implement appropriate measures in accordance with current laws to address weak, unsafe, or unstable operations.

c) Requiring the credit institution to report periodically or at short notice on the implementation of directives issued by the State Bank.

3. The Governor decides the duration for terminating the application of special supervisory measures.

Article 8. Decision on Special Supervision

1. The Governor considers and decides to place a credit institution under special supervision when the credit institution exhibits one of the signs specified in Article 6 of this Circular.

2. The decision to place a credit institution under special supervision shall include the following contents:

a) Name of credit institution subject to special supervision;

b) Reasons for special supervision;

c) Names and specific tasks of members of the Special Supervision Board;

d) Duration of special supervision.

3. The special supervision decision is communicated to the credit institution placed under special supervision, the State Bank branch, the Vietnam Deposit Insurance Corporation, and other specific cases decided by the Governor.

4. The decision to place a credit institution under special supervision shall not be publicly announced, except as provided for in Clause 3 of this Article.

Article 9. Consolidation Plan for Organization and Operations

The consolidation plan for organization and operations must include at least the following contents:

1. Name, address, website of the credit institution;

2. Name, address, phone number of members of the Board of Directors, members of the Supervisory Board, General Director (Director) of the credit institution or representative of the credit institution;

3. Summary of the current situation regarding the organization and operations of the credit institution;

4. Causes for the credit institution being placed under special supervision;

5. Measures to address and eliminate the special supervision status and plans for implementing these measures.

Article 10. Responsibilities and authorities of credit organizations placed under special supervision

When falling into any of the cases specified in Article 6 of this Circular, credit organizations must submit a written report to the State Bank through the Banking Supervision Agency of the State Bank (hereinafter referred to as the Banking Supervision Agency), detailing their financial status, causes, and measures already applied or planned to be applied for remediation.

2. Establish accurate, comprehensive, up-to-date information channels to ensure smooth operation for the Special Supervisory Board during the period of special supervision of the credit organization.

3. The Board of Directors, Supervisory Board, General Director (Director) of credit organizations placed under special supervision or the representative of the credit organization as stipulated in Clause 9, Article 3 of this Circular shall have the responsibility to:

a) Develop a Consolidation Plan for organizational structure and operations to be submitted for approval by the Special Supervisory Board; organize the implementation of the approved Consolidation Plan.

b) Continue to manage, supervise, and operate the activities and ensure the safety of assets of the credit organization in accordance with the laws and regulations of the State Bank, except when temporarily suspended from management, supervision, and control of the credit organization.

c) Work regularly at the credit organization to implement the Consolidation Plan.

d) Be responsible for issues related to the organizational structure and operations of the credit organization before, during, and after the special supervision period.

đ) Strictly comply with all requirements of the Special Supervisory Board related to organizational structure, management, supervision, and operation of the credit organization.

e) Report on the progress and results of implementing special supervisory measures as required by the Special Supervisory Board.

g) Reduce costs to minimize financial losses.

h) Provide office locations and equipment for the Special Supervisory Board.

4. During the period of special supervision, without the approval of the State Bank, it is strictly prohibited for credit organizations:

a) To allow the Chairman and members of the Board of Directors, Head and members of the Supervisory Board, General Director (Director) to transfer shares (for joint-stock credit organizations).

b) To distribute dividends (if any).

c) To conceal, dispose of, pledge, mortgage, transfer, or engage in any transaction related to assets and relevant documents and records.

d) To refuse or reduce rights, obligations, and responsibilities towards customers.

PART II

SPECIAL SUPERVISORY BOARD

Article 11. Organizational Structure of the Special Supervisory Board

1. The Special Supervisory Board must have a minimum of three members, including one member as the Head.

2. Members of the Special Supervisory Board are officers from relevant units of the State Bank, State Bank Branches, or officers from other credit organizations proposed by the Governor.

Article 12. Operation Mechanism of the Special Supervisory Board

1. Members of the Special Supervisory Board work at credit organizations under special supervision on a concurrent basis.

2. The Special Supervisory Board uses the seal of the State Bank branch (for joint-stock credit organizations) or of the State Bank (for state-owned credit organizations, joint venture credit organizations, and foreign-owned credit organizations) in documents and reports signed by the Head.

3. The Special Supervisory Board concludes its mission when the Governor decides to terminate special supervision of the credit organization.

Article 13. Standards and Conditions for Members of the Special Supervisory Board

1. Being an officer of the State Bank, State Bank Branch, or other credit organizations (as necessary).

2. Holding a Bachelor's degree or higher in economics, law, or a specialized field relevant to their responsibilities during the special supervision process at credit organizations.

3. Having at least three years of work experience in the banking sector.

4. Not being a related party of members of the Board of Directors, members of the Supervisory Board, or General Director of the credit organization under special supervision.

5. In addition to the provisions set forth in Clauses 1, 2, 3, and 4 above, the Head of the Special Supervisory Board must be a senior-level officer of Departments or Bureaus at the State Bank or a leader of the State Bank Branch.

Article 14. Responsibilities and Authorities of the Special Supervisory Board

1. Responsibilities and authorities of the Special Supervisory Board:

a) Responsibilities:

(i) Being accountable under the law and to the Governor for decisions made during the special supervision of credit organizations;

(ii) Within a maximum period of thirty days from the date the Governor signs the Decision as stipulated in Article 8 of this Circular, the Special Supervisory Board must direct the Board of Directors, Supervisory Board, General Director (Director), or representative of the credit organization, as provided for in Clause 9, Article 3 of this Circular, to develop a Consolidation Plan for organizational structure and operations, approve it, and submit it to the Governor for approval;

(iii) Directing and supervising the credit organization under special supervision to implement measures outlined in the Consolidation Plan for organizational structure and operations;

(iv) Regularly reporting and evaluating the implementation results of the Consolidation Plan for organizational structure and operations to the State Bank (through the Inspection and Supervision Department) and the State Bank Branch on a monthly basis;

(v) Reporting to the State Bank about unusual changes in the credit organization under special supervision, and activities that are not in accordance with the approved Consolidation Plan for organizational structure and operations;

(vi) Maintaining confidentiality regarding the actual status of the credit organization under special supervision; providing information related to this credit organization only upon written request from authorized agencies.

b) Powers:

(i) Requesting the credit organization under special supervision to report and provide materials and information related to its organizational structure and operations to the Special Supervisory Board;

(ii) Requesting the credit organization under special supervision to conduct a full inventory of current assets or perform an independent audit to assess its financial status at the time it was placed under special supervision;

(iii) Requesting the credit organization under special supervision to invite debtors and creditors to publicly reconcile accounts to determine the ability to collect debts and repay loans;

(iv) Preparing files to request legal authorities to handle individuals who violate laws or intentionally fail to repay debts to the credit organization;

(v) Suspending activities that are inconsistent with the Consolidation Plan for organizational structure and operations, and safety regulations during the special supervision period, and immediately reporting such decisions to the Governor;

(vi) Temporarily suspending the management, supervision, and operation rights of the Chairman and members of the Board of Directors, Head and members of the Supervisory Board, General Director (Director), Deputy General Director (Deputy Director) if deemed necessary, and immediately reporting such decisions to the Governor;

(vii) Requesting the Governor to suspend the management, supervision, and operation rights of the Chairman and members of the Board of Directors, Head and members of the Supervisory Board, General Director (Director);

(viii) Requiring the Board of Directors and General Director (Director) to immediately dismiss or suspend from duty individuals who violate laws or fail to comply with the Consolidation Plan for organizational structure and operations during the special supervision period;

(ix) Recommending the Governor to extend or terminate the special supervision period for the credit organization;

(x) Recommending the Governor to grant special loans to the credit organization;

(xi) Recommending the Governor to take appropriate measures against the credit organization under special supervision according to current laws;

(xii) Requesting the Governor to decide on issues arising that are not mentioned in the Consolidation Plan for organizational structure and operations during the special supervision period.

2. For the Head of the Special Supervisory Board:

a) Assigning tasks to members of the Special Supervisory Board within the scope of their duties and authorities as prescribed;

b) Being responsible for handling issues related to the special supervision process;

c) Being accountable to the Governor for managing the Special Supervisory Board and decisions related to the special supervision of credit organizations.

3. For members of the Special Supervisory Board:

Members of the Special Supervisory Board are responsible for performing their assigned tasks and are accountable to the Head of the Board for the execution of their duties.

||| PART III

||| SPECIAL SUPERVISION PERIOD, EXTENSION OF THE SPECIAL SUPERVISION PERIOD, AND TERMINATION OF SPECIAL SUPERVISION

||| END OF SPECIAL SUPERVISION

||| Article 15. Special supervision period, extension of the special supervision period

||| 1. The maximum special supervision period is two years from the date on which the Governor's Decision placing the credit institution under special supervision takes effect.

||| 2. In cases where the Special Supervisory Board requests the Governor to extend the special supervision period for the credit institution as provided in Subpoint (ix) of Point b Clause 1 Article 14 of this Circular, the Special Supervisory Board shall submit a Petition requesting the Governor to extend the special supervision period for the credit institution or refuse such extension (specifying the reasons).

||| 3. Within a maximum period of fifteen working days from the date of receipt of the request from the Special Supervisory Board, the Inspection and Supervision Authority shall seek opinions from relevant units, compile them, and submit to the Governor for a decision on whether to extend or not extend the special supervision period for the credit institution (specifying the reasons).

||| Article 16. Termination of special supervision

||| 1. The Governor shall issue a Decision terminating the special supervision of the credit institution when it falls into one of the following situations:

||| a) Expiration of the special supervision period without extension.

||| b) The credit institution has overcome the causes leading to special supervision and operates normally.

||| c) The credit institution is unable to overcome the causes leading to special supervision, resulting in bankruptcy.

||| d) Before the end of the special supervision period, the credit institution reorganizes according to current laws and regulations.

||| 2. In cases where the Special Supervisory Board requests the Governor to terminate the special supervision of the credit institution as provided in Subpoint (ix) of Point b Clause 1 Article 14 of this Circular, the Special Supervisory Board shall submit a Petition to the Governor requesting termination of the special supervision of the credit institution.

||| 3. Within a maximum period of thirty working days from the date of receipt of the request from the Special Supervisory Board as stipulated in Clause 2 of this Article, the Inspection and Supervision Authority shall seek opinions from relevant units, compile them, and submit to the Governor for a decision on termination of the special supervision of the credit institution.

Chapter III

RESPONSIBILITIES OF UNITS UNDER THE STATE BANK OF VIETNAM

||| Article 17. Inspection and Supervision Authority

||| 1. To inspect, detect, and promptly report to the Governor when the credit institution is at risk of falling into one of the situations specified in Article 6 of this Circular.

||| 2. To dispatch staff to join the Special Supervisory Board upon the Governor's request.

||| 3. To serve as the focal point for receiving reports and requests from the credit institution, the State Bank Branch, the Special Supervisory Board, seek opinions from relevant units, compile them, and submit to the Governor for decisions on issues related to special supervision of the credit institution as stipulated in this Circular.

||| 4. To be responsible for managing and storing confidential files related to the special supervision of the credit institution.

||| Article 18. Legal Affairs Department

||| 1. To dispatch staff to join the Special Supervisory Board upon the Governor's request.

||| 2. Within a maximum period of fifteen working days from the date the Inspection and Supervision Authority sends a written request, the Legal Affairs Department shall provide written opinions on legal issues during the special supervision of the credit institution and send them to the Inspection and Supervision Authority.

Article 19. Department of Finance and Accounting

Within a maximum period of 15 working days from the date of receipt of the written request from the Inspection and Supervision Agency, the Department of Finance and Accounting shall provide its written opinion on issues related to the accounting mechanism and repayment of special loans for credit institutions under special control.

Article 20. Relevant Units at the State Bank of Vietnam

Relevant units at the State Bank of Vietnam shall participate in the Special Control Board and handle related matters upon the Governor's request.

Article 21. Branches of the State Bank of Vietnam

1. To inspect, identify, and promptly report to the Governor when a credit institution is at risk of falling into one of the situations specified in Article 6 of this Circular.

2. To propose solutions to issues related to special control, extension of the special control period, and termination of special control for credit institutions based on the requests of the credit institutions and the Special Control Board in accordance with the provisions of this Circular.

3. To dispatch staff to join the Special Control Board upon the Governor's request.

Chapter IV

IMPLEMENTING PROVISIONS

Article 22. Effectiveness

1. This Circular takes effect from May 6, 2010.

2. Decision No. 215/1998/QD-NHNN dated June 23, 1998 promulgating the Special Control Regulations for Joint Stock Credit Institutions, Decision No. 1071/2002/QD-NHNN dated October 2, 2002 amending and supplementing certain articles and clauses of the Special Control Regulations for Joint Stock Credit Institutions issued together with Decision No. 215/1998/QD-NHNN dated June 23, 1998, and Decision No. 646/2002/QD-NHNN dated June 21, 2002 amending Article 14 of Decision No. 215/1998/QD-NHNN dated June 23, 1998 of the Governor of the State Bank of Vietnam shall be repealed.

Article 23. Implementation Organization

The Director of the Office, the Chief Inspector and Supervisor of Banking, Heads of units under the State Bank of Vietnam, Governors of State Bank of Vietnam branches in provinces and cities, Chairmen and members of the Management Councils, Heads and members of the Control Boards, and General Directors of credit institutions are responsible for implementing this Circular./.