Circular No. 10/2012/TT-NHNN on post-inspection and supervision handling for credit institutions and foreign bank branches.

CIRCULAR

Article 24Regarding the handling after inspection and supervision for credit institutions and foreign bank branches

Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

BASED ON THE INSPECTION LAW NO. 56/2010/QH12 OF NOVEMBER 15, 2010;

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;

Considering the proposal of the Inspectorate and Supervision Authority;

The Governor of the State Bank of Vietnam (hereinafter referred to as the State Bank) issues this Circular guiding the handling after inspection and supervision for credit institutions and foreign bank branches.

PART I
GENERAL PROVISIONS

Article 1. Scope of Regulation

Article 1. This Circular stipulates the handling after inspection and supervision for credit institutions and foreign bank branches operating in Vietnam.

Article 2. The handling after inspection and supervision for credit institutions and foreign bank branches as prescribed in this Circular includes the following contents:

a) Handling the implementation of inspection conclusions;

b) Handling after credit institutions and foreign bank branches have been administratively sanctioned;

c) Handling during the supervision activities of credit institutions and foreign bank branches.

Article 3. Special control over credit institutions, revocation of establishment and operation licenses for credit institutions and foreign bank branches, freezing of capital and assets of foreign bank branches shall be carried out in accordance with the regulations of the State Bank and other relevant laws.

Article 2. Applicability

This Circular applies to the following subjects:

1. Credit institutions.

2. Branches of foreign banks operating in Vietnam.

Article 3. Subjects related to the handling after inspection and supervision for credit institutions and foreign bank branches.

Article 3. Explanation of Terms

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

Article 1. The inspected subjects are credit institutions and foreign bank branches operating in Vietnam that are subject to inspection by the Inspection and Supervision Authority.

Article 2. The Inspection and Supervision Authority is the Inspection and Supervision Department of the State Bank, the Inspection and Supervision Department of the State Bank's branch in provincial and centrally-administered city levels. Article 3. Violation notice is a document of the State Bank regarding violations of legal provisions on organization and operation and safety regulations of credit institutions and foreign bank branches.

Article 4. Violation warning is a document of the State Bank regarding the continued violation of legal provisions on organization and operation and safety regulations by credit institutions and foreign bank branches after receiving a violation notice from the State Bank.

Article 4. The actual value of charter capital or authorized capital is the charter capital of credit institutions or authorized capital of foreign bank branches plus (minus) retained earnings, undistributed profits (unresolved losses).

Article 4. Principles of handling after inspection and supervision

Article 1. Handling after inspection and supervision must comply with the law, ensuring accuracy, timeliness, objectivity, honesty, and transparency.

Article 2. All requirements set forth in Clause 2 of Article 1 of this Circular by the Inspection and Supervision Authority for credit institutions and foreign bank branches must be implemented and rectified in accordance with the law.

Article 3. Handling after inspection and supervision aims to ensure safe and healthy development, compliance with monetary and banking policies and laws, and enhance the effectiveness and efficiency of state management in the monetary and banking sector of credit institutions and foreign bank branches.

3. The post-supervision and inspection handling aims to ensure safe and healthy development, compliance with monetary and banking policies and laws by credit organizations and foreign bank branches, and to enhance the effectiveness and efficacy of state management in the monetary and banking sector.

Article 5. Mitigating Circumstances and Aggravating Circumstances

During the process of handling post-inspection and supervision against credit institutions and foreign bank branches, the following circumstances shall be considered as mitigating or aggravating circumstances:

1. Mitigating Circumstances:

a) Having taken measures to prevent, reduce the harm caused by the violation, or voluntarily reported or immediately rectified the consequences of the violation;

b) The cause of the violation was due to technical errors;

c) The violation was due to objective factors not caused by the subjective fault of the staff of the credit institution or foreign bank branch.

2. Aggravating Circumstances:

a) Systematic violations;

b) Intentional violations;

c) Violations causing serious material damage and reputational harm to the credit institution or foreign bank branch;

d) Repeated violations in the same content;

đ) Concealing, evading, intentionally failing to implement, or implementing inadequately; failing to take measures or plans to terminate the causes leading to the violation and to remedy the consequences of the violation as concluded and recommended by the inspection and supervision agency.

Article 6. Forms of Handling and Measures for Handling

1. Post-inspection and supervision handling against credit institutions and foreign bank branches shall be carried out in the following forms:

a) Notification of violation;

b) Warning of violation;

c) Administrative penalty for violation;

d) Decision compelling credit institutions and foreign bank branches to implement one or more of the handling measures specified in Clause 2 and Clause 3 of this Article.

2. The State Bank may apply one or more of the following measures for handling against credit institutions and foreign bank branches:

a) Limiting or not considering requests to expand new banking activities in cases where:

(i) Not having implemented, implemented inadequately, or not timely the contents required to be implemented within the specific time frame stated in the inspection conclusion and the Governor's decision (if any);

(ii) Being subject to administrative penalties;

(iii) Not having implemented or violated the contents previously warned about by the inspection and supervision agency.

b) Not considering requests to open branches, representative offices, and install ATMs; not considering requests to establish subsidiaries, associated companies, or invest in shares at enterprises in cases where credit institutions and foreign bank branches:

(i) Not having implemented or implemented inadequately the mandatory requirements stated in the inspection conclusion and the Governor's decision (if any);

(ii) Being subject to administrative penalties;

(iii) Not having implemented or violated the contents previously warned about by the inspection and supervision agency.

c) Limiting, suspending, or temporarily suspending the implementation of one or more banking operations in cases where credit institutions and foreign bank branches:

(i) Not having implemented the requirements stated in the inspection conclusion and the Governor's decision (if any), and the administrative penalty decision;

(ii) Not having implemented or violated the contents previously warned about by the inspection and supervision agency.

d) Requiring an increase in the charter capital or additional capital to ensure safety ratios in banking operations when the actual charter capital or allocated capital of credit institutions and foreign bank branches is lower than the statutory capital requirement under Vietnamese law.

đ) Limiting credit growth in cases where credit institutions and foreign bank branches:

(i) The minimum capital adequacy ratio is continuously below the level prescribed in Point b Clause 1 Article 130 of the Law on Credit Institutions for six months or longer;

(ii) The non-performing loan ratio over total credit granted to customers is continuously at 10% or higher for three months;

(iii) Violating credit limits for a single customer or group of customers two times or more in a fiscal year;

(iv) Violating the prohibition on granting credit to certain entities as stipulated in Article 126 of the Law on Credit Institutions and restrictions on granting credit as stipulated in Article 127 of the Law on Credit Institutions;

(v) Violating credit limits and conditions for investment and stock trading.

e) Applying a higher minimum capital adequacy ratio than the general level in cases where credit institutions and foreign bank branches:

(i) Violating the limit on capital contribution and share purchase as stipulated in Article 129 of the Law on Credit Institutions;

(ii) Violating the limit on purchasing and investing in fixed assets directly serving the operations of credit institutions and foreign bank branches as stipulated in Article 140 of the Law on Credit Institutions.

g) Being required to implement one or more independent audit services (operational audit, compliance audit) in cases where credit institutions and foreign bank branches:

(i) Being requested by the State Bank to implement one of the cases prescribed in Clause 2 Article 4 Circular No. 39/2011/TT-NHNN dated December 15, 2011 of the State Bank regarding independent auditing for credit institutions and foreign bank branches;

(ii) Engaging in fraudulent accounting books and vouchers;

(iii) Engaging in opening accounting books outside the official accounting system of credit institutions and foreign bank branches.

h) Suspending, temporarily suspending, removing from office, or dismissing managers and executives who have committed violations in cases where credit institutions and foreign bank branches:

(i) Violating provisions in Article 34 of the Law on Credit Institutions and other relevant laws during the performance of assigned rights and obligations;

(ii) Violating one of the cases prescribed in Clause 1 Article 36 of the Law on Credit Institutions.

k) Transferring the case file to the investigation agency if there are signs of criminal offenses; publishing on mass media according to current laws.

3. In addition to the measures prescribed in Clause 2 of this Article, for joint venture credit institutions, wholly foreign-owned credit institutions, and foreign bank branches, the inspection and supervision agency will consider submitting to the Governor of the State Bank for a decision to notify or provide information to foreign credit institutions or central banks or supervisory agencies in the home country according to applicable laws.

Chapter II
PROCEDURES FOR HANDLING VIOLATIONS OF CREDIT ORGANIZATIONS AND FOREIGN BANK BRANCHES AFTER INSPECTION AND SUPERVISION

Section 1

IMPLEMENTATION OF INSPECTION CONCLUSIONS

Article 7. Inspection conclusions

The recommendations set forth in the inspection conclusion that the inspected entity must implement include:

1. Content to be implemented within a specific timeframe.

2. Content not to be implemented within a specific timeframe includes recommendations regarding mechanisms, policies, organization, operations, and risk management that the inspected entity must study, develop plans for, and implement.

Article 8. Implementation of inspection conclusions

1. For the Inspection and Supervision Authority

a) Within fifteen days from the date of issuance of the inspection conclusion, units under the Inspection and Supervision Authority shall base on the nature and severity of the recommendations in the inspection conclusion (if any) to propose the Head of the Inspection and Supervision Authority of the State Bank, the Governor of the State Bank's Branch in provinces and centrally governed cities to:

(i) Submit to the Governor of the State Bank for decision to apply one or more of the measures provided for in Clause 2 and Clause 3, Article 6 of this Circular;

(ii) Decide to recover or pay into the budget the amount of money or property that the inspected entity violated and was discovered through the inspection;

(ii) Request or recommend the competent state management agency to apply measures to rectify and improve mechanisms, policies, and laws.

b) Monitor and urge the inspected entity to implement the recommendations in the inspection conclusion according to the deadlines stipulated in Article 7 and paragraph (i), paragraph (ii) point a, Clause 1 of this Article (if any);

c) Based on the report from the inspected entity regarding solutions, deadlines in the plan to implement the contents of the recommendations in the inspection conclusion stipulated in Clause 2, Article 7 of this Circular, the Inspection and Supervision Authority will supervise and inspect the implementation by the inspected entity.

2. The inspected entity is responsible for:

a) Fully, promptly, and correctly implementing all mandatory contents to be carried out within a specific timeframe stated in the inspection conclusion and the decision on handling by the Governor of the State Bank, the decision on handling by the Head of the Inspection and Supervision Authority of the State Bank, the Governor of the State Bank's Branch in provinces and centrally governed cities after the inspection conclusion as stipulated in paragraph (i), paragraph (ii) point a, Clause 1 of this Article (if any);

b) Sending the Inspection and Supervision Authority a report on solutions, deadlines, and plans to implement the non-mandatory contents to be carried out within a specific timeframe stated in the inspection conclusion as provided for in Clause 2, Article 7 of this Circular.

3. During the period when the requirements set forth in point a, Clause 2 of this Article have not been fully implemented, the inspected entity will be subject to the measures provided for in point a, point b, Clause 2 of Article 6 of this Circular.

4. In case of failure to implement or incomplete, untimely implementation of the requirements set forth in Clause 2 of this Article, the inspected entity will be administratively sanctioned according to the law. If the inspected entity is not administratively sanctioned according to the law, it will be subject to the measures provided for in point c, point k, Clause 2 of Article 6 of this Circular.

Section 2

PROCEDURES AFTER A CREDIT ORGANIZATION OR FOREIGN BANK BRANCH IS ADMINISTRATIVELY SANCTIONED FOR VIOLATIONS

Article 9. Administrative Sanctions for Violations

Credit organizations and foreign bank branches that violate the provisions of laws on state management in the monetary sector and banking activities shall be subject to administrative sanctions as prescribed by law.

Article 10. Post-Sanction Measures

1. Inspection and supervision agencies shall be responsible for monitoring the implementation of administrative sanction decisions by credit organizations and foreign bank branches.

2. Credit organizations and foreign bank branches subject to administrative sanctions shall be responsible for fully, promptly, and timely implementing the decision within the specified time frame and in accordance with the administrative sanction decision issued by the inspection and supervision agency.

3. Within six months from the date of being administratively sanctioned, credit organizations and foreign bank branches shall be subject to the measures stipulated at point a, clause 2, Article 6 of this Circular.

4. Within one year from the date of being administratively sanctioned, credit organizations and foreign bank branches shall be subject to the measures stipulated at point b, clause 2, Article 6 of this Circular.

5. In cases where credit organizations and foreign bank branches fail to implement or implement inadequately the administrative sanction decision, the inspection and supervision agency shall, based on the nature and severity of the violation, propose the Governor of the State Bank to require credit organizations and foreign bank branches to implement the measures stipulated at point c, clause 2, Article 6 of this Circular or to remove, not reappoint, or not appoint to equivalent or higher leadership positions individuals who have violated the law.

Section 3

SUPERVISION MEASURES FOR CREDIT ORGANIZATIONS AND FOREIGN BANK BRANCHES

Article 11. Content of Supervision Measures

1. During their operations, credit organizations and foreign bank branches must comply with the following legal provisions:

a) Regarding the organization, governance, and management of credit organizations and foreign bank branches;

b) Regarding mandatory reserves, statistical reports, and safety ratios in the operations of credit organizations and foreign bank branches;

c) Regarding capital raising, lending, and account-based payment services;

d) The implementation of banking transactions as stipulated in the establishment and operation license or in the approval document of the State Bank;

đ) Regarding anti-money laundering;

e) Regarding foreign exchange management and derivative products;

g) Regarding shareholders, shares, stocks, and capital contributions or share purchases;

h) Other business activities;

k) Compliance with other relevant legal provisions.

2. In cases where credit organizations and foreign bank branches fail to comply with the provisions set out in clause 1 of this Article without reaching the level of administrative sanctions, depending on the nature and degree of non-compliance, the inspection and supervision agency will apply the following measures:

a) Notification of violation;

b) Issue a violation warning.

Article 12. Supervision Measures

1. Inspection and supervision agencies shall be responsible for monitoring the compliance with the violations listed in the violation notification and warning issued to credit organizations and foreign bank branches.

2. Credit organizations and foreign bank branches subject to the measures prescribed in clause 2 of Article 11 of this Circular shall be responsible for fully, promptly, and in accordance with the law to implement the requirements stated in the violation notification or warning issued by the inspection and supervision agency.

3. In the fiscal year, credit organizations and foreign bank branches warned of violations three times or more must implement the measures stipulated at point a and point b, clause 2, Article 6 of this Circular within six months of the next fiscal year.

4. For credit organizations and foreign bank branches that fail to implement or continue to violate the content listed in the violation warning, the inspection and supervision agency will apply one or several of the following measures:

a) Administer administrative sanctions according to the law;

b) Organize surprise inspections or audits of the violation content to make disciplinary recommendations or request the Governor of the State Bank to limit, suspend, or temporarily suspend the performance of related transactions involving the violation;

c) Submit to the Governor of the State Bank for application of one or several of the measures prescribed in clauses 2 and 3, Article 6 of this Circular.

Chapter III
AUTHORITY TO HANDLE POST-INVESTIGATION AND SUPERVISION

Article 13. Responsibilities of Relevant Units under the State Bank

When discovering violations during the organization and operation of credit organizations and foreign bank branches, relevant units under the State Bank shall send a document to the banking inspection and supervision agency requesting examination and handling in accordance with the law.

Article 14. Authority of the Head of Banking Inspection and Supervision Agency

1. Directing, inspecting, supervising, and summarizing the implementation of post-inspection and supervision measures for credit institutions and foreign bank branches by units within the Banking Inspection and Supervision Agency and banking inspection and supervision units of State Bank Branches in provinces and centrally governed cities.

2. Requesting credit institutions and foreign bank branches to provide information, documents, written reports, and explanations on issues related to violations, remediation of violations, rectification of operations, and implementation of post-inspection and supervision measures by the Banking Inspection and Supervision Agency.

3. Applying administrative penalty measures, violation notifications, and warnings against credit institutions and foreign bank branches that have committed violations.

4. Recommending the Governor of the State Bank to issue decisions compelling credit institutions and foreign bank branches to implement one or more of the measures prescribed in Clause 2, Article 6 of this Circular.

Article 15. Authority of the Director, Head of Banking Inspection and Supervision of State Bank Branches in Provinces and Centrally Governed Cities

1. Authority of the Head of Banking Inspection and Supervision of State Bank Branches in Provinces and Centrally Governed Cities:

a) Directing, inspecting, and supervising the implementation of post-inspection and supervision measures for credit institutions and foreign bank branches;

b) Requesting credit institutions and foreign bank branches to provide information, documents, written reports, and explanations on issues related to violations, remediation of violations, rectification of operations, and implementation of post-inspection and supervision measures;

c) Applying administrative penalty measures within their authority, issuing violation notifications, and warnings against credit institutions and foreign bank branches that have committed violations. For people's credit funds, in addition to the aforementioned measures, the Head of Banking Inspection and Supervision of State Bank Branches in Provinces and Centrally Governed Cities shall recommend the Director of such branches to apply the measures prescribed in Clause 2, Article 6 of this Circular.

2. Authority of the Director of State Bank Branches in Provinces and Centrally Governed Cities:

a) Applying measures for people's credit funds as stipulated in point c, Clause 1 of this Article;

b) Recommending the Governor of the State Bank (through the Banking Inspection and Supervision Agency) to issue decisions compelling credit institutions and foreign bank branches to implement one or more of the measures prescribed in Clauses 2 and 3, Article 6 of this Circular;

c) Submitting reports on the results of post-inspection and supervision measures for credit institutions and foreign bank branches to the Banking Inspection and Supervision Agency.

Chapter IV
IMPLEMENTING PROVISIONS

Article 16. Effective Date

This Circular takes effect from May 30, 2012.

Article 17. Implementation Organization

The Head of the State Bank Office, the Head of Banking Inspection and Supervision, Heads of units under the State Bank, Directors of State Bank Branches in Provinces and Centrally Governed Cities, Chairmen of Management Boards, Chairmen of Member Councils, and General Managers (Directors) of credit institutions and foreign bank branches are responsible for implementing this Circular./.