Measures to restructure credit institutions and resolve non-performing loans
The specific objective of the Project is to apply the pilot of Basel II according to the advanced method in commercial banks with the State holding controlling shares and joint stock commercial banks with good governance quality that apply Basel II according to the standard method by the end of 2025; striving that by 2023, the capital adequacy ratio (CAR) of commercial banks will reach at least 10-11%; by 2025, reaching at least 11-12%.
Credit institutions must take measures to ensure the amount of charter capital until 2025. For operating credit institutions (excluding commercial banks, financial companies), weak/specially controlled financial leasing companies, the restructuring plan shall be implemented by competent authorities.
Commercial banks with financial potential, competitiveness, large-scale charter capital must reach at least 15000 billion VND; commercial banks with small and medium financial potential, competitiveness, scale and commercial banks with foreign capital must reach the minimum charter capital at least 5000 billion VND. For financial companies, the minimum charter capital is 750 billion VND. For financial leasing companies, the minimum charter capital is 450 billion VND.
For commercial banks, financial institutions and financial institutions that are weak/specially controlled, the restructuring plan approved by the competent authority shall be implemented, the capital increasing plan shall comply with the approval of the competent authority.
Striving to the end of 2025, the NPL ratio on the balance sheet of the credit institution system, bad debts sold to Vietnam Asset Management Company (VAMC) and not been handled, recovered and implicit debt turning bad debt come to below 3% (excluding weak commercial banks).
The purchase, sale, consolidation, and merger of credit institutions is encouraged. The project specifies a group of solutions to restructure credit institutions. Specifically, credit institutions develop plans and organize the implementation of appropriate solutions for each group of credit institutions, including: increasing charter capital, raising capital adequacy ratio to enhance financial capacity and safe banking activities, improving management and administration capacity, credit quality...; encouraging participation in the purchase, sale, consolidation and merger of credit institutions on a voluntary basis in order to increase the scale, scope of operation and competitiveness; deploy and apply Basel II by advanced method, aiming to reach the development level of the Group of 4 leading countries in the ASEAN region by 2025. Weak credit institutions apply handling measures in accordance with legal regulations to ensure the stability of the credit institution system, political security and social order and safety.
Meanwhile, for commercial banks where the State holds more than 50% of charter capital (excluding banks with compulsory purchase):
Develop a plan to improve the efficiency and quality of operations, and organize the implementation of solutions to increase charter capital and financial capacity, pilot application of Basel II according to the new advanced method (only Bank for Agriculture and Rural Development of Vietnam uses the standard method), in which, in the period of 2022-2023, increasing charter capital from after-tax profits, after setting aside funds for period 2021-2023 for joint stock commercial banks with more than 50% of charter capital held by the State and from the State budget for the Bank for Agriculture and Rural Development of Vietnam; in the period of 2024-2025, learning and advising competent authorities to increase capital in accordance with the law to ensure systemic safety.
The Bank for Agriculture and Rural Development actively develops a plan to comprehensively restructure in order to improve the efficiency and quality of its operations and play a leading role in the field of agricultural and rural credit; increase charter capital according to the plan approved by competent authorities; take steps to implement equitization after the Ministry of Finance approves the plan on arrangement of house and land facilities of the bank; list shares on the domestic stock market.
Commercial banks are required to buy, implement the restructuring according to the plan approved by the competent authorities, in accordance with the provisions of law; strengthen internal examination and control in banking operations, promptly detect, prevent and handle problems and risks in the banking operations.
Promote the handling of non-performing loans; debt classification according to the provisions of law; accelerate and increase the efficiency of the handling and recovery of outstanding debts and assets for the bank.
For joint-stock commercial banks, financial companies, and financial leasing companies, based on monitoring data, inspection and evaluation results of independent auditors and ranking results, joint-stock commercial banks and financial institutions are classified into 03 groups, including: Group 1 of joint-stock commercial banks, financial companies and financial leasing companies with large financial potential, competitiveness, and scale; Group 2 of joint stock commercial banks, financial companies and financial leasing companies with small and medium financial potential, competitiveness, and scale; Group 3 of joint stock commercial banks, financial companies and financial leasing companies that operate weakly, with many potential risks and unsafe operations to implement solutions:
Continue to develop and improve financial capacity in terms of both scale and quality, operational efficiency, competitiveness under the market mechanism, publicity and transparency, fully meeting the standards of governance and safe banking operations in accordance with the provisions of law and international practices, application and provision of modern banking products and services.
Increase capital and improve the quality of credit institutions' own capital to ensure that the charter capital level is not lower than the legal capital level as prescribed by law and raise the capital adequacy ratio according to international standards.
Encourage participation in the purchase, sale, consolidation, and merger of credit institutions on a voluntary basis to increase the scale, scope of operation and competitiveness.
Implement and apply Basel II by advanced methods, aiming to reach the development level of the Group of 4 leading countries in ASEAN by 2025.
Weak credit institutions are considered to apply early intervention measures, special control and other measures as prescribed by law, ensuring the stability of the credit institution system, political security and safety and order of society.
As for foreign credit institutions (joint venture, 100% foreign capital), continue to create conditions for foreign credit institutions to do business and compete equally with domestic credit institutions; encourage foreign credit institutions to participate in supporting and dealing with difficulties and weaknesses of domestic credit institutions; encouraging foreign credit institutions to take the lead in developing and applying modern technologies, bringing new products and services to the Vietnamese market; supporting domestic credit institutions in accessing new processes, products and technologies to meet the increasingly diverse needs of customers' products and services.
Continue to implement measures to prevent and minimize NPL arising. Regarding the group of solutions to handle non-performing loans, assess the quality and recoverability of debts to take appropriate handling measures; make provision and use of risk provisions to deal with NPLs in accordance with the law; supplement and complete legal documents of collateral assets (collateral); debt collection and settlement of collateral; strictly control and reduce operating costs; continue to implement measures to prevent and minimize NPL arising and improve credit quality; proactively coordinate with local authorities and competent State agencies, especially Public Security agencies, People's Courts, and judgment enforcement agencies at all levels in the process of handling collateral for debt recovery, in order to ensure maximum recovery of debts and limit losses to credit institutions.
Submitting to competent authorities for consideration and granting additional charter capital of 10,000 billion VND in the period of 2022-2025 to improve financial capacity and operational efficiency of VAMC.
Strengthen coordination between ministries and related agencies in handling NPLs of credit institutions. Chairman of the People's Committees of the provinces and centrally-run cities should strengthen the direction of local authorities at all levels and relevant agencies to create favorable conditions for credit institutions in the locality in handling NPLs and collateral assets of the NPLs, especially assisting in the implementation of local administrative procedures to handle NPLs, collateral, legal procedures related to real estate projects as collateral of the bank to gradually remove difficulties and handle collateral for debt recovery; creating conditions for credit institutions to quickly handle collateral of bad debts related to cases being handled locally in accordance with law.
Action Plan of the banking sector to implement the Project
By Document No. 1382/QD-NHNN, the Governor of the State Bank of Vietnam (SBV) has issued the Action Plan of the banking sector to implement the Project of “Restructuring the credit institution system associated with the handling of non-performing loans in the 2021 - 2025 period".
The banking sector’s Action Plan has been developed based on Decision No. 689/QD-TTg and the Project. This Action Plan closely follows the perspectives, orientations, objectives, tasks and solutions for the restructuring of the credit institution system associated with the handling of NPLs in the 2021 - 2025 period, as stated in Decision No.689/QD-TTg and the Project; promoting the spirit of proactiveness and the efforts of each entity, and the partnership and coordination among the entities both inside and outside the banking sector, in order to reflect the strong determination for the successful accomplishment of the objectives, tasks and solutions as set out in the Scheme.
The banking sector’s Action Plan identifies specific tasks, solutions, and assignments for the relevant entities to implement, specifically as follows:
Improving the legal frameworks on currency, banking operations, restructuring the credit institution system, and handling of NPLs on the basis of full compliance with the rules of the market economy, in accordance with the international practices and the conditions of Vietnam.
Regarding to solutions to improve the efficiency and quality of the operations of the credit institution system, the banking sector’s Action Plan mentions the specific substances related to: Developing the financial capacity, the credit quality, the operational efficiency, the business administration, and the operational transparency of the credit institutions; Modernizing the banks, improving their competitiveness; Developing a digital banking model, effectively implementing the Digital Transformation Plan of the banking sector; Promoting non-cash payments; Continuing to apply and implement Basel II standards; Developing the network of credit institutions; Improving the efficiency of the credit resource allocation; Promoting green credit, green banking, investment in low-carbon production and consumption industries; Developing non-credit banking services.
Especially, the banking sector’s Action Plan has specific provisions on the handling of NPLs, including: Handling of NPLs, improving the credit quality among the credit institutions; Improving the financial capacity and the operational efficiency of VAMC.
The banking sector’s Action Plan also identifies specific and detailed tasks and solutions for each group/category of credit institutions.
The role of Deposit Insurance of Vietnam in restructuring credit institutions
In Decision No.689/QD-TTg dated June 8, 2022 approving the Project of “Restructuring the credit institution system associated with the handling of non-performing loans in the 2021 - 2025 period” (Decision No.689), it is promulgated to do researching, review, amend and supplement the Law on Deposit Insurance and relevant legal documents, including studying and supplementing the functions and tasks of the DIV participating in restructuring weak credit institutions.
At the same time, one of the views stated in Decision No.689 is: "Restructuring the system of credit institutions associated with NPL settlement is an objective requirement, inheriting the results of the previous period, overcoming shortcomings and proactively responding to challenges in the new period. It is implemented comprehensively, carefully, step by step, ensuring compliance with the market principle, openness, and transparency; making the most of the credit institutions' self-handling resources; maintain stability and safety; ensuring the legitimate interests of depositors”.
Thus, ensuring the legitimate rights and interests of depositors is one of the Government's cross-cutting viewpoints in Decision No.689. In order to well implement this goal, one of the important tasks set forth in the coming time is soon to amend the Law on Deposit Insurance, so that the DIV can increasingly promote its role of "protecting the rights of depositors and maintaining the safety and soundness of the credit institution system"; participating more deeply and effectively in the process of restructuring credit institutions, especially weak people's credit funds.
Besides, DIV actively prepare resources, participate in the process of restructuring weak credit institutions under the direction of the SBV, strengthen the role of the DIV in participating in supporting and handling weak PCFs that are placed in special control. Continue to strengthen the organizational apparatus, professional processes, improve the quality of human resources of the DIV to be ready to participate in the management and administration of weak credit institutions when required.