Circular No. 07/2013/TT-NHNN dated March 14, 2013 of the State Bank of Vietnam stipulating special control over credit institutions

THE STATE BANK OF VIETNAM

Circular No. 07/2013/TT-NHNN of March 14, 2013, on special control of credit institutions

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

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to November 26, 2003 Law No. 18/2003/QH11 on Cooperatives;

Pursuant to November 29, 2005 Law No. 60/2005/QH11 on Enterprises;

Pursuant to the Government’s Decree No. 96/2008/ND-CP of August 26, 2008, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Chief Banking Inspector-Supervisor;

The Governor of the State Bank of Vietnam promulgates the Circular to provide special control of credit institutions.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

This Circular provides special control of credit institutions that are established and operate in accordance with the Law on Credit Institutions.

Article 2. Subjects of application

1. Credit institutions.

2. Organizations and individuals involved in the special control of credit institutions.

Article 3. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Special control means placement of a credit institution under the direct control by the State Bank of Vietnam (below referred to as the State Bank) for its possible insolvency or serious violation of law which is likely to make its operation unsafe.

2. Duration of special control is a period from the time of the State Bank’s issuance of a decision to place a credit institution under special control to the time of issuance of a decision to terminate such special control.

3. Credit institution representative means an officer of a credit institution, the Deposit Insurance of Vietnam or the State Bank who is appointed by the State Bank Governor to represent the credit institution in handling issues related to the special control of the credit institution in case the latter lacks competent personnel to take charge of this matter.

Chapter II

SPECIFIC PROVISIONS

Section 1

SPECIAL CONTROL

Article 4. Forms of special control

1. Based on the financial status, risk level and violations of a credit institution, the State Bank shall consider and decide to place this credit institution under special control in the form of special supervision or comprehensive control as prescribed in Clause 2 or 3 of this Article.

2. Special supervision is a form of special control performed by the State Bank through applying measures to supervise daily operation of a credit institution.

3. Comprehensive control is a form of special control performed by the State Bank through applying measures to directly and comprehensively control daily operation of a credit institution.

Article 5. Competence of the State Bank in special control

1. Based on results of inspection and supervision by the State Bank and at the request of the Banking Inspection and Supervision Agency, the State Bank’s branch in the province or centrally run city where the credit institution’s head office is located (the State Bank branch) or the Special Control Committee, the State Bank Governor may:

a/ Decide to place the credit institution under special control;

b/ Decide on the duration, prolongation of the duration or termination of special control and contents of special supervision or comprehensive control;

c/ Decide to set up a Special Control Committee; appoint or requisition officers to join the Special Control Committee; request related agencies and organizations to appoint their officers to join the Special Control Committee;

d/ Appoint the representative of the credit institution as defined in Clause 3, Article 3 of this Circular;

dd/ Handle matters prescribed at Point d, Clause 2, Article 148 of the Law on Credit Institutions at the request of the Special Control Committee;

e/ Require the owner of the credit institution under special control to increase the charter capital in order to assure that the real value of the charter capital is not lower than the level of legal capital, ensuring prudential ratios for operation as prescribed by law for a specified period; or to elaborate, submit to the State Bank for approval, and implement a restructuring plan or a plan on mandatory merger, consolidation or acquisition with other credit institutions in case the credit institution under special control is incapable or unable to increase its charter capital as requested and within the time limit set by the State Bank;

g/ Directly or designate another credit institution to contribute capital to or purchase shares from the credit institution under special control in case the latter cannot fulfill the requirement mentioned at Point e, Clause 1 of this Article or when the State Bank determines that the accumulative loss of the credit institution under special control exceeds the real value of its charter capital and reserve funds stated in the latest audited financial statement, and the termination of operation of the credit institution under special control may make the system of credit institutions unsafe under Clause 3, Article 149 of the Law on Credit Institutions;

h/ Decide to disclose special control information under Article 7 of this Circular.

2. The State Bank Governor may authorize directors of the State Bank branches to decide on the matters specified in Clause 1 of this Article (except Point g) for people’s credit funds.

Article 6. Notification of decisions on special control

A decision on special control of a credit institution must be notified to:

1. The Board of Directors or Members’ Council of the credit institution under special control;

2. The State Bank Governor in case the credit institution under special control is a people’s credit fund;

3. The State Bank branch;

4. The Deposit Insurance of Vietnam;

5. The Cooperative Bank of Vietnam in case the credit institution under special control is a people’s credit fund;

6. The Ministry of Finance in case the credit institution under special control is a listed company or has an affiliated company or a control company operating in the field of securities or insurance;

7. The provincial-level People’s Committee in the locality where the credit institution’s head office is located; or the commune- or district-level People’s Committee (for people’s credit funds);

8. Other related agencies and organizations as decided by the State Bank Governor.

Article 7. Disclosure of special control information

1. Information on special control of credit institutions allowed to be disclosed includes information on measures to consolidate or restructure these credit institutions as approved by a competent authority and other necessary information.

2. Information on special control of a credit institution may be disclosed in one or several of the following forms:

a/ Publication on a central newspaper or a newspaper of the locality where the credit institution’s head office is located for at least 3 consecutive issues;

b/ Press conference;

c/ Posting on the website of the credit institution under special control or of the State Bank;

d/ Announcement at the Shareholders’ General Meeting.

3. The State Bank Governor shall decide on the time, contents and form of disclosure of information on the special control of credit institutions in each specific case in order to facilitate the implementation of measures to address weaknesses of these credit institutions, except cases in which the credit institutions under special control are people’s credit funds, decided by directors of the State Bank branches.

Article 8. Plans on consolidation of organization and operation

1. The plan on consolidation of organization and operation of a credit institution under special control (below referred to as plan) must be elaborated by the Board of Directors of the credit institution at the request of Special Control Committee.

2. In case the plan elaborated by the Board of Directors of a credit institution under special control fails to meet requirements of addressing difficulties and weaknesses of such credit institution, the State Bank Governor shall designate the hiring of a consultancy agency or some other banking experts to elaborate another plan. The credit institution under special control shall pay all expenses for the hiring of consultants and experts.

3. A plan must contain at least the following details:

a/ Name, address and website (if any) of the credit institution;

b/ Names, addresses and telephone numbers of members of the Board of Directors (for credit institutions established and organized as joint-stock companies) or Members’ Council (for credit institutions established and organized as limited liability companies), members of the Control Board and the General Director (Director) of the credit institution or its representative (if any);

c/ A brief report on the actual situation of governance, finance and operation of the credit institution, which must state at least the following:

(i) The organizational structure, governance, management and ownership of the credit institution;

(ii) The financial status and operation of the credit institution, specifying difficulties, weaknesses, risks and violations of law (if any) and their causes.

d/ Reason(s) for placement of the credit institution under special control;

dd/ Measures to solve difficulties and plans on implementation of several or all of the following measures to:

(i) Improve solvency;

(ii) Raise capital from the outside;

(iii) Reduce expenses;

(iv) Remedy weaknesses and financial losses with the equity capital;

(v) Sell assets or the whole credit institution under special control to another credit institution or potential investors; merge or consolidate the credit institution under special control with another;

(vi) Pay deposits of customers; or transfer all customer deposits to another or some other credit institutions for payment, and take other necessary measures to handle debts, liquidate assets and revoke the establishment and operation license of the credit institution in accordance with law;

(vii) Improve governance and management capacity, and internal control and audit systems;

(viii) Reorganize business activities;

(ix) Other measures.

Section 2

SPECIAL CONTROL COMMITTEE

Article 9. Composition of the Special Control Committee

1. The State Bank Governor shall decide on the composition, number and structure of members of the Special Control Committee to suit the form of special control prescribed in Article 4 of this Circular.

2. Members of the Special Control Committee are officers of the State Bank and the Deposit Insurance of Vietnam, banking experts and officers of credit institutions requisitioned by the State Bank.

3. The head of the Special Control Committee must be one of the following persons:

a/ A departmental leader or holder of an equivalent or higher post in a professional unit of the State Bank;

b/ A departmental leader or holder of an equivalent or higher post of the Banking Inspection and Supervision Agency;

c/ The leader of a State Bank branch.

4. Persons joining the Special Control Committee must not be affiliated persons of members of the Board of Directors, Members’ Council, Control Board, General Director (Director) and major shareholders of the credit institution under special control.

Article 10. Tasks and powers of the Special Control Committee

1. The Special Control Committee has the following tasks:

a/ To direct the Board of Directors, Members’ Council, Control Board, General Director (Director) or representative of the credit institution as defined in Clause 3, Article 3 of this Circular in elaborating a plan;

b/ To direct, inspect and supervise the implementation of the special supervision or comprehensive control contents and measures stated in the approved plan;

c/ To report, periodically or when necessary, to the State Bank Governor (through the Banking Inspection and Supervision Agency) and the director of the State Bank branch on governance, operation and financial status of the credit institution under special control; and results of and difficulties and problems arising in, the implementation of the plan, and to propose measures to assure the safety of operation of the credit institution under special control and properly implement the approved plan;

d/ To inspect, supervise and control operations, financial status, governance, personnel and technology of the credit institution under special control;

dd/ To promptly report to the State Bank Governor and the director of the State Bank branch on abnormal issues, latent risks, unsafe operations and violations of the credit institution upon detection;

e/ To direct and supervise the credit institution under special control in increasing its charter capital; to elaborate and implement the plan on restructuring, merger, consolidation or acquisition at the request of the State Bank under Clause 2, Article 149 of the Law on Credit Institutions and Point e, Clause 1, Article 5 of this Circular;

g/ To elaborate and submit to the State Bank Governor (through the Banking Inspection and Supervision Agency) for approval a plan whereby the State Bank shall directly or designate another credit institution to contribute capital to or purchase shares from the credit institution under special control under Article 149 of the Law on Credit Institutions and Point g, Clause 1, Article 5 of this Circular;

h/ To provide relevant information on the credit institution under special control to competent state agencies at their written requests;

i/ To propose the State Bank Governor to decide on the contents specified at Points e and g, Clause 1, Article 5 of this Circular;

k/ Other tasks assigned by the State Bank Governor.

2. The Special Control Committee has the following powers:

a/ The powers provided in Clause 2, Article 148 of the Law on Credit Institutions;

b/ To request the credit institution under special control to inventory all of its existing assets or hire an independent audit firm or a professional agency to assess the financial status, valuate assets and determine the corporate value of the credit institution, and supervise the fulfillment of this request;

c/ To request the credit institution under special control to invite or directly invite debtors and creditors to a meeting for comparing debts with the credit institution in order to determine its ability to recover and pay debts, and supervise the debt recovery and payment;

d/ To request units and individual employees of the credit institution to fully, promptly and accurately provide, report and explain relevant information, documents and dossiers;

dd/ To make dossiers to request competent state agencies to handle persons and entities that commit violations of law or intentionally fail to pay debts to the credit institution;

e/ To give its approval before the credit institution:

(i) Distributes profits;

(ii) Conducts transactions stated in the special control decision;

(iii) Changes accounting, financial product and customer policies;

(iv) Conducts other transactions or acts in order to prevent or stop the hiding, dispersal, pledge, mortgage or transfer of assets which may cause damage to the credit institution.

g/ To request the State Bank to decide on matters which arise during the special control and have not yet been stated in the plan;

h/ To use the seal of the State Bank in performing its assigned tasks;

i/ Other powers as provided by law.

Article 11. Responsibilities of the head of the Special Control Committee

1. To direct and organize the performance of the tasks and exercise of the powers of the Special Control Committee specified in Article 10 of this Circular.

2. To assign tasks to members of the Special Control Committee.

3. To direct the Special Control Committee and manage and monitor the performance of tasks by members of the Special Control Committee.

Article 12. Responsibilities of members of the Special Control Committee

1. To perform tasks assigned by the head of the Special Control Committee.

2. To detect and promptly report to the head of the Special Control Committee on abnormal issues, latent risks, unsafe operations or violations of the credit institution under special control, and concurrently propose remedies.

3. To take responsibility before the head of the Special Control Committee and law for the performance of their assigned tasks.

Section 3

SPECIAL CONTROL DURATION, PROLONGATION OF SPECIAL CONTROL DURATION AND TERMINATION OF SPECIAL CONTROL

Article 13. Special control duration

1. The special control duration is stipulated by the State Bank Governor in special control decisions.

2. Decisions on prolongation of the special control duration or decisions on termination of special control of credit institutions must be notified to agencies and organizations specified in Article 6 of this Circular.

Article 14. Prolongation of the special control duration

1. Prolongation of the special control duration applies to credit institutions under special control that have the prospect of restoration of normal operation or those that need more time for carrying out procedures for merger, consolidation or acquisition in accordance with law. For credit institutions for which the special control duration is not prolonged, their special control must be terminated upon the expiration of such duration.

2. Based on the actual state of a credit institution, within thirty (30) days before the expiration of the special control duration, the Special Control Committee shall request in writing the State Bank Governor (through the Banking Inspection and Supervision Agency) to decide on prolongation of the special control duration, for credit institutions other than people’s credit funds, or the director of the State Bank branch to decide on prolongation of the special control duration, for people’s credit funds.

3. When receiving a written request of the Special Control Committee:

a/ The Banking Inspection and Supervision Agency shall consult related units, and summarize and submit their opinions to the State Bank Governor for consideration and decision on prolongation of the special control duration, for credit institutions other than people’s credit funds, before the expiration of such duration.

b/ The director of the State Bank branch shall decide on prolongation of the special control duration, for people’s credit funds, before the expiration of such duration.

Article 15. Termination of special control

1. Credit institutions may have their special control terminated in the cases specified in Clause 1, Article 152 of the Law on Credit Institutions.

2. For a credit institution for which the special control is terminated by the State Bank due to the failure to restore its solvency, the State Bank shall send to the court a written notice of termination of application of measures to restore solvency and request such credit institution to file a lawsuit with the court for opening procedures for settling a bankruptcy declaration request in accordance with the law on bankruptcy.

3. The Special Control Committee shall send to the State Bank Governor (through the Banking Inspection and Supervision Agency) or the director of the State Bank branch (for people’s credit funds) a written request for termination of special control of the credit institution. Upon receiving the Special Control Committee’s written request for termination of special control:

a/ The Banking Inspection and Supervision Agency shall consult related units, and summarize and submit their opinions to the State Bank Governor for consideration and decision on termination of special control, for credit institutions other than people’s credit funds;

b/ The director of the State Bank branch shall decide on termination of special control, for people’s credit funds.

4. Decisions on termination of special control of credit institutions must be notified to agencies and organizations specified in Article 6 of this Circular.

Chapter III

RESPONSIBILITIES OF RELATED UNITS

Article 16. Responsibilities of the Banking Inspection and Supervision Agency

1. Based on results of management, inspection and supervision work, the Banking Inspection and Supervision Agency shall:

a/ Inspect, supervise, detect and report to the State Bank Governor on credit institutions’ possible insolvency or serious violations of law which are likely to make their operation unsafe;

b/ Propose the State Bank Governor to decide on special control of credit institutions other than people’s credit funds, and the form, contents and duration of special control;

c/ Nominate the head and members of the Special Control Committee, for credit institutions other than people’s credit funds, to the State Bank Governor for decision;

d/ Propose the State Bank branches to place people’s credit funds under special control.

2. To advise the State Bank Governor on directing the organization of special control of credit institutions.

3. To act as the focal point for receiving reports, proposals and recommendations of credit institutions other than people’s credit funds, the Deposit Insurance of Vietnam, the State Bank branches and the Special Control Committee; to consult related units, and summarize and propose their opinions to the State Bank Governor for decision on matters related to the special control of credit institutions other than people’s credit funds under this Circular.

4. To supervise the operation of the Special Control Committee for credit institutions other than people’s credit funds.

5. To comply with the provisions of Point a, Clause 3, Article 14 and Point a, Clause 3, Article 15 of this Circular.

6. To manage and preserve dossiers related to the special control of credit institutions other than people’s credit funds in accordance with law.

Article 17. Responsibilities of related units of the State Bank

1. Based on their assigned functions and tasks and the State Bank Governor’s direction, related units of the State Bank shall participate in the special control of credit institutions and give their opinions on matters of credit institutions under special control at the request of the Banking Inspection and Supervision Agency within seven (7) days after receiving the latter’s written request.

2. The Office of the State Bank shall disclose information on special control under Article 7 of this Circular.

Article 18. Responsibilities of the State Bank branches

1. For credit institutions other than people’s credit funds:

a/ To inspect, supervise, detect and promptly report to the State Bank Governor (through the Banking Inspection and Supervision Agency) on credit institutions’ possible insolvency or serious violations of law which are likely to make their operation unsafe;

b/ To propose the State Bank Governor (through the Banking Inspection and Supervision Agency) to handle matters related to the special control of credit institutions, consolidation, reorganization or restructuring of credit institutions under special control, and prolongation or termination of the special control duration at the request of such credit institutions or the Special Control Committee and under this Circular;

c/ To nominate their officers to join the Special Control Committee at the request of the State Bank Governor;

d/ To coordinate with the Banking Inspection and Supervision Agency, the Special Control Committee and state management agencies in localities where the credit institutions’ head offices are located in the special control of such credit institutions.

2. For people’s credit funds

a/ To examine, detect and promptly report to the State Bank Governor when people’s credit funds are likely to fall into one of the cases specified in Clause 3, Article 146 of the Law on Credit Institutions;

b/ To handle matters related to the special control, consolidation, reorganization or restructuring of people’s credit funds under special control, and prolongation or termination of the special control duration at the request of such people’s credit funds or the Special Control Committee and under this Circular;

c/ To decide to place people’s credit funds under special control and set up the Special Control Committee for people’s credit funds under this Circular;

d/ To manage and preserve dossiers related to the special control of people’s credit funds in accordance with law; to report, on a monthly basis or when necessary, to the State Bank Governor on special control results, difficulties and problems, and propose measures to implement special control of people’s credit funds;

dd/ To coordinate with state management agencies in localities where the people’s credit funds’ head offices are located in handling matters related to the special control of people’s credit funds;

e/ To disclose information on special control under Article 7 of this Circular.

Article 19. Responsibilities of the Deposit Insurance of Vietnam

For credit institutions under special control that participate in deposit insurance, the Deposit Insurance of Vietnam shall:

a/ Send its officers to join the Special Control Committee at the request of the State Bank.

b/ Within seven (7) days after receiving a written request of the Banking Inspection and Supervision Agency, the State Bank branch or the Special Control Committee, give its written opinions on matters related to the special control of credit institutions.

Article 20. Responsibilities of credit institutions

1. When a credit institution faces insolvency or becomes insolvent, its Board of Directors (Members’ Council) or General Director (Director) shall promptly report such to the State Bank Governor (through the Banking Inspection and Supervision Agency) and the director of the State Bank’s branch in the locality where such credit institution’s head office is located.

2. The Board of Directors (Members Council), Control Board, General Director and officers of a credit institution under special control shall:

a/ Strictly comply with decisions and directions of the State Bank;

b/ Propose and work out a special control plan of the credit institution, then submit it to the Special Control Committee for approval, and implement the approved plan;

c/ Govern, control and manage all activities and assure safety for assets of the credit institution in accordance with law and its charter, unless they are banned or suspended from governance, management and control under Point b, Clause 2, Article 148 of the Law on Credit Institutions;

d/ Comply with requests and directions of the Special Control Committee under Points a, b, c and dd, Clause 2, Article 148 of the Law on Credit Institutions.

dd/ Take responsibility for the accuracy of information, documents and dossiers they provide to the Special Control Committee.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 21. Effect

1. This Circular takes effect on April 27, 2013.

2. The State Bank Governor’s Circular No. 08/2010/TT-NHNN of March 22, 2010, on special control of credit institutions, and Decision No. 92/2001/QD-NHNN of February 8, 2001, promulgating the Regulation on special control of people’s credit funds, cease to be effective on the effective date of this Circular.

Article 22. Organization of implementation 

The director of the Office, the Chief Banking Inspector-Supervisor, heads of the units of the State Bank, directors of the State Bank branches, the chairperson and members of the Board of Directors and the general director of the Deposit Insurance of Vietnam, chairpersons and members of the Boards of Directors or Members’ Council, heads and members of Control Boards and general directors (directors) of credit institutions shall implement this Circular.-

For the State Bank Governor
Deputy Governor
DANG THANH BINH