Circular No. 10/2012/TT-NHNN dated April 16, 2012 of the State Bank of Vietnam providing the post-inspection and -supervision handling of credit institutions and foreign bank branches

THE STATE BANK OF VIETNAM

Circular No. 10/2012/TT-NHNN of April 16, 2012, providing the post-inspection and -supervision handling of credit institutions and foreign bank branches

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 15, 2010 Law No. 56/2010/QH12 on Inspection;

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 of the Banking Supervisory Agency;

The Governor of the State Bank of Vietnam (below referred to as the State Bank) issues this Circular to guide the post-inspection and -supervision handling of credit institutions and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Circular provides the post inspection and -supervision handling of credit institutions and foreign bank branches operating in Vietnam.

2. Post-inspection and supervision handling of credit institutions and foreign bank branches provided in this Circular covers the following contents:

a/ Handling of the compliance of inspection conclusions;

b/ Handling after credit institutions and foreign bank branches are administratively sanctioned;

c/ Handling in the supervision of credit institutions and foreign bank branches.

3. Special control of credit institutions, revocation of establishment and operation licenses of credit institutions and foreign bank branches, and blockade of capital and assets of foreign bank branches comply with the State Bank’s regulations and other relevant regulations.

Article 2. Subjects of application

This Circular applies to:

1. Credit institutions.

2. Foreign bank branches operating in Vietnam.

3. Organizations and individuals involved in the post- inspection and -supervision handling of credit institutions and foreign bank branches.

Article 3. Interpretation of terms

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

1. Inspected entity means a credit institution or a foreign bank branch operating in Vietnam which is inspected by an inspection and supervision agency.

2. Supervisory agency means the State Bank’s Banking Supervisory Agency or the banking supervisory agency or a provincial-level branch of the State Bank.

3. Violation notice means a document of the State Bank notifying violations of regulations on organization, operation and safety of credit institutions and foreign bank branches.

4. Violation warning means a document of the State Bank on a credit institution’s or foreign bank branch’s continued violation of regulations on organization, operation and safety after receiving the State Bank’s violation notice.

5. Real value of charter capital or allocated capital means the value of the charter capital of a credit institution or of allocated capital of a foreign bank branch plus (minus) retained earnings (unhandled loss).

Article 4. Principles of post-inspection and -supervision handling

1. Post-inspection and supervision handling must comply with law and ensure accuracy, promptness, objectivity, truthfulness and publicity.

2. All contents of a supervisory agency’s request with respect to a credit institution or a foreign bank branch referred to in Clause 2, Article 1 of this Circular must be complied with and remedied under law.

3. Post-inspection and -supervision handling aims to ensure safe and healthy development of credit institutions and foreign bank branches and their observance of monetary and banking policies and laws, and raise state management effectiveness and effect in the monetary and banking sector.

Article 5. Extenuating circumstances and aggravating circumstances

In the course of post-inspection and
-supervision handling a credit institution or a foreign bank branch, the following circumstances can be regarded as extenuating circumstances or aggravating circumstances:

1. Extenuating circumstances:

a/ The credit institution or foreign bank branch has prevented, and reduced the damage of, violations, or has voluntarily reported on violations or voluntarily and immediately redressed the consequences of violations;

b/ Its violations are due to technical faults;

c/ It commits violations due to objective factors but not due to subjective faults of its  officers.

2. Aggravating circumstances:

a/ A credit institution or foreign bank branch commits violations in a systematic manner;

b/ It intentionally commits violations;

c/ Its violations cause serious consequences and damage in material value and prestige;

d/ It repeats the same violations or commits recidivism;

e/ It commits acts of hiding, shirking or intentionally failing to comply or to fully comply with; or fails to apply measures or plans for terminating the causes of violations or remedying consequences of violations according to conclusions and recommendations of the supervisory agency.

Article 6. Forms and measures of handling

1. Post-inspection and -supervision handling of credit institutions or foreign bank branches may take the following forms:

a/ Notifying violations;

b/ Warning violations;

c/ Sanctioning administrative violations;

d/ Compeling credit institutions or foreign bank branches to take one or several handling measures mentioned in Clauses 2 and 3 of this Article.

2. The State Bank may apply one or several measures to handle credit institutions or foreign bank branches as follows:

a/ Limiting credit institutions or foreign bank branches from adding, or refusing to allow them to add, new banking operations if they:

(i) Fail to comply or to fully and promptly comply with the requests within the time limit specified in inspection conclusions as well as decisions of the State Bank Governor (if any);

(ii) Are administratively sanctioned;

(iii) Fail to comply with or violate contents already warned by supervisory agencies.

b/ Refusing to allow credit institutions or foreign bank branches to open branches and representative offices and install ATMs; refusing to consider requests for establishment of subsidiary or affiliated companies or contribution of capital to or purchase of shares from businesses if credit institutions or foreign bank branches:

(i) Fail to comply or to fully comply with compulsory requests indicated in inspection conclusions as well as decisions of the State Bank Governor (if any);

(ii) Are administratively sanctioned;

(iii) Fail to respond to or violate contents already warned by supervisory agencies.

c/ Restricting, stopping or suspending credit institutions or foreign bank branches from conducting one or several banking operations if they:

(i) Fail to comply with requests stated in inspection conclusions as well as decisions of the State Bank Governor (if any) or in administrative sanctioning decisions;

(ii) Fail to comply with or violate contents already warned by supervisory agencies.

d/ Requesting credit institutions or foreign bank branches to increase their charter capital or add their allocated capital to ensure safety ratios in banking operations when the real value of charter capital or allocated capital of credit institutions or foreign bank branches is lower than the legal capital level prescribed by Vietnamese law.

e/ Limiting credit growth if credit institutions or foreign bank branches:

(i) Have their minimum capital adequacy ratio lower than the ratio specified at Point b, Clause 1, Article 130 of the Law on Credit Institutions in six or more consecutive months;

(ii) Have the proportion of bad debts to total outstanding credit extended to clients at 10% or higher for 3 consecutive months;

(iii) Violate regulations on credit extension limit for a single client or a single group of clients twice or more in a fiscal year;

(iv) Violate regulations on credit extension for cases ineligible for credit extension under Article 126 of the Law on Credit Institutions and cases subject to credit extension limitation under Article 127 of the Law on Credit Institutions;

(v) Violate regulations on credit limits and conditions for stock investment or trading.

f/ Applying a minimum capital adequacy ratio higher than the prescribed level if credit institutions or foreign bank branches:

(i) Violate regulations on the limits of capital contribution and share purchase under Article 129 of the Law on Credit Institutions;

(ii) Violate regulations on the limits of purchase of and investment in fixed assets directly for their operations under Article 1409 of the Law on Credit Institutions.

g/ Taking one or several independent audit services (operational audit, compliance audit) if credit institutions or foreign bank branches:

(i) Are requested by the State Bank to apply one of the cases specified in Clause 2, Article 4 of the State Bank’s Circular No. 39/2011/TT-NHNN of December 15, 2011, on independent audit of credit institutions and foreign bank branches;

(ii) Forge accounting books or documents;

(iii) Open accounting books outside their official system of accounting books.

h/ Terminating, suspending, relieving from duty or dismissing violating managers or executive officers if credit institutions or foreign bank branches:

(i) Violate Article 34 of the Law on Credit Institutions and other relevant laws in discharging their rights and obligations;

(ii) Violate one of the cases specified in Clause 1, Article 36 of the Law on Credit Institutions.

k/ Transferring dossiers of violations to investigation agencies when violations show criminal signs; publicizing violations in the mass media under current law.

3. In addition to the measures specified in Clause 2 of this Article, for joint-venture credit institutions, wholly foreign-owned credit institutions and foreign bank branches, supervisory agencies may consider and submit to the State Bank Governor for decision to notify and provide information to foreign credit institutions or central banks of host countries or to inspection and supervision agencies of host countries under law.

Chapter II

POST-INSPECTION AND -SUPERVISION HANDLING OF VIOLATIONS OF CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Section 1

HANDLING OF COMPLIANCE WITH INSPECTION CONCLUSIONS

Article 7. Inspection conclusions

Recommendations stated in inspection conclusions which must be implemented by inspected entities include:

1. Recommendations which must be implemented within a specified time limit.

2. Recommendations which need not to be implemented within a specified time limit, including those concerning mechanisms, policies, organization, operation and risk administration which inspected entities must prepare plans for implementation.

Article 8. Compliance with inspection conclusions

1. Supervisory agencies

a/ Within 15 days after issuing inspection conclusions, units under the supervisory agency shall, based on the nature and extent of recommendations stated in inspection conclusions (if any), request the Chief of the Banking Supervisory Agency or the director of the State Bank’s provincial-level branch to:

(i) Propose the State Bank Governor to apply one or several handling measures specified in Clauses 2 and 3, Article 6 of this Circular;

(ii) Recover or remit into the state budget money and assets detected through inspection as illegally gained by inspected entities;

(iii) Request or propose competent state management agencies to take remedies and improve mechanisms, policies and laws.

b/ To monitor and urge inspected entities to implement recommendations stated in inspection conclusions within the time limits specified in Article 7 and Items (i) and (ii), Point a, Clause 1 of this Article (if any);

c/ To supervise and examine inspected entities’ implementation based on their  reports on solutions and time limits in the plans for implementing recommendations stated in inspection conclusions specified in Clause 2, Article 7 of this Circular.

2. Inspected entities shall:

a/ Fully, promptly and timely implement compulsory recommendations stated in inspection conclusions as well as handling decision of the State Bank Governor, handling decision of the Chief of the Banking Supervisory Agency or the director of the State Bank’s provincial-level branch, after obtaining inspection conclusions specified at Items (i) and (ii), Point a, Clause 1 of this Article (if any);

b/ Send to the supervisory agency a report on solutions, time limit and plan for implementing non-compulsory recommendations stated in inspection conclusions as specified in Clause 2, Article 7 of this Circular.

3. Pending their full compliance with the requests referred to at Point a, Clause 2 of this Article, the inspected entities are subject to the measures specified at Points a and b, Clause 2, Article 6 of this Circular.

4. If failing to comply or to fully and promptly comply with the requests referred to in Clause 2 of this Article, inspected entities shall be administratively sanctioned under law or subject to the measures specified at Points c and k, Clause 2, Article 6 of this Circular.

Section 2

HANDLING AFTER CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES ARE ADMINISTRATIVELY SANCTIONED

Article 9. Administrative sanctioning

Credit institutions or foreign bank branches that violate regulations on state management in monetary and banking operations shall be administratively sanctioned under law.

Article 10. Post-administrative sanctioning handling

1. Supervisory agencies shall supervise the compliance with administrative sanctioning decisions by credit institutions or foreign bank branches.

2. Credit institutions or foreign bank branches subject to administrative sanctioning shall fully, promptly, timely and properly comply with administrative sanctioning decisions of supervisory agencies.

3. Within 6 months after being administratively sanctioned, credit institutions or foreign bank branches are subject to the measure specified at Point a, Clause 2, Article 6 of this Circular.

4. Within 1 year after being administratively sanctioned, credit institutions or foreign bank branches are subject to the measure specified at Point b, Clause 2, Article 6 of this Circular.

5. If administratively sanctioned credit institutions or foreign bank branches fail to comply or to fully comply with administrative sanctioning decisions, supervisory agencies shall, based on the nature and severity of the violations, propose the State Bank Governor to request credit institutions or foreign bank branches to comply with the measure specified at Point c, Clause 2, Article 6 of this Circular or to relieve from duty, refuse to re-appoint or refuse to appoint violators to equivalent or higher leading positions.

Section 3

HANDLING IN THE SUPERVISION OF CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Article 11. Contents of handling during supervision

1. During operation, credit institutions or foreign bank branches shall comply with the following regulations on:

a/ Organization, administration and operation of credit institutions and foreign bank branches;

b/ Compulsory reserves, statistical reports and safety ratios in operations of credit institutions and foreign bank branches;

c/ Capital raising, credit extension and via-account payment service provision;

d/ Conducting banking operations indicated in the establishment and operation licenses or written approval of the State Bank;

e/ Money laundering prevention and control;

f/ Management of foreign exchange and derivative products;

g/ Shareholders, shares, stocks as well as capital contribution and share purchase;

h/ Other business activities;

i/ Observance of other relevant laws.

2. For credit institutions or foreign bank branches that fail to comply with Clause 1 of this Article but their violations are not serious enough for being administratively sanctioned, depending on the nature and severity of their compliance failure, supervisory agencies shall take the following handling measures:

a/ Notifying violations;

b/ Warning violations.

Article 12. Handling during supervision

1. Supervisory agencies shall monitor credit institutions and foreign bank branches in observing the requests stated in violation notices or violation warnings.

2. Credit institutions or foreign bank branches subject to the handling measures referred to in Clause 2, Article 11 of this Circular shall fully, promptly and lawfully comply with the requests stated in violation notices or violation warnings of supervisory agencies.

3. In a fiscal year, credit institutions or foreign bank branches that have received three or more violation warnings will be subject to the measures specified at Points a and b, Clause 2, Article 6 of this Circular for 6 months of the subsequent fiscal year.

4. For credit institutions or foreign bank branches that fail to comply with or still violate the contents stated in violation warnings, supervisory agencies shall apply one or several measures as follows:

a/ To sanction administrative violations under law;

b/ To conduct extraordinary examination or inspection of violations in order to propose a disciplinary measure or request the State Bank Governor to limit, terminate or suspend operations related to violations;

c/ To submit to the State Bank Governor for application one or several handling measures referred to in Clauses 2 and 3, Article 6 of this Circular.

Chapter III

COMPETENCE FOR POST-INSPECTION AND -SUPERVISION HANDLING

Article 13. Responsibilities of concerned units under the State Bank

When detecting violations in the organization and operation of credit institutions or foreign bank branches, concerned units under the State Bank shall request in writing the Banking Supervisory Agency to consider and handle violations under law.

Article 14. Competence of the Chief of the Banking Supervisory Agency

1. To direct, examine, supervise and review the post-inspection and -supervision handling of credit institutions and foreign bank branches by units within the Banking Supervisory Agency and banking supervisory units under the State Bank’s provincial-level branches.

2. To request credit institutions and foreign bank branches to provide information, documents and reports and explain matters related to violations, remedies to violations, rectification of their operations and compliance with handling measures applied by the Banking Supervisory Agency.

3. To apply administrative sanctioning measures, notify and warn violations to violating credit institutions or foreign bank branches.

4. To propose the State Bank Governor to compel credit institutions or  foreign bank branches to comply with one or several handling measures referred to in Clause 2, Article 6 of this Circular.

Article 15. Competence of directors and supervisory chiefs of the State Bank’s provincial-level branches

1. Competence of supervisory chiefs of the State Bank’s provincial-level branches:

a/ To direct, examine and supervise the post-inspection and -supervision handling  of credit institutions and foreign bank branches;

b/ To request credit institutions and foreign bank branches to provide information, documents and reports and explain matters related to violations, remedies to violations, rectification of their operations and compliance with handling measures applied by supervisory agencies;

c/ To apply administrative sanctioning measures within their competence, notify and warn violations to violating credit institutions and foreign bank branches. For people’s credit funds, in addition to the above handling measures, to propose directors of the State Bank’s provincial-level branches to apply the measures specified in Clause 2, Article 6 of this Circular.

2. Competence of directors of the State Bank’s provincial-level branches:

a/ To apply measures to handle people’s credit funds under Point c, Clause 1 of this Article;

b/ To propose the State Bank Governor (through the Banking Supervisory Agency) to compel credit institutions and foreign bank branches to comply with one or several handling measures specified in Clauses 2 and 3, Article 6 of this Circular;

c/ To send reports on the post-inspection and -supervision handling of credit institutions and foreign bank branches to the Banking Supervisory Agency.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 16. Effect

This Circular takes effect on May 30, 2012.

Article 17. Organization of implementation

The Chief of the Office, the Chief of the Banking Supervisory Agency and heads of units under the State Bank, directors of the State Bank’s provincial-level branches, chairpersons of boards of directors, chairpersons of members’ councils and directors general (directors) of credit institutions and foreign bank branches shall implement this Circular.-

For the State Bank Governor
Deputy Governor
DANG THANH BINH