Decision No. 1058/QD-TTg dated , July 19, 2017 of the Prime Minister on approving scheme for “Restructuring system of credit institutions associated with settlement of bad debts in the period of 2016-2020”

THE PRIME MINISTER

Decision No. 1058/QD-TTg dated , July 19, 2017 of the Prime Minister on approving scheme for “Restructuring system of credit institutions associated with settlement of bad debts in the period of 2016-2020”

Pursuant to the Law on Government Organization dated June 19, 2015;

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010;

Pursuant to Resolution No. 142/2016/QH13 dated April 12, 2016 of the National Assembly on 5-year plan for socio-economic development in the period of 2016-2020;

Pursuant to Resolution No. 142/2016/QH13 dated November 8, 2016 of the National Assembly on plan for restructuring economy in the period of 2016-2020;

Pursuant to Resolution No. 42/2017/QH14 dated June 21, 2017 of the National Assembly on pilot settlement of bad debts of credit institutions;

Pursuant to Resolution No. 27/2017/NQ-CP dated February 21, 2017 of the Government on promulgation of Action Program on implementation of Resolution No. 05-NQ/TW dated November 1, 2016 of the 4 meeting of 12Central Committee of the Communist Party on certain major policies for ongoing innovation of the growth model, improvement of quality of growth, labor productivity and competitiveness of the economy and Resolution No. 24/2016/QH14 dated November 8, 2016 of the National Assembly on plan for restructuring economy in the period of 2016-2020;

Pursuant to Decision No. 339/QD-TTg dated February 19, 2013 of the Prime Minister on approval for overall scheme for restructuring economy associated with transformation of the growth model towards higher quality, efficiency and competitiveness in the period of 2013 – 2020;

At the request of the Governor of the State Bank of Vietnam,

DECIDES:

Article 1.To approve the Scheme for “Restructuring system of credit institutions associated with settlement of bad debts in the period of 2016-2020” (hereinafter referred to as Scheme) issued herewith.

Article 2.Implementation

1. Responsibilities of the State Bank of Vietnam:

- Cooperation with ministries and local governments in implementing the Scheme and issuing specific action plans which clarify objectives and tasks, time for performance, organizations in charge to ensure that the Scheme will ran effectively.

- Direct, guide, and regularly inspect, supervise the time for performance and results of settlement/restructuring plan of credit institutions (inclusive of financially weak credit institutions); proactively take actions within their competence or request competent authorities to take actions against matter arising.

- Expedite, cooperate with ministries, local governments, and relevant organizations in making and sending a biannual report on progress and results of the adoption of the Scheme and difficulties arising to the Prime Minister before July 1 and December 31 and propose remedial measures to competent authorities to take timely actions against issues arising.

- Take charge, cooperate, and proactively provide information for the Ministry of Information and Communications, the People’s Committee of provinces and cities, and news agencies to raise public awareness of policies, regulations of law, development of currency, banking and restructuring of system of credit institutions associated with settlement of bad debts to create support and unanimous consent in the society.

- Enhance effective management and administration of money market, gold market, foreign exchange market; adopt money policy flexibly and effectively, maintain the stability of interest rate and exchange rates in conformity with macroeconomic and market to keep the banking system safe, macroeconomic and financial market stable and maintain a safe trading market for credit institutions; closely control credit quality, particularly credit in potentially risky sectors namely investment and trading in securities, real estate.

- Cooperate with the Ministry of Finance, the Ministry of Planning and Investment in formulating and submitting a plan for increase in charter capital of commercial banks of which more than 50% of charter capital is held by the state by 2020 to have adequate capital that meets capital requirement of Basel II.

- Take charge and cooperate with the Ministry of Finance and relevant agencies in inspection and supervision of credit institutions, especially operating activities, assignment and ownership of shares, stocks that cause adverse impact on securities market and risks to credit institutions.

- Cooperate with ministries and local government in directing state-owned enterprises (including economic groups, state-owned general companies, state-owned enterprises) to plan and carry out road map to disinvestment of stakes or capital stock at credit institutions.

2. Responsibilities of the Ministry of Finance:

- Cooperate with the State bank of Vietnam, the Ministry of Planning and Investment in balancing and providing funds for increase in charter capital of commercial banks of which more than 50% of charter capital is held by the state by 2020 to have adequate capital that meets capital requirement of Basel II according to the plan approved by the Prime Minister.

- Study and improve legal framework of debt purchase of enterprises, formation, development, and market surveillance of debt purchase.

- Take charge and cooperate with ministries, local governments in studying and formulating road map and providing funds for bad debts relating to outstanding capital construction derived from central government budget or local government budget, bad debts arising from lending in plans/programs assigned by the Government, the Prime Minister, debts guaranteed by the Government.

- Take charge and cooperate with the State Bank of Vietnam, ministries, and governing bodies of state-owned enterprises and credit institutions relating to plan for definite settlement of bad debts of state-owned enterprises.

- Study and build legal framework for debt securitization so as to create legal basis for transactions on the securities market and convert bad debts into securities for public and transparent dealings at appropriate time.

- Take charge and cooperate with the State Bank of Vietnam, relevant agencies in formulating financial mechanism for financially weak credit institutions in the course of restructuring and settlement of bad debts.

3. Responsibilities of the Ministry of Planning and Investment:

- Cooperate with the State bank of Vietnam, the Ministry of Finance in balancing and providing funds for increase in charter capital of commercial banks of which more than 50% of charter capital is held by the state by 2020 to have adequate capital that meets capital requirement of Basel II according to the plan approved by the Prime Minister.

- Take charge and cooperate with the Ministry of Finance in studying and formulating road map and providing funds for bad debts relating to outstanding capital construction derived from central government budget or local government budget, bad debts arising from lending in plans/programs assigned by the Government, the Prime Minister, debts guaranteed by the Government.

- Cooperate with the Ministry of Finance in formulating the plan for definite settlement of bad debts of state-owned enterprises.

4. Responsibilities of the Ministry of Justice:

Direct and guide civil enforcement agencies to cooperate with Vietnam Asset Management Company (VAMC) and credit institutions in enforcement of judgments and decisions on treatment of collateral; direct General Department of Civil Judgment Enforcement to cooperate with credit institutions in reviewing and gathering effective judgments and decisions that have not been enforced or ongoing enforced, hasten the enforcement of outstanding cases.

5. Responsibilities of the Ministry of Public Security:

- The Ministry of Public Security shall closely cooperate with the State Bank of Vietnam, ministries, People’s Committees of provinces and central-affiliated cities and relevant agencies in prevention, discovery, and taking actions against violation of law on monetary and banking.

- Police authorities shall cooperate with credit institutions and VAMC in ensuring security and order in seizure and treatment of collateral tied to debts.

- Direct investigation authorities to cooperate with relevant agencies to hasten the investigation, strictly take actions against violation of law on monetary and banking, especially if major shareholders and their relevant persons have repaid debts fully to ensure rights and legitimate interests of credit institutions and depositors.

6. Responsibilities of the Ministry of Information and Communications: Cooperate with ministries, agencies, the People’s Committees of provinces and central-affiliated cities (hereinafter referred to as provinces) and the State Bank of Vietnam in directing and providing information for news agencies to raise the public awareness of policies on monetary, banking, restructuring of system of credit institutions and settlement of bad debts.

7. Responsibilities of the Ministry of Natural Resources and Environment:

- Study and amend regulations of the Law on land to solve difficulties in receiving mortgage as land use right of organizations other than credit institutions.

- Take charge and cooperate with ministries and local governments in prioritizing resources in creating database of national land.

- Study, improve legal framework in conjunction with electronic registration of land, including registration for mortgage by land use rights, property on land; formulate regulations and direct the road map to update and publish information on transactions in terms of land use rights, property on land in the electronic information system of natural resources and environment authority. With regard to local governments that have not completely finished land database, the information about mortgage of land use rights, property on land shall be provided in accordance with current provisions in terms of provision of information.

8. Ministries, the People’s Committees of provinces and relevant agencies shall heighten awareness of objectives and measures prescribed in this Decision and carry out as follows:

- Before August 15, 2017, issue a specific action plan/program, which clarifies objectives and tasks, time for performance, organizations in charge, working programs to be performed to achieve objectives and measures prescribed in this Decision, and then forward it to the State Bank of Vietnam for consolidation and monitoring.

- Guide and direct economic groups, state-owned general companies, state-owned enterprises that hold shares and/or stakes in credit institutions to accelerate the disinvestment at credit institutions appropriate to the road map and take actions against any consequence in connection with credit institutions caused by the owner as per the law; encourage and attract resources from domestic and foreign entities to assist the development of people s credit funds.

- Send biannual report on evaluation of implementation of Scheme within their competence and duties and propose measures for administration of the Government, the Prime Minister, and then send it to the State Bank of Vietnam before June 1 and November 30 for consolidation, and forward it to the Prime Minister.

9. Responsibilities of credit institutions:

- Formulate and submit plans for restructuring of credit institutions to competent authorities for approval and initiation.

- Ensure the operating safety, state’s asset safety and right and legitimate interests of the people during the restructuring process.

- Strictly comply with regulations of law and direction of the Government, the State bank of Vietnam on restructuring of credit institutions.

- Send adequate, timely, and truthful reports on results, difficulties during the restructuring of credit institutions to the State Bank of Vietnam and propose handling measures thereof (if any).

Article 3.This Decisiontakes effect on the signing date.

Article 4.The Governor of the State bank of Vietnam, Ministers, Heads of ministerial-level agencies. Heads of Governmental agencies, the President of People’s Committees of provinces, and Presidents of the Board of Directors, Presidents of the Member assembly, Directors General (Directors) of credit institutions, VAMC shall implement this Decision./.

The Prime Minister

Nguyen Xuan Phuc

SCHEME

ON RESTRUCTURING OF SYSTEM OF CREDIT INSTITUTIONS ASSOCIATED WITH SETTLEMENT OF BAD DEBTS IN THE PERIOD OF 2016-20201
(Issued together with Decision No. 1058/QD-TTg dated July 19, 2017 of the Prime Minister)

A. OBJECTIVES AND RULES FOR RESTRUCTURING OF SYSTEM OF CREDIT INSTITUTIONS ASSOCIATED WITH SETTLEMENT OF BAD DEBTS IN THE PERIOD OF 2016-2020

I. OBJECTIVES

- Keep restructuring the system of credit institutions with a focus on basically and thoroughly settling bad debts and financially weak credit institutions in forms suitable to the market mechanism on the principle of conservatism, ensuring the interests of depositors and maintaining the stability and safety of the system; reduce the number of financially weak credit institutions to ensure a certain number of appropriate credit institutions with size and prestige, healthy finance and ensure liquidity.

- Keep financially healthy situation, enhance administration capacity of credit institutions as per the law and in conformity with international practice; steadily deal with and eliminate the situation of cross-investment, cross-ownership and ownership of manipulation and dominance in related credit institutions; promote divestment outside the industry of commercial banks.

By 2020, commercial banks shall basically satisfy the capital requirement of Basel II, in which at least 12-15 commercial banks successfully meet Basel II’s compliance (at least standardized approach); at least 1-2 commercial banks is/are in top of largest banks in Asia.

- Strive to double the proportion of income from non-credit services in total income of commercial banks by 2020; complete the listing of shares of joint stock commercial banks on the Vietnam stock market; People s Credit Funds have a charter capital of at least VND1 billion.

- Strive to deal with and control bad debts to decrease the bad debt ratio of credit institutions and bad debts has been sold to the VAMC and debts that have undergone classification measures to less than 3% (excluding financially weak commercial banks of which settlement plans have been approved by the government).

II. RULES

Firstly, restructuring the credit institution system associated with settling bad debts is objective, necessary and a continuous, ongoing, continuing process of restructuring the credit institutions. and settling bad debts in the previous period.

Secondly, the restructuring of the credit institution system associated with settling bad debts needs to be done cautiously, steadily in consideration of market principles, publicity, transparency and making full use of self-processing resources of credit institutions.

Thirdly, restructure credit institutions comprehensively in terms of finance, operations and administration of credit institutions in appropriate forms, measures and roadmaps; apply the form and measures to restructure credit institutions in accordance with the specific characteristics of each credit institution and in accordance with the market mechanism on the principle of conservatism, ensuring the interests of depositors and maintain stability and safety of the system.

Fourthly, settling bad debts must be associated with the adoption of preventive measures, minimizing new bad debts incurred, improving the credit quality of credit institutions; promote the role of VAMC in settling bad debts; mobilize and utilize all legal resources, including social and state resources, restructure the credit institutions and settle bad debts in the economy basically and comprehensively.

Fifthly, strictly take actions against violation of law on banking operation, give priority to protecting the rights of creditors, applying administrative remedies and overcoming civil-related and/or administrative-related consequences before application of criminally-remedial measures; regarding identification of the liability for loss, it is necessary to clarify the losses incurred due to objective causes and losses due to intentional violation of the law; adopt appropriate mechanisms to protect officials and public employees assigned to handle financially weak credit institutions and settle bad debts.

Sixthly, consolidate and develop the system of credit institutions in line with the characteristics and level of socio-economic development of the country; systematize credit institutions, including large and well-run credit institutions that play a pillar in the system and are competitive in the region and there are also small and medium-credit institutions to more advantageously meet the needs of banking services of all walks of life in society; focus on restructuring, improving the financial situation, administration and operational efficiency of existing commercial banks and non-banking credit institutions; encourage and enable domestic and foreign investors and foreign financial institutions to acquire or merge Vietnam s financially weak credit institutions.

Seventhly, develop the system of people s credit funds strongly and solidly and ensure microfinance institutions in a safe and effective way to contribute to poverty reduction and enable people in rural, isolated, and underprivileged areas to access to capital and banking services.

Eighthly, administer monetary policy instruments in an active, flexible and effective manner to support the restructuring of credit institutions associated with settling bad debts, and closely coordinate with fiscal policy to control inflation, stabilize the macro economy and promote sustainable economic growth on the principle of clear and transparent demarcation between the function of monetary policy and that of fiscal policy.

B. SOLUTIONS FOR RESTRUCTURING OF SYSTEM OF CREDIT INSTITUTIONS ASSOCIATED WITH SETTLEMENT OF BAD DEBTS IN THE PERIOD OF 2016-2020"

I. GENERAL SOLUTION

1. Improve the legal framework, mechanisms and policies on monetary and banking operations

a) Improve the legal framework for settling and restructuring financially weak credit institutions:

(i) Create a legal framework for the handling of financially weak credit institutions in the direction of improving the management efficiency, the authority of state interventions and the responsibilities of credit institutions in dealing with weaknesses, shortcomings and breaches, risks of the credit institution;

(ii) Provide additional regulations to enhance the handling of cross-ownership, prevention of misuse of management and operation rights, major shareholder rights to manipulate credit institutions operations and legal inadequacies;

(iii) Provide additional regulations allowing Deposit Insurance of Vietnam to participate in the restructuring of financially weak credit institutions associated with settling bad debts, in the short term focusing on people s credit funds and microfinance institutions,. and protecting the interests of depositors.

On that basis, the State Bank of Vietnam shall study and advise the Government to submit to the National Assembly for promulgation the Law amendments to the Law on Credit Institutions and relevant laws as follows:

- Specific provisions to ensure the creation of legal bases for the handling of financially weak credit institutions in line with Vietnam s reality and approaching international practices.

- Provide additional regulations on enhancing the handling of cross-ownership, preventing the abuse of management, administration and major shareholder rights to manipulate credit institutions activities, eliminate difficulties and obstacles, inadequacies in banking operations and allow the Deposit Insurance of Vietnam to participate in the restructuring of financially weak credit institutions associated with settling bad debts, in particular:

+ Review, amend and supplement the definition of "related person" to ensure wider coverage of the same interests, thereby ensuring the identification of "true shareholders", "shareholders enjoying benefit ultimately”, strengthen the authority and responsibility of the State Bank of Vietnam in controlling major shareholders and group of major shareholders in both stages prior-inspection (licensing, approval) and post-inspection (supervision);

+ To review, amend and supplement the criteria and conditions for the posts of Chairman of the Board of Directors/Member Council, members of the Board of Directors/member of the Control Board, general director of the credit institutions more closely. In particular: Individuals who have committed a serious violation of banking regulations will not be allowed to participate in administration of the credit institution (including those who have been subjected to mandatory prohibition against holding the position of administering and controlling at credit institutions and foreign banks branches as prescribed in law on actions against administrative violations in the monetary and banking areas); members of board of directors must have knowledge of risk management; the qualification requirements to be satisfied by the qualified director general shall include the levels to be considered on the basis of the scale and scope of the activities of the credit institution that he/she will participate in the management and administration;

+ Review or amend certain provisions on shareholding limits of shareholders of joint-stock credit institutions with a view to disperse shares of joint-stock credit institutions among general public and restrict the manipulation of shareholders with an orientation to reduce the maximum shareholding limit of a shareholder being juridical person compared to the charter capital and to reduce the maximum shareholding limit of a shareholder and related persons compared to the capital charter of the joint stock credit institution;

+ Review or amend provisions on contributing capital to and purchase shares from credit institutions with an orientation to prohibit investors and shareholders from using credit granted by a credit institution to purchase shares of such credit institution; ensure that banks have a transparent shareholder structure by which investors who purchase shares to become major shareholders must actually have financial strength;

+ Provide additional provisions that allow Deposit Insurance of Vietnam to participate more deeply in restructuring of financially weak credit institutions associated with settling bad debts;

+ Review or amend other contents related to difficulties, problems and inadequacies in banking activities.

- Provide additional regulations and policies to eliminate difficulties and obstacles in restructuring of financially weak credit institutions.

b) The State Bank of Vietnam shall study and request the Government to amend the Decree on foreign investors purchase of shares of Vietnamese credit institutions. Amendments shall be made with an orientation to increase the ownership rates of foreign investors for each type of credit institution, in accordance with the signed international commitments to create resources in terms of capital, technology and administration of foreign investors; and concurrently encourage foreign investors to participate in the handling of financially weak credit institutions.

c) The State Bank of Vietnam shall review and make better regulations on assurance of safety of banking operations, licensing, inspection, supervision and handling after the inspection and supervision:

- Provide additional regulations to ensure that credit institutions must manage the credit strictly and transparently granted to entities subject to credit restriction in accordance with the law; strictly control the credit granting for investment and trading of stocks.

- Requesting investors, shareholders to prove that sources of funds for capital contribution or share purchase are not loans from credit institutions; periodically disclose information about the financial situation and the persons involved, including nominee shareholders.

- Study and make better regulations related to the assurance of safety of banking operations, management, internal control and risk management of credit institutions.

- Promulgate regulations and guidelines for credit institutions to implement each stage of the Basel II roadmap in Vietnam so as to ensure that the implementation is carried out uniformly, meeting the given objectives and serving as basis for supervision, inspection and reorganization of credit institutions during the implementation.

- Promulgate regulations on classification and rating of credit institutions to support the inspection, supervision, early warning, licensing and restructuring of the system of credit institutions.

- Promulgate regulations on licensing conditions and criteria and organization and operation of wholly foreign-owned credit institutions and branches of foreign banks in Vietnam consistently and in accordance with domestic practice and international commitments.

- Review and make better guiding documents of the Law on Credit Institutions so as to ensure adequate legal basis for the operation of credit institutions in general and for each type of credit institution in particular and the state management in the banking sector.

d) The State Bank of Vietnam shall coordinate with the ministries, the People s Committees of the provinces and the concerned agencies in reviewing difficulties, inadequacies and conflicts of law. between the system of legislative documents of the banking sector and that of other legislative documents. Subsequently, the State Bank shall request the National Assembly or the Government to amend the inadequacies of the Law on Land 2013, the Law on Civil Judgment Enforcement, the Law on Property Auction and other relevant laws and other legal documents with a view to create a coherent legal framework for the restructuring of the credit system and the successful settlement of bad debts.

2. Enhance the financial capacity, transform the business model, management and administration of credit institutions

Credit institutions shall focus on implementing certain or all of the following options to improve their financial and credit quality, transform business models, administration and competitiveness in the 2016-2020 period:

a) Strengthen financial capacity and credit quality:

- Raise capital and improve the quality of regulatory capital of credit institutions so as to ensure that the charter capital is not lower than the legal capital as prescribed by law and fully meet the minimum capital adequacy ratio as per the law and international standards, in particular:

+ Build and initiate the roadmap to increase regulatory capital of credit institution from the following sources: (i) issuing additional shares, increasing capital contributed by domestic and foreign strategic shareholders in accordance with the applicable laws; (ii) increasing capital from annual dividend or from surplus issued and earnings retained; (iii) issuing convertible bonds, long-term debt instruments to create a stable source of capital; (iv) some reputable credit institutions may choose to list their shares on the international market;

+ By the end of 2020, commercial banks will be able to meet the Basel II standards in terms of regulatory capital (according to standardized approach).

- Control of credit quality, reduce bad debts, improve asset quality with the following specific solutions:

+ Proactively initiate synchronous and drastic solutions to settle bad debts as urge debt recovery; sell, settle debts and security assets; institute lawsuits against borrowers; use loan loss reserves; adopt appropriate measures for customers to eliminate difficulties and develop business; continue to grant capital, credit, and interest rate remission and conduct debt restructuring in accordance with the provisions of law;

+ Fundamentally reform procedures for granting credit in order to enable customers to access to capital and banking services; boost settlement of bad debts in accordance with the market mechanism, especially with VAMC; develop and adopt measures for controlling new bad debts incurred and improve credit quality;

+ Strictly abide by credit growth limits permitted by the State Bank of Vietnam; strictly abide by the provisions of law on credit granting, loan security and regulations on safety in credit activities; forbid concealment of bad debts, mislead credit quality and financial performance;

+ Distribute profits receivable from bad debts of credit institutions that have not been divested according to regulations until 31 December, 2016 in accordance with the law;

+ Enhance competitiveness, focus on competition by quality and modes of services;

+ Strengthen the capacity of credit analysis and assessment, and credit risk management, especially the capacity of project analysis, proposal for cash flow loans;

+ Implement credit risk management according to the lending process in 3 stages: Credit proposal, assessment and disbursement; renovation of the internal credit rating system (enterprises and individuals);

+ Regularly review, evaluate, monitor and closely examine borrowers, credits and collateral to take appropriate measures;

+ Revise and re-evaluate the debts whose repayment terms have been restructured and debt groups have been maintained in order to classify debts strictly according to the provisions of law; keep credit growth secure and efficient, consistent with size, capital structure and risk management capacity;

+ Strengthen risk management to reduce the cost of loan loss reserves, strictly save overheads; concurrently, control and limit the concentration risk, grow medium and long term credit in line with the ability to mobilize medium and long term capital, especially credit granting for areas with high risks namely real estate, securities, infrastructure development investment projects;

+ Improve the effectiveness of internal control and audit, ensuring compliance in credit activities;

+ Enhance the application of information technology in credit risk management.

b) Transform the business model of a credit institution from a subordinate credit into a multi-service business model:

- Control credit growth associated with raising the credit quality, in line with the objectives of operating the monetary policy and meeting the capital demand for the economy; strictly control credit growth in high risk areas namely real estate, securities, BOT; steadily gain a balanced development between the credit market and the stock market, the corporate bond market, gradually reduce the proportion of holding of government bonds by credit institutions.

- Strongly transform the business model of commercial banks with an orientation to "mono-credit" into the diversified model of non-credit banking products.

- Prioritize the investment in the development of information technology infrastructure in the banking sector with particular attention to solutions for modern security and confidentiality so as to reduce transaction costs, prevent risks and raise professional qualifications in providing electronic banking products and services.

- Expand agent relationships with foreign financial institutions, promote access to international financial markets and promote the commercial presence of Vietnamese credit institutions in regional and national financial markets so as to increase the export of financial services.

c) Raise the management, operation and transparency capacity in the operation of credit institutions:

- Improve and upgrade the risk management system in line with Basel II principles and standards and Basel II roadmap in Vietnam; issue minimum regulations on liquidity risk management, credit risk, market risk (interest rates, exchange rates, securities prices and derivatives prices) and operational risk, ensure 3 layers of protection (divisions of business, support and internal audit) in the operation of credit institutions.

- Classify debts, build up loan loss reserves in accordance with law and in accordance with international practice.

- Provide specific provisions on the legal liability of members of the board of directors/member council, board of management, supervisory board, internal audit of credit institutions, especially approval for credit contracts or investment contracts that have committed violations or failed to establish and operate an effective internal control system to monitor, prevent, and report to the regulatory bodies. Concurrently, issue high standards of risk management capability and business ethics of members of the board of directors/member council, board of management, supervisory board, and key positions of the credit institutions.

- Ensure the independence of the board of directors/members council, the executive board and the control board of commercial banks whose more than 50% of the charter capital is held by the state, joint stock commercial banks and non-bank credit institutions; increase the number of independent member of board of directors (in accordance with the Law on Enterprises).

- List shares of joint stock commercial banks on the stock market; increase the rate of shares owned by the general public in joint stock commercial banks.

- Keep coordinating with major shareholders, especially shareholders of corporations, corporations and state-owned enterprises to build and implement drastically and road map/plan for disinvestment according to direction of the Government on shareholding in credit institutions; economic groups, corporations and state enterprises which are shareholders or have capital contributed to credit institutions must disinvest capital and terminate their business activities in the banking sector.

- Carefully assess the financial capacity of large and strategic investors that have contributed capital to ensure that they have sufficient financial capacity.

- Credit institutions must disclose publicly, transparently and accurately information on their business strategy, ownership, financial position, management structure, risk management and corporate governance in accordance with regulations of the law and international practice; improve the accountability of credit institutions to the public.

- Credit institutions proactively develop long-term business plans and strategies; conduct business with caution, ensuring compliance with current regulations.

- Modernize technology system; develop internal management information systems, information technology infrastructure and internal payment systems of commercial banks; upgrade the core-banking system in line with the size, complexity of operations and management and administration requirements of credit institutions; enhance the application of information technology in the operation and management, analysis and prevention of risks; and concurrently invest and have appropriate solutions to assure IT security.

- Raise conditions and standards for key positions; select and place staff in suitable positions based on their capacity, virtue and professional ethics; focus on the development of bank managers and business staff with high-level qualifications, sense of law observance, ethics and good professional responsibility.

3. Strengthen the renovation of banking inspection and supervision

Continue enhancing the renovation and raising the efficiency of banking inspection and supervision in line with the practical requirements of Vietnam and international practices. In particular:

- Improve the organizational structure and operation of the Banking Inspection and Supervision Agency; enhance the information sharing and work between the State Bank of Vietnam and law enforcement agencies and agencies in the inspection and supervision activities.

- Enhance the early warning ability of the State Bank of Vietnam of potential systemic risks and prevent the risk of violations in banking sector laws committed by credit institutions, branches of foreign banks.

- Reinforce the supervision in the direction of improving the effectiveness of micro-security monitoring and macro-safety supervision on the basis of implementing new tools and methods of risk monitoring associated with the acceleration of IT application. Surveillance must be closely linked to the inspection, licensing and issuance of regimes and policies.

- Renovate the inspection work in the direction of intensifying the comprehensive inspection of credit institutions being juridical persons, in line with the actual operation of credit institutions; combine the inspection and supervision of the observance of policies and laws with the inspection and supervision of risks in the activities of banking inspectorates and banking supervisors and apply the risk-based monitoring in accordance with international practices and standards.

4. Support solutions

- Set up the steering committee for restructuring the system of credit institutions in which the Prime Minister shall act as the head, a deputy prime minister shall act as the standing deputy head and the Governor of the State Bank of Vietnam shall act as the deputy head, and representatives of certain ministries, local governments and related agencies shall act as members, with a task assignment and a timely and effective mechanism in order to accelerate the process of restructuring and settling bad debts of credit institutions in general and financially weak credit institutions in particular.

- Appoint financially healthy credit institutions to receive and manage financially weak credit institutions (referred to as assistance banks (bridge banks) to reorganize, reinforce and make financially weak credit institutions healthy (potential risk of system crash), then have the credit institutions acquired and consolidated with another credit institution or resold to qualified investors.

- Implement specific solutions and mechanisms to support financially healthy credit institutions to deal with financially weak credit institutions according to regulations and within their competence, report to the Government for consideration and decision to ensure the implementation of feasible and radical restructuring.

- Enhance the financial capacity of Vietnam Deposit Insurance to participate in the handling and restructuring of financially weak credit institutions associated with the settlement of bad debts (focusing on people s credit funds, microfinance institution in the short term) and reduce the risk to the system of credit institutions.

- Administer monetary policy instruments in an active, flexible and effective manner to support the restructuring of credit institutions associated with settling bad debts, and closely coordinate with fiscal policy to control inflation, stabilize the macro economy and promote sustainable economic growth on the principle of clear and transparent demarcation between the function of monetary policy and that of fiscal policy.

- Further modernize and develop the banking technology system, especially the management information system of the State Bank of Vietnam and the information system to support banking supervision for the Bank Supervision and Inspection Agency.

- Promote the development of the capital market, steadily make the capital market become an important component of the financial market, contributing effectively to mobilize capital for investment in economic development, lessen economy s dependence on bank credit capital to ensure a more balanced financial system and sustainable development in the medium and long term.

- Ministries namely Ministry of Public Security, the Government Inspectorate and the State Audit Office shall closely coordinate with the State Bank of Vietnam in performing the state management over the banking sector, investigating, auditing and exchanging information so as to promptly prevent and strictly handle cases of violations, contributing to ensuring the stability and safety of the system of credit institutions; proactively coordinate together in order to avoid overlapping inspection, examination and/or audit.

- Civil enforcement agencies cooperate with Vietnam Asset Management Company (VAMC) and credit institutions in enforcement of judgments and decisions on treatment of collateral; cooperate with credit institutions in reviewing and gathering effective judgments and decisions that have not been enforced or ongoing enforced, hasten the enforcement of outstanding cases.

- Ministries, local governments, news and press agencies shall closely coordinate with the State Bank of Vietnam in restructuring the system of credit institutions associated with settling bad debts and actively provide information and propagation of the Party and Government s policies on the restructuring of the banking system to maintain the psychology stability and create a high consensus in society and avoid causing negative impacts on the banking system and financial market.

II. ORIENTATION AND SOLUTIONS FOR RESTRUCTURING CREDIT INSTITUTIONS

1. Orientations and solutions for restructuring commercial banks whose more than 50% of charter capital is held by the State (excluding commercial banks subject to compulsory purchase)

a) Orientation:

Commercial banks whose more than 50% of charter capital is held by the State are expected to play the key role in terms of size, market share and market regulation; lead the application of modern banking technology, advanced management capacity, high business efficiency, safety in operation, active international integration; to actively participate in the restructuring of financially weak credit institutions under the direction of the State Bank of Vietnam; do business in accordance with the market mechanism and comply with the law.

b) Solutions for restructuring commercial banks whose more than 50% of charter capital is held by the State (excluding Vietnam Bank for Agriculture and Rural Development):

Commercial banks whose more than 50% of charter capital is held by the State, during the implementation of the following solutions, shall proactively develop and implement the plan for self-consolidation, reorganization and raise competition capacity for a solid development of financial capacity, scale, operation, modern management skills and advanced technology in accordance with the solutions specified in Clause 2, Part I, Part B of this Scheme and the following specific solutions:

- Increase charter capital to improve financial capacity, ensure capital adequacy ratio according to Basel II standards by measures below:

+ Increase charter capital according to the plan approved by competent authorities;

+ Continue boosting the issuance of shares to investors on the principle of ensuring the dominant role of the State in commercial banks whose more than 50% of charter capital is held by the State, of which the State holds at least 65% of the total number of voting shares.

- Select strategic shareholders, ensuring that at least one foreign strategic investor has prestige in the market, financial capacity, management experience; prepare the preconditions, proceed to listing on the international stock market.

- Strongly develop electronic distribution channels, enhance information security capability in order to increase the customers access to services, thus ensuring safety and minimizing risks for customers and the banks themselves.

- Continue to review and consolidate key business activities; divest capital outside the industry, non-financial sector with numerous risks.

- Prioritize credit granting to key sectors of the economy such as economic infrastructure development, export promotion, agriculture, rural development, spearhead industries, small and medium-sized enterprises with an aim to contribute to the restructuring of the economy.

- Actively participate in the restructuring of financially weak credit institutions under the direction of the State Bank of Vietnam, including: (i) assign qualified officers with good qualifications to carry out the plan of restructuring financially weak credit institutions; apply certain assistance/aid in terms of finance (lending/depositing funds to create sources of funds), business (clients, investment opportunities), technology, management and administration skills to financially weak credit institutions on the basis of ensuring compliance with the provisions of law; (ii) acquisition, compulsory transfer, merger and consolidation of financially weak credit institutions.

c) Solutions for restructuring Bank for Agriculture and Rural Development of Vietnam:

Vietnam Bank for Agriculture and Rural Development must play a key role in the agricultural and rural credit sector and be fully restructured through appropriate solutions as set out in Clause 2, Part I, Section B of this Scheme and the following specific solutions:

- Restructure according to the model of multi-functional commercial banks, playing the leading role in the field of agricultural and rural credit.

- Increase charter capital according to the plan approved by competent authorities to improve financial capacity and ensure capital adequacy ratio according to Basel II standards.

- Initiate steps to equitize at the appropriate time and ensure that the State holds at least 65% of charter capital.

2. Orientations and solutions for restructuring joint-stock commercial banks, financial companies and financial leasing companies

a) Orientation:

- Further reorganize and rearrange joint-stock commercial banks, finance companies and financial leasing companies so as to make them healthy financially and improve their financial capacity in terms of scale and quality, ensure system security; market-oriented, transparent and transparent business activities that fully meet the standards of banking management and safety in accordance with the law and are in line with international practices.

- Enable financially healthy joint-stock commercial banks, financial companies and financial leasing companies to develop and resolutely handle financially weak joint-stock commercial banks, financial companies and financial leasing companies that are likely to pose a serious risk to the credit institution system, including dissolution and bankruptcy measures in accordance with the law, but ensure that it does not adversely affect safety and stability of the system of credit institutions. By 2020, joint stock commercial banks are expected to have enough regulatory capital in line with Basel II capital adequacy standards.

- On the basis of monitoring data, inspection results, classification and rating results of joint-stock commercial banks, financial companies and financial leasing companies, and evaluation by independent auditors (appointed by the State of Vietnam and the costs incurred shall be paid by joint stock commercial banks, financial companies, financial leasing companies that have been audited), the State Bank of Vietnam classifies joint stock commercial banks, finance companies and financial leasing companies into two groups (financially healthy group and financially weak group) to have appropriate and radical restructuring solutions to ensure system safety.

b) Solutions for restructuring joint-stock commercial banks:

* Solutions for restructuring financially healthy joint-stock commercial banks:

- Financially healthy joint-stock commercial banks shall take the initiative in building and implementing plans on self-consolidation and reorganization of their operations and raising their competitiveness so as to firmly develop their financial capabilities, having advanced management skills and advanced technology under the appropriate solutions specified in Clause 2, Part I, Section B of this Scheme.

- Encourage them to participate in the handling of financially weak credit institutions and liquidity shortages, including: liquidity support liquidity for financially weak credit institutions, temporary insolvency, merger and acquisition of financially weak credit institutions.

- The State Bank of Vietnam continues to promote mergers and acquisitions of credit institutions on a voluntary basis into large and well-governed institutions.

* Solutions for restructuring financially weak commercial joint-stock banks

- The financially weak commercial joint-stock banks must urgently formulate a comprehensive restructuring plan in terms of finance, management and operation aspect in accordance with the appropriate solutions specified in Clause 2, Part I, Section B of this Scheme, and then submit the plan to the Governor of the State Bank of Vietnam for consideration and report to the Prime Minister for approval.

- If a weak joint-stock commercial bank is unable to implement the approved plan, the following measures shall be applied:

+ Limit/No dividends, profit; strict control of the transfer of shares, equity and assets of financially weak joint stock commercial banks; reduce outstanding credit balance; limitations of expanding scale and network operation;

+ Temporarily suspending, dismissing the position of managers and executives of weak joint-stock commercial banks;

+ Place the bank into the state of special control in accordance with the law;

+ Merger, consolidation, acquisition on a voluntary basis;

+ Where a commercial joint stock bank is incapable of restoring, can not continue operating, is in danger of insolvency, its solvency has great influence on the safety and stability of the system of credit institutions, the State Bank of Vietnam shall request the Prime Minister to approve the compulsory transfer of financially weak stock commercial banks to the newly designated credit institutions and investors. Where the joint-stock commercial bank can not be merged or consolidated with a financially healthy credit institution or not be resold to a qualified investor or can not be compulsorily transferred or can not go bankrupt, it shall contract activities for handling, dissolution and termination of operation;

+ Encourage foreign investors in general and foreign financial institutions in particular to acquire or merge Vietnam s financially weak joint-stock commercial banks;

+ Apply other measures in accordance with the market mechanism on the principle of conservatism, ensuring the interests of depositors and maintain the stability and safety of the system.

c) Solutions for restructuring financial companies and financial leasing companies (hereinafter referred to as non-bank credit institutions)

Non-bank credit institutions, in the process of restructuring according to the solutions specified in Clause 2, Part I, Section B of this Scheme shall also carry out the following solutions:

* For financially healthy non-bank credit institutions:

- Take initiative in formulating and implementing restructuring plans in order to raise the managerial capacity, financial capacity and sound competitiveness within the scope of operation according to the provisions of law, increasing transparency. in the provision of service and products, ensuring the requirements of safety, risk management;

- Encourage and enable non-bank credit institutions to acquire, merge, contribute capital/buy shares on a voluntary basis to increase their scale of operation and competitiveness;

- Participate in the handling of financially weak credit institutions and liquidity deficit: Providing liquidity assistance loans for financially weak credit institutions which are being insolvent; acquire and merge with financially weak credit institutions;

- Concurrently focus on the following solutions:

+ Ensure sufficient capital and balance in line with business size and capital adequacy ratio;

+ Develop business strategies on the licensed products (lending, financial leasing and other operations) in order to improve credit quality, competitiveness and transparency in provision of products and services;

+ Apply specialized risk management tools appropriate to the product and service to be provided and operation scale;

+ Enhance corporate governance capacity as required.

* For financially weak non-bank credit institutions:

- For financially weak non-bank credit institutions belonging to economic groups or state corporations:

+ The financially weak credit institution shall urgently formulate a restructuring plan in line with the direction of the Prime Minister and the restructuring plan of the group/corporation and submit it to the Governor of the State Bank of Vietnam Nam for approval or to competent authorities for approval;

+ Applying special reporting regulations for management and supervision of non-bank credit institutions during the implementation of the approved restructuring plan; organize the evaluation of the implementation of the approved restructuring plans, propose solutions to handle problems arising in the course of implementation of the restructuring plan; have mechanisms to allow and encourage foreign commercial banks or potential investors to restructure in order to ensure the successful divestment of state capital;

+ Where the credit institution does not propose a feasible restructuring plan or a restructuring plan is not approved by the State Bank of Vietnam or is not feasible to perform the approved plans, the following measures shall be applied:

. The credit institution shall be put into the state of special control in accordance with the law;

. The corporation or economic group shall request the Government/competent authority to permit the merger into the organizational structure of the parent company;

. The credit institution shall be sold to other credit institutions in need or to domestic and foreign investors in accordance with the law;

. The credit institution shall be dissolved or goes bankruptcy in accordance with the law provided that the bankruptcy does not significantly affect the safety and stability of the system of credit institutions;

. Apply other measures in accordance with the market mechanism on the principle of conservatism, maintain system stable and safe.

- For weak non-bank credit institutions affiliated to commercial banks whose more than 50% of the charter capital is held by the State:

+ Commercial banks whose more than 50% of the charter capital is held by the State shall urgently build, complete and implement the restructuring plan in accordance with the direction of the Prime Minister and the restructuring plan of the bank whose more than 50% of the charter capital is held by the State, then submit it to the Governor of the State Bank of Vietnam for consideration, or to other competent authority for approval;

+ Review, restructure the network; enhance the application of information technology;

+ Conducting divestment, not retaining for a financially weak non-bank credit institution without prospect of sustainable development or not proposing a feasible restructuring plan or the restructuring plan has not been approved by the State Bank of Vietnam or is unlikely to implement through the following solutions:

. The credit institution shall be sold to other credit institutions in need or to domestic and foreign investors in accordance with the law;

. The credit institution shall narrow down activities leading to dissolution or bankruptcy in accordance with the law provided that the bankruptcy does not significantly affect the safety and stability of the system of credit institutions;

. Apply other measures in accordance with the market mechanism on the principle of conservatism, maintain stability, safety system.

- For other financially weak non-bank credit institutions:

+ Expeditiously formulate, complete and implement the restructuring plan under the direction of the State Bank of Vietnam and submit it to the Governor of the State Bank of Vietnam for approval or submit it to competent authorities for approval;

+ Where the credit institution does not propose a feasible restructuring plan or a restructuring plan is not approved by the State Bank of Vietnam or is not feasible to perform the approved plans, the following measures shall be applied:

. The credit institution shall be put into the state of special control in accordance with the law;

. Merger, consolidation, acquisition on a voluntary basis;

. The credit institution shall be dissolved or goes bankruptcy in accordance with the law provided that the bankruptcy does not significantly affect the safety and stability of the system of credit institutions;

. Apply other measures in accordance with the market mechanism on the principle of conservatism, maintain stability, safety system.

+ The State Bank of Vietnam encourages and enable financially healthy credit institutions to merge/consolidate/contribute capital to/purchase shares from non-bank credit institutions to become subsidiaries and change their business strategy towards field of consumer credit, factoring, financial leasing; or seek foreign investors who have the potential to contribute capital to/purchase shares from non-bank credit institutions in accordance with law to improve their financial capacity, technology support, high quality resources, service products, customers.

3. Orientations and measures to consolidate and develop the cooperative banks, people s credit funds and microfinance institutions

a) Orientation:

- Raise the role and responsibility of the cooperative bank in regulating capital, supervising the use of loan capital and solvency of customers; provide guidance, training in banking operations, information technology, and support to banking activities for members credit funds; participate in the handling of members credit funds in difficulty or showing signs of hazards in their operations.

- Further consolidate and raise the level of safety and efficiency of the existing people s credit funds with a view to firmly expand the new people s credit funds in rural areas; the main scope of activities of people s credit funds is to mobilize capital and provide loans to members in the area, especially in rural areas in order to mobilize local resources to contribute to local economic development, ways to eradicate hunger, reduce poverty and repulse usury; ensure that people s credit funds operate on the principles of voluntariness, autonomy and accountability for their operation results, with the main aim being mutual assistance among members; people s credit funds must operate and comply with the provisions of the Law on Credit Institutions and the Law on Cooperatives.

- Build and develop a secure, strong market-oriented microfinance system; ensure access to quality financial services for microenterprises, poor households and low-income people; enhance economic development opportunities for people; implement the policy of the Party and State on ensuring social security and sustainable poverty reduction.

b) Solutions for the bank for social policies:

- Accelerate the restructuring of the bank for social policies in order to develop it into a bank which is strong enough in terms of scale, financial capacity, management level and technology to truly act as a coordinator of capital balancing in the system of people s credit funds, effectively assist people s credit funds in terms of professional knowledge, capital and finance.

- Further expand the branch network of the bank for social policies to localities with more people s credit funds so as to increase the accessibility, assistance and care for the people s credit funds; prioritize the lending of member credit funds to expand credit investment in the economy, lend people s credit funds in financial difficulties and liquidity; build a roadmap to gradually reduce the proportion of outstanding loans to customers outside the credit system of the people s credit fund.

- Strengthen the ability to inspect and supervise the use of loans, ability to repay loans of customers; participate in the handling of people s credit funds having difficulties or showing signs of un-safety in operation according to the mechanism prescribed by the State Bank of Vietnam.

- Diversify banking products and services so as to advance the provision of quality products and services to member credit funds.

- Strengthen the linkage of the people s credit fund system, the safe operating institutions of people s credit funds; intensify the inspection and urge people s credit funds to calculate, remit on time and fully participate in the Fund for assuring the safety of the people s credit fund system as prescribed.

- Enhance the application of information technology.

c) Solutions for people s credit funds:

- The State Bank of Vietnam shall review, evaluate and classify people s credit funds and identify weak people s credit funds so as to apply appropriate measures for settlement, dissolution and bankruptcy of the financially weak people s credit funds with no successful restructuring or no viable restructuring plan; or the weak people s credit funds that does not meet safety standards, does not have a feasible restructuring plan, and is not able to return to normal operation that the bankruptcy does not affect security and stability of the system of people s credit funds in the administrative divisions and/or the people s credit fund system shall have its license revoked and go bankruptcy in accordance with the law.

- The State Bank of Vietnam shall coordinate closely with the executive committees of communist party and local governments in: (i) Strengthening management, inspection, supervision and handling of shortcomings and weaknesses of people s credit funds, especially in the liquidation of dissolved people s credit funds; (ii) further expanding the people s credit funds in rural areas in need on the principle of ensuring safety and efficiency, with priority given to the establishment of people s credit funds where there is no or lack of people s credit funds; (iii) promoting dissemination of guidelines, policies and laws of the Party and the State on people s credit funds; (iv) strengthening propagation and mobilizing people from all social strata to develop the system of people s credit funds and depositors with stable psychology and peace of mind to deposit money in people s credit funds.

- Build and implement a scheme on development of the people s credit fund system by 2020 with an orientation to 2030 so as to put people s credit funds into safe and efficient operation.

- Improve the management and administration capacity of people s credit funds, especially the internal control system, standardization of the system of professional operations, accounting, ensuring the managers of people s credit funds must meet the criteria and conditions on capacity and qualifications as prescribed by law.

- Develop the banking services of the people s credit funds in line with the management capacity and the operation model of the people s credit fund; focus on lending to members of people s credit funds; extend credit toward enhancing credit quality control; diversify capital mobilization methods of people s credit funds, especially small deposits.

- Raising the financial capacity of people s credit funds towards raising charter capital, attracting new members based on the link between capital expansion and member loans.

- Upgrade and improve the material foundations, equipment and information technology systems of people s credit funds. Ensure that 100% of people s credit funds have facilities meeting the requirements of operational safety and are connected to the internet.

- Raise the standards, conditions, leadership, management and professional skills of the chairman, directors and officers of people s credit funds; develop training programs by 2020 for officials of people s credit funds.

- Continue reviewing and finalizing the management policies and regulations on operation safety, management and operation, grant and revocation of licenses, dissolution and liquidation of people s credit funds; amend the regulation on the amount of legal capital in conformity with the practical operation and safety requirements of people s credit funds in each period.

d) Solutions for microfinance institutions:

- Synchronously implement the project on "Building and developing the microfinance system in Vietnam till the end of 2020" approved by the Prime Minister in Decision No. 2195/QD-TTg dated December 6, 2011.

- Facilitate the establishment and operation of microfinance institutions and microfinance programs and projects, and have a management and monitoring mechanism appropriate to the specific characteristics of microfinance operation..

- Expand and strengthen the involvement of credit institutions in the provision of microfinance.

- Formulate specific policies to facilitate the linkage of credit institutions to the operation of microfinance institutions.

4. Orientations and solutions for restructuring foreign credit institutions

a) Orientation:

Continue enabling foreign credit institutions to conduct business activities and compete on an equal footing with Vietnamese credit institutions; encourage foreign credit institutions to participate in supporting and handling problems and weaknesses of domestic credit institutions; encourage foreign credit institutions to take the initiative in developing and applying modern technologies and bringing new products and services to the Vietnamese market; assist domestic credit institutions in accessing new processes, products and technologies to meet the increasingly diverse needs of their customers.

b) Solutions for restructuring foreign credit institutions:

- Encouraging the merger, consolidation or acquisition between foreign credit institutions and between foreign credit institutions and Vietnamese credit institutions on the principle of voluntariness and in accordance with applicable law.

- Encourage and enable foreign credit institutions, especially credit institutions with strong financial capacity, international prestige and experience to participate in supporting technology transfer, knowledge, experience in management as well as capital contribution, share purchase, acquisition, merger and consolidation with domestic credit institutions.

- For foreign credit institutions which fail to meet the charter capital/capital allocated in accordance with the provisions of law or have ineffective business activities or no prospect of sustainable development, the State Bank of Vietnam shall request to make plans, roadmaps and solutions for restructuring and submit them to the Governor of the State Bank of Vietnam for consideration and approval. In cases where the foreign credit institution fails to propose a feasible restructuring plan or the restructuring plan is not approved by the State Bank of Vietnam or the foreign parent bank/joint venture parties is/are unable to make up the deficit due to the loss of business operations to ensure the legal capital, the State Bank of Vietnam will consider whether to withdraw the license or have the foreign credit institution dissolved, consolidated or applying other mandatory interventions in accordance with the law.

III. ORIENTATIONS AND SOLUTIONS FOR SETTLEMENT OF BAD DEBTS

1. Orientation

Drastically and synchronously implementing solutions proposed in the Prime Minister s Decision No. 843/QD-TTg on May 31, 2013, aiming to maintain the bad debt ratio at a safe and sustainable level (less than 3% of total outstanding loans) in accordance with international standards and practices; promote the role of VAMC in settling bad debts of credit institutions; combine bad debt treatment with the implementation of preventive measures, minimizing bad debt incurred; improve the organization and operation model of VAMC so that it can become a particularly effective tool of the State in settling bad debts with full powers, resources, capacity and implementation mechanism; enhance the settlement of bad debts in accordance with market principles; improve the legal framework, mechanisms and policies on debt settlement and debt market development.

2. Solutions for settlement of bad debts

The State Bank of Vietnam, ministries, People s Committees of provinces and central-affiliated cities, credit institutions, VAMC and related organizations and individuals shall continue to implement urgently the solutions below:

a) Continue implementing solutions to deal with bad debts in accordance with Decision No. 843/QD-TTg dated 31 May 2013 of the Prime Minister, which includes the following main groups of solutions:

- Credit institutions shall re-evaluate the quality and recoverability of debts so as to work out appropriate handling measures; enhance the provisioning and use of risk provisions to deal with bad debts; continue to restructure debt, provide capital for customers to overcome difficulties and recover; complete legal documents on security assets; collect debts and disposal of security assets; strictly control and reduce operating costs; minimize bad debts arising in the future.

- Borrowers must consolidate themselves, streamline their operations, improve their financial capacity, administration, enhance technology adoption and competitiveness; actively cooperate with credit institutions to develop and implement plans to restructure debts, remove difficulties in business; actively develop the market for goods consumption and export promotion; actively participate in programs and solutions to support enterprises run by the Government, ministries and local governments.

- The State Bank of Vietnam, ministries and local governments shall continue to implement monetary and credit policy and banking solutions; concurrently, it will remove difficulties for business, support the market, reduce inventory, promote consumption of goods, stimulate investment and consumption in the country; develop real estate market, stock market.

- State Bank of Vietnam shall intensify the inspection and supervision of credit institutions in the implementation of regulations on credit granting, operation safety and debt classification, loan loss reserves; the State Bank of Vietnam and other ministries continue to improve the legal framework and promote the management, inspection and supervision of monetary, banking, securities, insurance and state-owned enterprises.

- VAMC shall focus on reviewing, classifying and re-evaluating borrowers, collateral and purchased debts to determine debt recovery capacity and appropriate solutions; initiate vigorously and synchronously solutions to purchase, sell and settle bad debts under the market mechanism; intensify the close coordination with credit institutions in the recovery of debts, restructuring of debts, sale and handling of debts and security assets for purchased bad debts; provide financial aid for borrowers to resume business, complete unfinished projects; strengthen the asset valuation and assessment capabilities; regularly and promptly publicize the purchase, sale and settlement of bad debts; coordinate with concerned units to continue studying and improving organizational and operational models.

b) Solutions for the legal framework, mechanisms and policies on the settlement of bad debts and security assets; develop debt trading market:

In addition to general solutions for the legal framework, monetary policy mechanism, banking operations and settlement of bad debts as specified in Clause 1, Part B of this Scheme, the State Bank of Vietnam shall continue to coordinate with ministries, People s Committees of provinces and concerned agencies in reviewing legal difficulties and problems in settling bad debts and security assets of credit institutions and VAMC and develop debt trading market for certain amendments; request the Government, the National Assembly and the Standing Committee of the National Assembly to:

- Amend and complete the legal framework to enable credit institutions, VAMC, DATC, other businesses having the line of business of debt purchase to engage in settlement of bad debts effectively, thoroughly in the next phase.

- Study and improve the legal framework on debt purchase of enterprises, a legal framework for the formation, development and management of debt trading market, particularly research and solve difficulties in the Law on Land on accepting mortgages as land use rights of organizations other than credit institutions;

- Study and improve the legal provisions on securities, which form the legal framework for the securitization of debts, thus creating a legal basis for the implementation of debt trading in the securities market and conversion of bad debts into securities for public and transparent transactions at the appropriate time.

c) Solution for buying bad debts according to market value and improving VAMC s financial capacity:

- Solution for buying bad debts according to market value of VAMC:

+ Criteria of bad debts VAMC purchased at market value:

. Priority is given to principal balances of great value in order to minimize the costs of monitoring, managing and supervising borrowers and security assets for VAMC;

. Priority should be given to transferring bad debts purchased with special bonds to market value;

+ Debt purchase methods VAMC can choose to buy bad debts individually or buy in batches to speed up the process of buying, selling and dealing with bad debt through VAMC;

+ The purchase price of bad debts: VAMC and the credit institution agree to determine the purchase price of bad debt according to the market value on the basis of the results of valuation of debts and assets; assess the ability to sell collateral assets or the prospects of restoring solvency of the borrowers or the ability to sell bad debts of VAMC to investors;

+ VAMC is entitled to negotiate with the credit institution to buy bad debt at the purchase price equal to the valuation value of the independent valuation organization; handle, sell and recover debts according to the provisions of law and to distribute the remaining value of the recovered amount of such bad debts after subtracting the purchase price and handling expenses. VAMC must agree with the credit institution to choose an independent valuation organization.

- Solutions for improving financial capacity for VAMC:

+ Allow VAMC to increase its charter capital to VND 10,000 billion (by 2020) to provide additional sources of funds to purchase bad debts according to market value, supply extra material facilities, human resources and improve the financial capacity, market credibility with a view to effectively trade bad debts at market value;

+ Allow VAMC to deduct additional reserve fund of charter capital from the annual cost (the total amount of this additional reserve fund of charter capital does exceed the charter capital allocated to VAMC) on the principle of ensuring the balance of revenues and expenditures.

d) Solutions pertaining to establishment of interdisciplinary working groups on the settlement of bad debts of credit institutions:

The steering board shall restructure the system of credit institutions to form a central interdisciplinary working group with representatives from at least department level and relevant officials of ministries and local governments, including: The State Bank of Vietnam, Ministry of Finance, Ministry of Justice, Ministry of Natural Resources and Environment, Ministry of Construction, Ministry of Planning and Investment, Ministry of Public Security, Supreme People s Court and People s Supreme Procuracy, the People s Committees of Hanoi and Ho Chi Minh City and leaders of VAMC. In case of necessity, for some provinces, the steering committee shall direct the local governments to set up interdisciplinary working groups in the administrative divisions according to the proposals of the central interdisciplinary working group . The tasks and powers of the central inter-ministerial working group and the inter-branch working group in the local governments include:

- Direct the settlement of bad debts of borrowers at single or multiple credit institutions or VAMC with large amount of outstanding debts determined by the steering committee in each period.

- Interdisciplinary working groups will direct and coordinate directly with VAMC, credit institutions, Debt and Asset Trading Corporation (DATC) and other relevant organizations in the legal process of settling bad debts through direction to expedite the process of finalization of legal dossiers, seizure and disposal of security assets, completion of procedures for transfer of security assets and tax procedures related to the transfer of security assets.

- In the course of performing tasks, if any difficulties arise legally within the scope and competence of ministries, local governments, the interdisciplinary working group shall report to the head of the Steering Committee. Regarding the restructuring of the credit institutions system and the settlement of bad debts, the steering committee will take steps to remove difficulties and speed up the process of handling bad debts of credit institutions and VAMC.

dd) Solutions for handling bad debts related to capital construction outstanding debts arising from the central budget, local budget and bad debts of state-owned enterprises or bad debts for loans under the contingency programs, designations by the Government, the Prime Minister, Government-guaranteed debts:

- For bad debts related to capital construction outstanding debts arising from central and local budgets and bad loans lent to projects and designated programs of the Government or the Prime Minister, Government-guaranteed debts: The Ministry of Finance shall take charge and cooperate with ministries, local governments in reviewing, drawing up roadmaps and allocating sources for debt repayment.

- For bad debts of state-owned enterprises: The representative of the owner of the State enterprise shall have to determine the orientation of the enterprise s operation in order to take appropriate handling measures, including: (i) Dispose of the collateral tied to the debt (if any); (ii) In case of continued operation, the credit institution shall be allowed to convert its debt into capital contribution or provide extra capital to the credit institution; (iii) allow the enterprise’s bankrupt so that the credit institution could recover the related debt.

C. ROAD MAP TO IMPLEMENTATION

1. 2016

- Continue to initiate solutions in Decision No. 254/QD-TTg dated March 01, 2012 and Decision No. 843/QD-TTg dated May 31, 2013.

- Continue to develop and implement restructuring plans for financially weak credit institutions and other credit institutions.

- Review and make appropriate amendments to the legal framework, mechanisms and policies on settlement of bad debts.

II. 2017 - 2018

- Complete the review, amendments to the legal framework, mechanisms and policies on settlement of bad debts.

- Deploying Basel II applying standardized approach to 10 commercial banks.

- Formulate, promulgate and organize the implementation of, the plan on implementation of the scheme on restructuring of the system of credit institutions in association with the settlement of bad debts in the 2016-2020 period.

- Credit institutions shall formulate and submit to competent authorities for approval and implementation of the restructuring plan in accordance with the solutions in the Scheme on restructuring of the system of credit institutions in association with the settlement of bad debts in the period of 2016 - 2020.

- Credit institutions shall implement measures on improving financial capacity, transforming the business model, management and administration.

- Economic groups, state corporations, state enterprises which own shares or contributed capital at credit institutions shall complete the divestment at credit institutions.

- Deploy groups of solutions to settle bad debt fast and basically.

- Improve the organizational structure and operation of VAMC; increase charter capital for VAMC to reach VND 5,000 billion.

III. 2019 - 2020

- Commercial banks have regulatory capital basing on Basel II standards, with at least 12 to 15 commercial banks implementing Basel II (at least standardized approach).

- Basically settle the bad debts which need to be dealt with through solutions on settlement of outstanding debts in investment, capital construction, bad debts as designated by the Government, the Prime Minister or bad debts which need to be handled through the interdisciplinary working groups.

- VAMC must basically complete the bad debt purchased; the bad debt ratio of credit institutions and bad debts has been sold to VAMC and the debt classifications have been implemented to less than 3% (excluding financially weak commercial banks whose solutions that have been approved by the Government); increase charter capital of VAMC to reach VND 10,000 trillion.

- Credit institutions have completed measures to improve financial capacity, business model transformation, management and administration.

Initiate drastically and synchronously measures to consolidate, rectify and restructure credit institutions associated with the settlement of bad debts mentioned above, by 2020, Vietnam s system of basic credit institutions shall have regulatory capital in compliance with the Basel II standards and forms a number of larger, more competitive commercial banks in the region and in the world. The consolidation, reorganization and restructuring of the credit institution system associated with settlement of bad debts must be carried out at the lowest cost, eliminating the risk of bank failures beyond their control, maintain the safety and stability of the system without negative impact on the macroeconomic stability, political security and social order./. 

1The Scheme does not include Vietnam Bank for Social Policies and Vietnam Development Bank.