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The legal basis
According to the Law amending and supplementing a number of articles of the Law on Credit Institutions issued on November 20, 2017 and effective from January 15, 2018, the deposit insurer is assigned with a number of additional tasks to participate more deeply in the process of restructuring credit institutions. Specifically, DIV participates in assessing the feasibility of the plan to recover people's credit funds, microfinance institutions, financial companies; participates in assessing the feasibility of the plan for merger, consolidation and transfer of all shares and capital contributions to people's credit funds, microfinance institutions, financial companies; participates in the formulation of a bankruptcy plan for a specially controlled credit institution; waivers of deposit insurance premiums to specially controlled credit institutions; buys long-term bonds from supporting credit institutions. DIV also provides special loans to specially controlled credit institutions.
According to Circular No.08/2021/TT-NHNN stipulating providing special loans to specially controlled credit institutions, the DIV makes special loans to specially controlled credit institutions in the following cases:
Provide special loans to support liquidity for credit institutions when they are at risk of insolvency, threatening the stability of the system during the period when credit institutions are under special control, including cases where the credit institutions are implementing the approved restructuring plan or transfer plan;
Provide special loans under the decision of the SBV with preferential interest rates up to 0% to support liquidity for financial companies, people's credit funds, microfinance institutions from the professional reserve fund in cases when financial companies, people's credit funds, microfinance institutions are at risk of insolvency, threatening the stability of the system while the restructuring plan has not been approved yet;
Provide special loans with preferential interest rates up to 0% to support the recovery of financial companies, people's credit funds and microfinance institutions from the professional reserve fund according to the approved recovery plan.
Cases when special loans are provided
Based on the Law amending and supplementing a number of articles of the Law on Credit Institutions in 2017, Circular No.08/2021/TT-NHNN stipulating special loans for specially controlled credit institutions, DIV has actively develop internal regulatory documents on special lending such as: Regulation on special lending for specially controlled credit institutions, Guidelines for the implementation of Regulation on special lending for controlled credit institutions to stipulate loan conditions, purposes, loan limits, etc., and guide the process of performing special lending operations uniformly throughout the DIV system.
This is an important legal basis for DIV to make special loans to specially controlled credit institutions, thereby contributing to ensuring the safe and healthy development of the credit institution system; protecting the legitimate rights and interests of depositors; maintaining and improving public confidence in the system of credit institutions; ensuring the observance of monetary and banking policies and laws.
Situation of special loans and recommendations
As of June 30, 2022, there were 1,283 insured institutions, including 97 commercial banks and foreign bank branches, 04 microfinance institutions, 1,181 people's credit funds, 01 cooperative bank. DIV is supervising 100% of insured institutions. Through the supervising results, the DIV has discovered units that violate regulations on deposit insurance and safety in banking operations. Since then, the DIV has made recommendations and warnings about potential risks that may cause unsafety in operations or lead to violations of monetary and banking laws of the insured institutions. At the same time, the DIV regularly reviews and captures the operation of problematic people's credit funds and reports to the SBV. As of September 30, 2022, the DIV professional reserve fund was VND 85,959 trillion, with an increase of 12.85% compared to December 31, 2021. This is the main financial resource to help the DIV be ready to reimburse when necessary and effectively participate in the process of restructuring the credit institution system through special lending activities, fulfilling its mission of protecting rights and interests of depositors, contributing to maintaining the stability of the banking and financial system.
In the past time, although the DIV has not made special loans to specially controlled credit institutions, DIV has actively built a usable capital level to ensure adequate financial resources, willing to lend special loans to specially controlled credit institutions when they are eligible, thereby protecting the legitimate interests of depositors; studied mechanisms and policies and preparing resources to make special loans when arising. However, in the process of implementation, the DIV also encountered some problems, specifically:
According to the regulations, the special loan objects of DIV, including the financial companies, are not suitable. It is because the financial companies are not insured institutions; DIV is not allowed to examine and supervise financial companies, is not provided with information from financial companies, and has no basis for determining special loan amounts. On the other hand, with the function and duty of the DIV to protect the legitimate rights and interests of depositors, the purpose of using the special loans of DIV should be to reimburse depositors while the financial companies do not accept deposits from individuals. Therefore, the deposit insurer will not be able to play its role of protecting depositors when lending to financial companies.
A number of specially controlled people's credit funds are currently inactive or have little operation, credit officers or leaders of the people's credit funds have left their positions, transfered to other jobs, or the means of people's credit fund was damaged, so it was difficult to verify information and data on deposits. On the other hand, one of the main reasons for people's credit funds to be specially controlled is due to the moral violations of the fund's leadership, which deliberately violated the provisions of the law. When the DIV lends special loans to these people's credit funds, the possibility of debt recovery is relatively low, even impossible, and the DIV is at risk of losing its capital.
Regarding the handling of losses in cases the special loan cannot be recovered, according to the provisions of Circular No.20/2020/TT-BTC, the DIV is allowed to use the balance of the income for special loans to specially controlled credit institutions. This is separately monitored in detail in the professional reserve fund to cover losses that cannot be recovered from special loans. In case the balance of income from special loans is not enough to cover the loss, the DIV will report to the SBV for consideration and decision to use the professional reserve fund to compensate according to the provisions of law. However, there are currently no regulations on the process and implementation method for the deposit insurer to have a basis for implementation in practice.
In order for DIV’s special lending activities to be effective, thereby contributing to ensuring the safety and soundness of banking operations, as well as protecting the legitimate rights and interests of depositors, it is necessary to implement a number of contents as follows:
Firstly, it is recommended that there be detailed guidance on the special lending by the DIV to financial companies. Accordingly, there are specific regulations on determining the amount and the purpose of using the special loans from the DIV.
Secondly, there should be specific regulations on the information sharing mechanism between the SBV, the DIV and the specially controlled credit institutions, especially the commercial banks so that the DIV can have earlier access to information about specially controlled credit institutions.
Thirdly, it is necessary to provide specific instructions on the order and process of dealing with losses of DIV in special loans so that DIV has a basis to perform when arising.
Fourthly, strengthen training and re-training to improve the quality of staff, helping them have skills and expertise to use with new professions.
