Trang Chủ
“Special control” is a situation in which a credit institution is placed under a direct comptrollership by the State Bank of Vietnam (SBV) due to the institution’s potential insolvency or serious legal violations which may result in disruption (Article 1, Clause 3, Circular 07/2013/TT-NHNN dated 14 March 2013 by the SBV on special control of credit institutions).
Credit institutions have core functions of taking deposits and channeling those deposits into lending or investing activities and providing banking services, which are associated with sensitivity and high risks. Risks in banking activities may induce serious consequences not only on customers, depositors at banks but also on the whole banking system and the economy. Deposit insurance scheme is an important policy tool to protect depositors and social security. Deposit insurance contributes to enhancing public confidence in banking activities, to strengthening people’s motivation in depositing their money in banks. Particularly, for those banks under special control, depositors would feel safer because the deposit insurer on behalf of the government would protect their money. In the worst case the problem bank can not recover, the insured depositors will claim for deposit insurance up to the coverage limit. Insurance pay-out is conducted by the deposit insurer.
Prior to the Law on Deposit Insurance taking effects on 1 January 2013, the role and responsibilities of the Deposit Insurance of Vietnam (DIV) in the special control of credit institutions were not clearly defined. According to Circular 08/2010/TT-NHNN dated 22 March 2010 by SBV on the special control of credit institutions, the composition of the Special Controlling Board does not comprise of DIV. On the other hand, the regulation on information sharing between SBV and DIV stipulates that in the case a credit institution is put under special control, the Department on Credit Institutions and SBV regional branches shall make announcement of the special control to the DIV. In fact, the information provision by the SBV has been very limited and the DIV’s awareness of the special control cases mainly through its own regular supervisory operations of insured institutions.
Up to now, DIV has been actively monitoring the institutions under special control in order to prepare best solutions for ensuring legal interests of depositors, especially pay-out plans to reimburse insured depositors at insolvent institutions. However, due to the fact that DIV has not taken a role in the Special Controlling Board or any defined part in the special controlling process, DIV’s detection of and reaction to problem banks has been limited. This has hindered the best protection of depositors.
For ensuring the legal interests of insured depositors and realizing DIV’s objectives and in compliance with the Principle 15 of the “Core principles for effective deposit insurance systems” concerning early detection, prompt interference and resolution of default banks, the Article 13-Clause 13-Law on Deposit Insurance stipulates that the deposit insurer shall take part in the special controlling process of insured institutions in accordance with SBV’s regulations.
On 14 March 2013, SBV promulgated Circular 07/2013/TT-NHNN on special controlling procedure of credit institutions as a replacement of Circular 08/2010/TT-NHNN dated 22 March 2010. According to the new circular, for the insured institution which has been put under special control, DIV’s duties are: assigning DIV expert(s) to join the Special Controlling Board as regulated by SBV; making comments and recommendations in writing on the special control within 7 days since the day of receiving notification from the Banking Supervisory Agency, SBV branches, Special Controlling Board. Decisions on the special control will be informed to the DIV.
Therefore, the new regulation on DIV’s taking part in special control has repaired the shortcomings of previous documents. It also realizes better the operational objectives of the deposit insurer.
Moreover, for DIV’s better performance related to under-special-control institutions, the responsibilities of relevant agencies taking part in Special Controlling Board should be officially and clearly defined in accordance with theirs assigned operational objectives.
A combination of comprehensive guidelines of controlling procedure, great efforts by specially controlled institutions, effective supervision by Special Controlling Board and relevant agencies would together rehabilitate problem institutions. By that way, interests of depositors will be best ensured contributing to the safe and sound development of the financial system and the whole economy.
References:
- Law on Credit Institutions passed by National Assembly XII, session 7, dated 16 June 2010;
- Law on Deposit Insurance passed by National Assembly XIII, session 3 dated 18 June 2012;
- Core Principles for Effective Deposit Insurance Systems;
- Circular 03/2006/TT-NHNN dated 25 April 2006 by SBV on guiding the enforcement of Decree 89/1999/NĐ-CP and Decree 109/2005/NĐ-CP dated 24 August 2005 by Government on modifying Decree 89/1999/NĐ-CP;
- Circular 08/2010/TT-NHNN dated 22 March 2010 by SBV on special controlling procedure of credit institutions;
- Circular 07/2013/TT-NHNN dated 14 March 2013 by SBV on special controlling procedure of credit institutions.
