Decision No. 112/2006/QD-TTg dated May 24, 2006 of the Prime Minister approving the Scheme on development of Vietnam's banking sector up to 2010 and orientations toward 2020

DECISION

APPROVING THE SCHEME ON DEVELOPMENT OF VIETNAM'S BANKING SECTOR UP TO 2010 AND ORIENTATIONS TOWARD 2020

THE PRIME MINISTER

Pursuant to the December 25, 2001 Law on Organization of the Government;

On the basis of the Communist Party of Vietnam Central Committee's notice No. 191-TB/TW of September 1, 2005, on the objectives of and solutions to development of Vietnam's banking sector up to 2010, and orientations toward 2020;

At the proposal of the Governor of the State Bank of Vietnam in Report No. 49/TTr-NHNN of February 9, 2006,

DECIDES:

Article 1.- To approve the Scheme on development of Vietnam's banking sector up to 2010 and orientations toward 2020, enclosed with this Decision.

Article 2.- The State Bank of Vietnam shall assume the prime responsibility for, and coordinate with the Ministry of Finance, the Ministry of Planning and Investment, concerned ministries and branches, provincial/municipal People's Committees and credit institutions in, organizing the implementation of projects and schemes for achieving the objectives, orientations and solutions for development of Vietnam's banking sector enclosed with this Decision; guiding, inspecting, supervising and summing up the implementation every year for reporting to the Prime Minister; and organizing a preliminary review of the implementation by 2007 and a final review by 2010.

To assign the State Bank of Vietnam to assume the prime responsibility for, and coordinate with ministries and branches in, organizing the study and elaboration of the following important projects and schemes:

1. The Bill on the State Bank of Vietnam (new) to replace the 1997 Law on the State Bank of Vietnam and the 2003 Law Amending and Supplementing a Number of Articles of the Law on the State Bank of Vietnam (to be submitted to the National Assembly in 2008).

2. The Bill on Credit Institutions (new) to replace the 1997 Law on Credit Institutions and the 2004 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions (to be submitted to the National Assembly in 2008).

3. The Deposit Insurance Bill (to be submitted to the National Assembly after 2007).

4. The Law on Supervision of the Safety of Banking Activities (to be submitted to the National Assembly after 2007).

5. The Scheme on enhancement of the financial capacity (increasing equity capital, handling financial problems, mostly non-performing loans) of commercial banks according to international accounting standards and practices and the roadmap for equitization of state-owned commercial banks (to be submitted to the Prime Minister before June 30, 2006, for approval).

6. The Scheme on development of non-bank credit institutions and improvement of the effectiveness of their operation management (to be submitted to the Prime Minister before December 31, 2007, for approval).

7. The Scheme on development of other institutions engaged in banking activities and improvement of the effectiveness of their operation management (to be submitted to the Prime Minister before December 31, 2007, for approval).

8. The Scheme on development of non-cash payment in the 2006-2010 period, with a vision toward 2020 (to be submitted to the Prime Minister in 2006 for approval).

9. The Scheme on modernization of banks and payment systems, phase II, financed by the World Bank (to be implemented before December 31, 2007).

10. The Project on the system of information on management and modernization of banks, financed by the World Bank (to be submitted to the Prime Minister before June 30, 2007, for approval).

11. The Scheme on the roadmap for improving the convertibility of the Vietnamese currency, step by step overcoming the phenomenon of dolarization in the economy (to be submitted to the Prime Minister in 2006 for approval).

12. Formulation of the Scheme on propaganda for and development of small-scale financial activities and promotion of the role of small-scale financial activities in the cause of hunger eradication and poverty alleviation (to be submitted to the Prime Minister before December 31, 2007, for approval).

13. Formulation of a government decree providing for the supply of information in service of formulation and conduct of the national monetary policy (to be submitted to the Government in 2006 for approval).

To assign the General Department of Statistics to assume the prime responsibility for, and coordinate with the State Bank of Vietnam and concerned ministries and branches in, studying and formulating regulations on forms and mechanisms of disclosure of information on inflation (to be completed in 2006).

The State Bank of Vietnam shall, within the scope of their tasks and competence, proactively formulate and implement the said schemes and projects to realize the objectives, orientations and solutions laid down in the Scheme on development of Vietnam's banking sector up to 2010 and orientations toward 2020, enclosed herewith.

Article 3.- This Decision takes effect 15 days after its publication in "CONG BAO."

Article 4.- The Governor of the State Bank of Vietnam, ministers, heads of ministerial-level agencies, heads of government-attached agencies, and presidents of provincial/municipal People's Committees shall have to implement this Decision.

SCHEME

ON DEVELOPMENT OF VIETNAM’S BANKING SECTOR UP TO 2010 AND ORIENTATIONS TOWARD 2020
(Issued together with the Prime Minister’s Decision No. 112/2006/QD-TTg of May 24, 2006)

I. OBJECTIVES OF DEVELOPMENT OF THE BANKING SECTOR

1. Objectives of development of the State Bank of Vietnam up to 2010 and strategic orientations toward 2020

To renew the organization and activities of the State Bank with a view to forming a streamlined and professional organizational apparatus with adequate resources and capabilities to develop and conduct monetary policy according to market principles on the basis of advanced technologies, compliance with international practice and standards on activities of a central bank, integration into the international financial community and effective performance of state management functions in the monetary and banking domains, and concurrently creating foundations for the State Bank to develop after 2010 into a modern central bank reaching the advanced level of central banks in Asia.

To effectively formulate and conduct monetary policy in order to stabilize the value of the Vietnamese currency and control inflation, contributing to stabilizing macro-economy, boosting economic growth and successfully carrying out the cause of national industrialization and modernization. To regulate money, interest rates and exchange rates under the market mechanism through flexibly and effectively employing indirect instruments of monetary policy. To apply information technology, quickly diversify forms of non-cash and via-bank payment. To gradually make the Vietnamese currency more convertible and proceed to make it fully convertible. Monetary policy shall facilitate the effective mobilization and allocation of financial resources. To closely combine monetary policy with fiscal policy for orienting and encouraging the people to save, invest in and develop production and business.

2. Objectives of development of credit institutions up to 2010 and strategic orientations toward 2020

To fundamentally and thoroughly reform and comprehensively develop the system of credit institutions toward modernity and multi-purpose operation reaching the average advanced development level in ASEAN, which shall be diversified in ownership forms and types of credit institutions, have a broader scope of operation, a sound financial status, and, at the same time, create foundations for building after 2010 a system of modern credit institutions, reaching the advanced level in Asia, fully meeting international standards on banking activities, and being able to compete with other banks in the region and the world. To ensure that credit institutions, including state-owned ones, shall carry out business activities on market principles and chiefly for profits. To develop a system of credit institutions operating safely, efficiently and firmly on the basis of advanced technologies and management skills, and application of international practice and standards on commercial bank operations. To develop non-bank credit institutions with a view to developing a more diversified and balanced financial system. To develop and diversify banking products and services, especially capital mobilization, credit allocation and payment, with high quality and a rationally developed network of provision in order to provide adequate, timely and convenient banking services and utilities for the economy in the period of accelerated modernization and industrialization. To form a banking service market, especially a credit market for sound and fair competition among credit institutions of all types, providing opportunities for all organizations and individuals that have lawful demands, adequate capabilities and conditions to have easy access to banking services. To prevent and limit all negative acts in credit operations.

To further restructure the banking system. To separate policy credit from commercial credit on the basis of distinguishing the lending function of policy banks from the monetary business function of commercial banks. To ensure the business autonomy and accountability of credit institutions. To create conditions for domestic credit institutions to improve their management capability, professional level and competitiveness. To ensure the business right of foreign banks and financial institutions according to Vietnam’s international commitments. To closely associate banking reform with enterprise reform, especially state enterprise reform. To continue strengthening, making more healthy and developing joint-stock companies; to promptly handle poorly performing credit institutions so as to prevent the collapse of banks beyond the control of the State Bank. To properly orient the operation of people’s credit funds for firm, safe and efficient development.

The motto of action of credit institutions is “Safety- Effectiveness - Sustainable Development - International Integration.”

A number of monetary and banking indicators for the 2006-2010 period:

Note: Non-performing loans shall be identified according to Vietnam’s debt classification criteria in compliance with international practice.

Some commercial banks shall have an equity capital equivalent to USD 800 - 1,000 million by 2010, strong brand names and international competitiveness. To strive to form at least one financial group operating for multiple purposes in domestic and foreign financial markets.

II. SPECIFIC DEVELOPMENT ORIENTATIONS

1. Orientations for developing the State Bank of Vietnam up to 2010

a/ To enhance the status of the State Bank of Vietnam

The State Bank shall truly operate in the capacity as a central bank with all of its characteristics in the socialist-oriented market economy, mainly performing the function of a central bank (a bank that issues money, a bank of banks, the last lender, the money market regulator and the payment center) and the function of state management of monetary and banking activities, ensuring the safety of the banking system. The major tasks of the State Bank are to stabilize the value of the currency, control inflation, ensure the safety of the monetary and banking system, contributing to creating a macro-environment conducive to sustainable socio-economic growth and development. The State Bank shall act independently and autonomously in formulating and conducting monetary policy, interest rate and exchange rate. To raise the role, responsibilities and powers of the State Bank in organizing strategy implementation, monetary policy formulation and conduct by clearly defining its powers and tasks and restricting interference by concerned agencies in the process of formulating and conducting monetary policy and laws on money and banking activities. The relations between the State Bank and ministries and branches as well as credit institutions should be clearly defined; at the same time, there should be a close coordination between the State Bank and functional agencies, especially the Ministry of Finance, in formulating and conducting monetary policy. The State Bank shall have the key responsibilities and powers in managing and supervising activities of credit institutions and other institutions engaged in banking activities, and shall closely coordinate with the Ministry of Finance in managing and supervising the entire financial system. The State Bank shall neither directly provide professional instructions nor interfere in business decisions of credit institutions of all economic sectors. The State Bank shall have sufficient resources, enjoy relative professional, organizational and financial independence, and operate under a mechanism different from those applicable to administrative and non-business agencies but shall be subject to the management and supervision by the Government and the National Assembly.

b/ Orientations for restructuring the organizational apparatus of the State Bank of Vietnam system

To renew the organizational structure of the State Bank from the central State Bank to its branches along the line of streamlining and modernization. To reorganize the State Bank and rearrange its departments toward centralized management and direction; to improve research, analysis and forecast capabilities and raise specialization levels of all units; to clearly define the functions and tasks of units and their collaborative relations. To restructure State Bank branches toward centralization and not to introduce an identical organizational structure and same functions and powers to all State Bank branches; at the same time to prepare necessary conditions for the establishment of regional State Bank branches as it is unnecessary to have State Bank branches  in all provinces and centrally run cities. To rearrange state enterprises attached to the State Bank along the line that only the national money printing plant shall remain attached to the State Bank while other enterprises shall be equitized or merged. The State Bank shall no longer act as the state owner’s representative in credit institutions and its attached enterprises having state capital.

c/ Orientations for renewing the conduct of monetary policy

To conduct monetary policy on the principles of prudence, flexibility and effectiveness on the foundation of modern instruments of monetary policy and advanced technologies. The overarching objective of monetary policy in this period is to stabilize the value of the currency, control inflation, ensure the safety of the banking system and contribute to creating an environment conducive to economic growth.

To formulate and conduct monetary policy on market principles. To improve the capacity of the State Bank in regulating money, interest rate and exchange rate through renewing and further improving instruments of monetary policy as well as mechanisms of regulating exchange rate and interest rate in harmony with developing the money market in accordance with international practice as well as Vietnam’s practical conditions. To intensify the synchronous combination of instruments of monetary policy and between the conduct of monetary policy and other macro-economic policies. The State Bank should control the whole volume of money and all cash flows in the economy.

To conduct monetary policy on the basis of regulating the volume of money; at the same time to prepare necessary conditions for gradually switching to the conduct of monetary policy on the basis of regulating interest rate. To create necessary conditions for the State Bank to switch after 2010 to conduct monetary policy under the inflation targeting mechanism.

d/ Orientations for renewing foreign exchange management policy

To improve the State Bank’s overall capacity and scope in managing and supervising domestic and international foreign exchange transactions and concurrently in developing effective measures to restrict and control the outflow of investment capital to abroad. To liberalize current transactions and step by step loosen the control of capital transactions in a prudent manner in accordance with the roadmap for opening the financial market. To step by step increase the convertibility of the Vietnamese currency and creating foundations for the Vietnamese currency to be a freely convertible currency after 2010 in the direction that for the immediate future the Vietnamese currency shall be ensured to be freely convertible in current transactions and to be incrementally convertible in capital transactions. To narrow the scope of use of foreign currencies within the Vietnamese territory and gradually reduce the phenomena of dollarization. To enhance the responsibility and capability of commercial banks in meeting demands for foreign currencies while lifting restrictions on and creating favorable conditions for organizations and individuals to have access to the foreign exchange market.                

To quickly increase state foreign exchange reserves. To apply measures to effect the centralized and unified management of state foreign exchange reserves at the State Bank. To channel foreign currency flows into the banking system. To implement an open foreign exchange policy to promote export and attract flows of foreign currencies into the economy through the banking system.

To continue implementing effectively the flexible exchange rate mechanism under the market mechanism and along the line of associating with the basket of currencies of Vietnam’s important trading and investment partners. To gradually loosen the transaction range of the official exchange rate, proceeding to apply indirect instruments to regulate the exchange rate. To vigorously reduce before abolishing administrative interference in the foreign exchange market. To strongly develop the foreign exchange market and derivative money markets in accordance with international practice. The State Bank shall only interfere in the market and meet the country’s essential foreign currency demands mainly for achieving the objectives of monetary policy and stabilizing the money market. To improve the State Bank’s capability to manage and interfere in the foreign exchange market through market operations. To further improve the legal framework on foreign exchange so as to create conditions for the foreign exchange market to develop, for credit institutions to expand their foreign exchange operations and for organizations and individuals to have easy access to foreign exchange sources. To considerably reduce informal foreign exchange activities.

e/ Orientations for developing the banking supervision system

On the basis of the existing apparatus of the State Bank inspectorate, to build a modern and effective banking supervision system (in terms of institution, organizational model, personnel and methods) with a view to meeting the practical requirements of development of Vietnam’s banking system and complying with international principles and standards on banking supervision. To establish on the basis of the existing State Bank inspectorate a departmental body under the State Bank for supervision of the safety of banking activities. To step by step create a precondition for building after 2010 an overall financial supervision body with a higher status and role in performing the function of supervising the safety of all financial activities, including banking, securities and insurance. The principal objectives and responsibilities of this body shall be to contribute to ensuring the safety and stability of the system of credit institutions, strict compliance with the laws on monetary and banking activities and protection of interests of the public.

To further improve pre-conditions for an effective supervisory system:

To give priority to renewing the organization and operation of the existing State Bank inspectorate toward increased independence and uniformity in professional operations and direction and management work of a body for supervision of the safety of banking activities under the management of the Governor of the State Bank.

To perfect the legal framework on banking supervision as well as technical infrastructure in service of banking supervision. For the immediate future, the contents of banking supervision and orientations for renewing the system of banking supervision, especially specialized banking inspection and supervision, should be incorporated in the new Law on the State Bank and the new Law on Credit Institutions. To elaborate the Law on Supervision of the Safety of Banking Activities (when necessary). To ensure that the body for supervision of the safety of banking activities shall have all necessary powers in supervising the safety of the system and the observance of the provisions of law by credit institutions in their operations.

To modernize and effectively apply information technologies to banking inspection and supervision.

To renew the work of licensing the establishment and operation of banks and  simplify licensing procedures. To facilitate the establishment and development of credit institutions, particularly non-bank ones, in the direction of providing them with equal access to the market and the commercial provision of monetary and banking services on the basis of enhancing market discipline and raising the criteria for establishment of credit institutions and the safety requirements in banking activities so as to ensure that newly established credit institutions shall have a high competitive capability, wide scope of operation, high technological, quality and safety level.

To renew banking supervision methods and raise their effectiveness:

To improve the quality and effectiveness of off-site supervision and on-site inspection work, of which off-site supervision shall be regarded as an important operation to early warn risks in banking activities; to use results and operations of internal audit and independent audit as a tool to support the process of off-site supervision and on-site inspection.

To perfect safety regulations and prudential measures in banking activities; regulations and policies on management of all types of credit institutions and banking activities; at the same time, to renew the contents, methods and processes of supervision and inspection to make them compatible with the development of information and banking technologies on the basis of application of the core principles for effective banking supervision established by the Basel Committee on Banking Supervision as well as of international standards on banking supervision (1988 Basel Capital Accord - Basel I), to step by step proceed to adhere to the core principles and standards under the new capital accord (Basel II) after 2010.

f/ Orientations for renewing human resource management and development

To concentrate efforts on building and developing a contingent of personnel who shall have adequate capabilities and qualities to meet the requirements of the process of developing the State Bank into a modern central bank in the socialist-oriented market economy and integrating into the world economy. Together with renewing the management mechanism at the State Bank, to restructure the contingent of the State Bank’s cadres and civil servants in the direction of improving their quality and qualifications; rearranging and rationalizing the working force in both the central State Bank and State Bank branches to suit the new organizational model and new management mechanisms and meet the development requirements of the State Bank. To further improve the system of labor management processes and policies in parallel with building a friendly and sound working environment and developing a  mechanism of offering material incentives and career opportunities to attract excellent staff in the direction that the average income of State Bank staff shall not be lower than that of state-owned commercial bank staff.

To manage staff on the basis of the volume and quality of professional work performed. To implement the regime of treatment of staff according to their actual capability, working position and level of task performance. Preferential treatment and reward regimes together with other non-material incentives should be fundamentally renewed in order to truly become a driving force for units and individuals to improve their professional qualifications, bring into full play their enthusiasm to actively emulate and contribute their capability and intellect to improving the quality and effectiveness of their jobs, and permanently attach themselves to the State Bank. To step by step implement the mechanism of examination for recruitment of personnel for certain managerial and leading positions; to place staff in jobs suitable to their capability as well as job requirements and characteristics. To further sign labor and service contracts with professional service provision organizations for performing certain logistics, service and seasonal jobs which do not affect the safety and confidentiality of State Bank activities.

2. Orientations for developing credit institutions up to 2010

a/ Strategic orientations for developing state-owned commercial banks and joint-stock commercial banks

In the banking system, state-owned commercial banks and joint-stock commercial banks where the State holds dominant shares shall play the key and leading role in terms of scope of operation, financial capability, technology, management and business efficiency. State-owned commercial banks shall, together with domestic joint-stock banks, play the core role in Vietnam’s banking system. Foreign credit institutions and other non-bank credit institutions shall contribute to ensuring the comprehensive, safe and effective development of Vietnam’s banking system. To enhance the international competitiveness of Vietnamese commercial banks with high-quality services and strong brand names.

To continue comprehensively restructuring commercial banks under the Scheme on restructuring of state-owned commercial banks and the Scheme on consolidation and reorganization of joint-stock commercial banks, specifically:

To enhance institutional capacity (organizational and operational restructuring):

To reorganize the organizational apparatus of commercial banks from central offices to branches. To renew the governance and business apparatus at the main transaction offices to comply with international practice. To clearly distinguish the functions, tasks and powers of the Management Board from those of the executive board. The Management Board should be assisted by at least the control/audit board and the risk management council/committee.

To expand agency, business cooperation, product development and technology application and transfer relations with foreign financial institutions. To promote the commercial presence of Vietnamese commercial banks in regional and international financial markets.

To expand the scope of operation coupled with enhancing the self-examination and risk management capacity to ensure business safety and efficiency. To ensure the independent and professional operation of internal audit bodies and systems. To develop a centralized information system for independent risk management. To develop governance systems within commercial banks in compliance with international standards and practice as well as the realities of Vietnamese commercial banks.

To enhance financial capacity (financial restructuring):

To make healthier and quickly and substantially improve commercial banks’ financial capacity with a view to ensuring their adequate financial capacity (in both scope and quality). To continue increasing the charter capital and assets in parallel with improving the quality and profitability of assets; to reduce the ratio of problem assets in the aggregate assets. To thoroughly handle outstanding debts and make clean the balance sheets of state-owned commercial banks.

To increase equity capital of commercial banks with retained profits; issued shares and bonds; by merger, consolidation and acquisition. To resolutely handle weak joint-stock commercial banks which may cause great risks to the banking system, including the application of dissolution and bankruptcy measures in accordance with the provisions of law, while ensuring that this will not cause great socio-economic impacts. To facilitate the acquisition, consolidation and merger of commercial banks so as to enhance their competitiveness and expand their scope of operation. To maintain commercial banks’ equity capital at a level commensurate with the size of their assets by maintaining the minimum capital adequacy ratio of 8% in the medium term and 10% in the long term.

To step by step equitize state-owned commercial banks on the principle of prudence, assurance of socio-economic stability and the safety of the banking system. To permit foreign investors, especially banks with financial, technological and management potential and prestige to buy shares of and take part in managing Vietnamese commercial banks. In the long run, the State shall only hold dominant shares or large share proportions in a small number of equitized state-owned commercial banks depending on the specific conditions of each bank and the requirements of management and assurance of the safety and effectiveness of the banking system with a view to enhancing commercial principle and market discipline in the operation of commercial banks.

To fundamentally renew the mechanism of management of state-owned commercial banks and other credit institutions. Accordingly, credit institutions shall enjoy true autonomy (in finance, operation, management, organizational apparatus and personnel), take full responsibility for business results and operate within a transparent, open and equal legal framework. The relations between the State Bank and credit institutions shall be not only state management relations but also economic relations on the basis of respect for market principle, transparency and abolition of subsidies, privileges, bias and business monopoly. To eliminate the mechanism of the State Bank’s owner representative in state-owned commercial banks. The State Bank shall, in playing its principal role in creating an environment conducive to monetary and banking activities, promulgate regulations and policies, regulate the money market and supervise the safety and the observance of legal provisions on monetary and banking activities.

To strive to basically complete the program on restructuring commercial banks before 2009.

b/ Strategic orientations for developing people’s credit funds

To develop people’s credit funds into independent cooperative credit institutions operating on the principles of voluntariness, autonomy and accountability for operation results and for the main purpose of mutual assistance among members. People’s credit funds shall operate under the Law on Credit Institutions and the Law on Cooperatives. The scope of operation of these funds shall be mainly to mobilize capital from and provide loans to members in rural areas with a view to mobilizing on-spot resources for economic development, hunger eradication and poverty alleviation and usury prevention.

c/ Strategic orientations for developing foreign credit institutions operating in Vietnam

To comply with the provisions of the Vietnam-US bilateral trade agreement, other bilateral agreements with Japan and EU, WTO regulations (after Vietnam joins the WTO) and international commitments to open the financial-banking service market. To continue proactively relaxing restrictions on market access and banking operations of foreign credit institutions in Vietnam according to the committed roadmap. While creating opportunities for foreign credit institutions to lawfully operate according to international commitments, to introduce management methods and mechanisms which are flexible, lawful and compliant with international practice to restrict their manipulation, unfair competition or acquisition that can place Vietnamese credit institutions at a disadvantage.

d/ Strategic orientations for developing banking services

To develop diversified and multi-utility banking services oriented to meet the demands of the economy on the basis of further improving the quality and effectiveness of traditional banking services while quickly approaching modern banking practices and new financial and banking services with high technological contents. To raise the competitiveness of banking services of Vietnamese credit institutions on the basis of market principles, transparency, subsidy restriction and anti-monopoly in the provision of banking services in order to step by step develop an open, competitive, safe and effective banking service market. To impose no restrictions on the right of organizations and individuals to enter the banking service market while creating conditions for any organizations and individuals that satisfy all requirements on transaction capability, procedures and conditions to have access to banking services if they so wish. To step by step liberalize market entry and encourage competition among credit institutions in terms of service quality, technology, prestige and brand name instead of mainly in service prices and network expansion. By 2010, Vietnam’s banking system shall strive to develop a banking service system on par with those in ASEAN countries in terms of categories and quality of services, some of which shall be internationally competitive.

3. Orientations for perfecting the legal system on monetary and banking activities up to 2010

To establish a comprehensive legal framework with fuller introduction of international institutions and standards on safety of monetary and banking business. To build a transparent and equal legal environment in the monetary and banking domains with a view to promoting competition and ensuring the safety of the monetary and banking system. Monetary and banking policies and laws shall help create a sound environment and a motive force for credit institutions, enterprises and the population to develop production and business. To abolish all forms of protection, subsidy and privilege in the banking domain and of discrimination between credit institutions. To promulgate a new Law on the State Bank to replace the 1997 Law on the State Bank and the 2003 Law Amending and Supplementing a Number of Articles of the Law on the State Bank; and a new Law on Credit Institutions to replace the 1997 Law on Credit Institutions and the 2004 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions in order to create the foundation for accelerating the process of reforming and developing the monetary and banking system into a safe and modern one for effective international integration. The Law on the State Bank and the Law on Credit Institutions shall aim at regulating all monetary and banking activities without discrimination between participants in banking activities. To improve the enforcement of law in the monetary and banking domains. To enhance the effect of legal, economic and financial remedies to guarantee that borrowers shall fulfil their repayment obligations and credit institutions’ legitimate interests shall be protected. To restrict then abolish the criminalization of economic relations in the banking domain.

4. Orientations for developing technologies and the banking payment system up to 2010

To develop a modern banking technological infrastructure on par with that in regional countries on the basis of effective application of advanced information and electronic technologies and international standards and practice suitable to Vietnam’s conditions. To comprehensively and synchronously modernize the banking technologies of the State Bank and credit institutions in the areas of professional operation, management and technical equipment. To quickly approach, effectively operate and master advanced applications of banking technology.

To strive to build a safe, effective and modern banking payment system comparable with those in regional countries (in technical infrastructure, institutional setting and payment services). To develop the electronic payment system nationwide; to modernize the systems of inter-bank electronic payment, clearing payment and internal payment within commercial banks along the line of automation with an open structure capable of highly integrating various applications. To link the payment systems of commercial banks to the inter-bank electronic payment system. To enhance the State Bank’s role in performing the state management and providing clearing payment and inter-bank services. To develop advanced, safe and effective non-cash payment technologies, means, forms and services.

5. Orientations for developing the money market up to 2010

To develop a safe, synchronous and highly competitive money market, serving as an important basis for formulating and conducting monetary policy, mobilizing and effectively allocating financial resources, and minimizing risks for credit institutions. To strengthen and develop the inter-bank market with open operation mechanisms and concurrently enhance the State Bank’s role in supervising and managing the operation of such market. To develop the market for bond and treasuring bill bidding and an open market. To promote the operation of agents for issuance of government securities. To increase the quantities and types of securities which have a high degree of safety and liquidity for trading on the open market while relaxing restrictions on market entry for credit institutions. To increase coordination in the operation, management and direction between component money markets, and between the money and securities markets. To restrict administrative interference in the operation of the money market.

III. MAJOR GROUPS OF SOLUTIONS

The objectives of and orientations for the development of the banking sector up to 2010 shall be realized with the following major groups of solutions:

1. To perfect the system of laws, mechanisms and policies on monetary and banking activities

- To review, amend and supplement mechanisms, policies and legal documents according to the roadmap for realization of international commitments in the monetary and banking domains, especially commitments for accession to the World Trade Organization (WTO).

- To elaborate laws and relevant guiding documents to ensure the synchronism, consistency and completeness of legal documents on monetary and banking activities, prioritizing the Law on the State Bank, the Law on Credit Institutions (new) and their guiding documents.

In the post-2007 period:

+ To submit to the National Assembly the new Law on the State Bank to replace the 1997 Law on the State Bank and the 2003 Law Amending and Supplementing a Number of Articles of the Law on the State Bank;

+ To submit to the National Assembly the new Law on Credit Institutions to replace the 1997 Law on Credit Institutions and the 2004 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

+ To submit to the National Assembly the Deposit Insurance Law;

+ To submit to the National Assembly the Law on Supervision of the Safety of Banking Activities.

- To further fundamentally renew and perfect mechanisms and policies on credit, investment, loan security, foreign exchange, capital mobilization, payment and other banking activities; regulations on management and supervision of the provision of banking services; licensing and management of all types of credit institutions; and regulations on purchase, sale, merger, consolidation, dissolution and restructuring of credit institutions.

2. To enhance the capacity to formulate and conduct monetary policy and foreign exchange management policy

- To continue perfecting the mechanism of implementing monetary policy instruments, particularly indirect ones with the open market operation playing the key role;

- To closely link exchange rate management with interest rate management, and domestic currency management with foreign currency management. To renew the mechanism of interest rate and exchange rate management on market principle;

- To clearly identify the responsibilities of the State Bank for conducting monetary policy, taking inflation control as its main function and ensuring publicity and transparency in the conduct of monetary policy.

3. To raise the supervisory capability of the State Bank of Vietnam

To concentrate on reforming and developing the banking supervisory system with the following major contents:

- To renew the organizational model of the existing State Bank inspectorate into a centralized, unified and professional one in compliance with the international standards on banking inspection and supervision (Basel); to establish as part of the organizational structure of the State Bank a department to supervise the safety of banking activities. To concentrate efforts on raising the supervisory capability and thoroughly renewing the risk-based supervision methods while improving the quality and effectiveness of off-site supervision;

- To expand the list of entities subject to State Bank inspection and supervision;

- To further improve regulations on independent audit of credit institutions in accordance with Vietnam’s realities and international practice. To further improve regulations on organization and operation of internal audit bodies and internal audit systems within credit institutions.

- To build and implement a framework on processes and methods for consolidated and risk-based inspection and supervision. To build a system for supervision of banking risks which shall be capable of early warning banking problems and risks in credit institutions. To issue new regulations on assessment and classification of credit institutions according to CAMEL(S) criteria;

- To make suitable adjustments to deposit insurance regulations and policies requiring all financial-credit institutions involved in mobilizing deposits under the provisions of the Law on Credit Institutions to participate in deposit insurance. To raise the role of Vietnam Deposit Insurance and improve its financial and operational capability in supervising, supporting and handling deposit insurance participants when they encounter difficulties, contributing to ensuring the safety of the banking system. To enhance coordination between Vietnam Deposit Insurance and the Department for Supervision of the Safety of Banking Activities in the process of supervising credit institutions and handling their problems. To step by step switch to implement the mechanism of deposit insurance based on the degree of risk of deposit insurance participants;

- To enhance the role of the Credit Information Center and improve its operational capability in collecting, processing and supplying credit information in support of business activities of credit institutions as well as supervisory activities of the State Bank with respect to credit institutions;

- To review and perfect regulations on the safety of banking activities to better conform with good practice and international standards and ensure compliance with these regulations, especially those on classification of debts, deduction and use of risk provisions and reserves. To issue regulations on criteria and minimum requirements for the business administration system in general and the risk management system in particular for application to credit institutions. To make banking activities transparent. To create conditions for joint-stock credit institutions to be listed at the Stock Exchange;

- To develop a contingent of inspectors and supervisors who shall be sufficient in number and have high professional qualifications, good political and ethical qualities, be equipped with adequate legal and managerial knowledge and means for performing their duties;

- To further promote international cooperation and participate in international accords and agreements on banking supervision and the safety of the financial system. To intensify the exchange of information with foreign banking supervisory bodies.

4. To modernize banking technologies and payment systems

- To modernize the banking transaction system. To actively promote e-commerce and develop new banking services based on information technology, especially electronic and automated banking services;

- To keep upgrading the wide-area network and information technology infrastructure with technical solutions and communication methods suitable to the development level of Vietnam’s banking system and conformable with international standards and practice. To further improve and develop basic patterns of banking management; management and operational processes and procedures in accordance with international practice and standards, and along the line of modernization, automation and integration into a complete and centralized banking management and system;

- To improve the system of information and data safety and confidentiality and network security. To implement schemes on renovating and upgrading network security solutions to ensure information confidentiality, the safety of assets and operations of the State Bank and credit institutions. To build a system to protect information and data confidentiality and network safety, expeditiously building and putting to operation back-up data centers or disaster remedy centers under the State Bank and credit institutions. To study and formulate a strategy on data transmission lines linked to the national information network so as to enable the banking sector to proactively cope with incidents;

- To renovate and upgrade the information technology systems of the State Bank and credit institutions. To formulate and implement schemes and projects on connecting and developing systems of ATMs. To develop banking card service companies and appropriate payment organization models;

- To reform the existing banking accounting system to conform with international accounting standards, especially the classification of debts based on quality/risk level, deductions for risk provisions and revenue/cost accounting;

- To continue perfecting the system of information, statistics and internal reporting within the banking sector with a view to building up a modern, centralized and uniform national management information and data system. To develop the internal information network in the whole system on the basis of the application of information and network technologies.

5. To raise the effectiveness of the organizational apparatus and development of human resources

- To restructure the organizational model:

+ The State Bank system: By 2010, the organizational apparatus of the State Bank shall not see any major changes compared with the existing one. However, certain crucial departments of the central State Bank shall be reorganized or established so as to more effectively perform the role of a modern central bank; State Bank branches shall be reorganized in their operation and structure to meet the requirements of monetary management and banking activities in each locality, and shall also see changes in the arrangement and organization of each branch’s professional activities in such major areas as inspection, supervision, cash supply, and payment. State Bank branches in some important localities shall be authorized to perform their tasks on a wider geographical area (not limited by administrative boundaries), thereby forming a premise for them to develop into regional branches in the subsequent period. Remaining State Bank branches shall have their functions, tasks, organizational apparatus and staff reduced in an appropriate manner;

- Credit institutions: To restructure the organizational apparatus of credit institutions, including rearranging and strengthening the management and executive apparatus, sections and divisions of their head offices, branches, transactions offices, saving funds, transaction points and attached enterprises.

- To develop and step by step introduce new management mechanisms in the State Bank with a view to raising its performance efficiency in line with the management trend, which are currently applied to the central banks in many countries. Within this framework, to build an effective system of labor incentives and perfect the system of human resource management policies. To recruit, arrange, assess, promote and properly treat staff according to their actual capabilities and qualifications as well as job characteristics and requirements. To clearly institutionalize the rights and obligations of staff. To  adhere to the principles of democracy and transparency in personnel work. To restrict administrative interference by functional agencies in personnel work of credit institutions;

- To promote and renew the work of professional and management skill training and retraining for senior officials, while raising professional ethics and responsibilities of banking staff. To improve the operational effectiveness of training establishments in the banking sector. To set up a training center under the State Bank.

6. To develop the money market

- To continue perfecting policies and regulations on organization, operation and management of the money market toward expanding the right to market access and the possibility to issue low-risk financial instruments, encouraging qualified and capable big commercial banks to become key players in creating money markets, especially derivative money markets;

- To diversify market participants, instruments and modes of transaction on the money market, especially derivative products and risk prevention tools. To create conditions for credit institutions to issue valuable papers of high safety, including all types of bonds for listing on the securities market.

7. To accelerate the restructuring of commercial banks according to the approved schemes

- To further improve the organizational models of commercial banks from central transaction offices to branches according to good business administration practices: To organizationally restructure the management apparatus (Management Board), the executive apparatus (Executive Board) and sections and divisions of central transaction offices with a view to improving their governance and executive capabilities and effectiveness; to clearly define the responsibilities and powers of all components and levels. To expeditiously work out plans on rearranging (in quantity, geographical area, organizational structure, competence and scope of operation, etc.) and rationally expanding the networks of branches, transaction offices, transaction points, saving funds and other distribution channels of commercial banks;

- To make healthy and increase the financial capability of commercial banks:

+ To develop effective credit control mechanisms, particularly those for preventing non-performing loans from growing and measures to handling credit risks. To classify debts and make deductions for setting up risk provisions and reserves according to international practice and make financial statements according to international financial report standards (IFRS).

+ Before 2008, to complete the equitization of the Bank for Foreign Trade of Vietnam and the Mekong River Delta Housing Development Bank. By 2010, most of state-owned commercial banks shall have been equitized. To create conditions for state-owned commercial banks to issue long-term bonds. To strive to achieve the level of equity capital of state-owned commercial banks equivalent to the capital adequacy ratio of over 6% (by the end of 2006) and over 8% (before 2010). Those state-owned commercial banks which have similar operation objectives and overlapping branch networks may be merged, consolidated, etc., as appropriate.

- To improve the management effectiveness and enhance the risk management capability: To further improving the organizational apparatus and operation of internal audit sections and internal audit systems. To establish and put to effective operation risk management components. To build a system of management of liquidity risks; market, interest rate and exchange rate risks; and credit risks;

- To speed up the modernization of banking technologies according to the Scheme on restructuring of state-owned commercial banks, the Scheme on strengthening and reorganization of joint-stock commercial banks and relevant contents of this Decision;

- Before December 31, 2007, to organize the evaluation of the program on restructuring of commercial banks, especially the program on development of new administration institutions for drawing experience, accelerating and expanding this program to all joint-stock commercial banks.

8. To enhance the operational capability and quality of people’s credit funds; to firmly and safely develop newly set up people’s credit funds

- To improve the operational effectiveness, financial capability and management levels of people’s credit funds in order to ensure the safety of their operation. To continue with and complete the consolidation and reorganization of the operation of people’s credit funds. To thoroughly liquidate people’s credit funds which have had their operation licenses withdrawn before moving into the period of perfection and development of the system of people’s credit funds in the subsequent years. To work out and implement plans on professional and management skill training and retraining for grassroots people’s credit fund staff. To increase equity capital, modernize management technologies and professional operations of people’s credit funds. To improve the operational capability and effectiveness of the internal inspection and control apparatus of people’s credit funds. To continue building and developing new people’s credit funds in localities where exist demands and adequate conditions for their sound and safe development.

- To perfect the organizational model of the system of people’s credit funds, consisting of the central people’s credit fund and grassroots people’s credit funds. To develop the central people’s credit fund into a cooperative fund which shall have adequate financial capability to be the principal caretaker and supporter of grassroots people’s credit funds in finance, management and technology with a view to guiding the operation of people’s credit funds in the right direction and ensuring their safety. To set up an association for development of people’s credit funds, with the principal body being the people’s credit funds association. To set up a payment provision source and a people’s credit fund system safety fund. To set up an audit body of people’s credit funds which shall have adequate financial, human and professional resources and an organizational apparatus for discharging its tasks. To consolidate the management and executive apparatus and the control apparatus of grassroots people’s credit funds.

9. To strengthen, develop and further manage non-bank credit institutions and other institutions engaged in banking activities, including small-sized financial institutions

To facilitate the establishment and development of non-bank credit institutions, including intermediary institutions, which shall operate to support banking activities. To raise the State Bank’s role in managing and supervising non-bank credit institutions as well as other institutions engaged in banking activities, including small-sized financial institutions and other institutions with operations closely related to banking activities. To perfect the legal framework and policies for promoting the sound development and operation of these organizations.

10. To perfect and enhance the management of state-owned policy banks and development financial institutions

To clearly identify the scope and content of operation of the Social Policy Bank and distinguish policy credit and support credit of the State from commercial credit of credit institutions. To organize the effective operation of the Vietnam Development Bank for carrying out the State’s development investment credit activities, including export support credits, while proceeding to establish in a near future an Export-Import Bank when conditions permit. To enhance the State Bank’s role in managing and supervising banking activities of state-owned policy banks and financial institutions.

11. To accelerate the process of international integration in the banking domain

- To proactively integrate into the world economy in the banking domain according to the roadmap and with steps appropriate to the capability of Vietnam’s banking system, first of all the competitive capability of credit institutions and the State Bank’s ability to manage and control the system.

- To open up the banking service market according to the committed roadmap in the Vietnam-US bilateral trade agreement, the ASEAN framework agreement on trade and services (AFAS); while realizing commitments for WTO accession to meet the requirements of WTO/GATS agreements;

- To further perfect the system of policies and laws according to the commitments to open the market. To step by step remove restrictions on the right to access the banking service markets (domestic and foreign) for both providers and users of banking services (domestic and foreign). To create conditions for domestic credit institutions to expand their operation into foreign markets through providing services within the WTO framework, especially commercial presence and cross-border provision of services;

- To accede to international agreements and participate in regional and international forums on monetary and banking activities. To develop multilateral and bilateral cooperative relations in the monetary and banking domain in order to make full use of capital, technologies and advanced management skills of foreign countries; To coordinate with financial inspection and supervision bodies in directing, stopping, preventing and handling risks on the regional and global scale.

IV. Major projects and schemes aiming to materialize the objectives and orientations of development of Vietnam’s banking sector.

The group of legislative projects:

1. The (new) Bill on the State Bank of Vietnam to replace the 1997 Law on the State Bank of Vietnam and the 2003 Law Amending and Supplementing a Number of Articles of the Law on the State Bank of Vietnam (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Bill to the National Assembly in 2008).

2. The (new) Bill on Credit Institutions to replace the 1997 Law on Credit Institutions and the 2004 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Bill to the National Assembly in 2008).

3. The Deposit Insurance Bill (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Bill to the National Assembly after 2007).

4. The Law on Supervision of the Safety of Banking Activities (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Bill to the National Assembly after 2007).

The group of other projects and schemes

1. The Scheme on enhancement of the financial capacity (increasing equity capital, handling financial problems, mostly bad debts) of commercial banks according to international accounting standards and practices and the roadmap for equitization of state-owned commercial banks (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister before June 30, 2006, for approval).

2. The Scheme on development of non-bank credit institutions and improvement of the effectiveness of their operation management (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister before December 31, 2007, for approval).

3. The Scheme on development of other institutions engaged in banking activities and improvement of the effectiveness of their operation management (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister before December 31, 2007, for approval).   

4. The Scheme on development of non-cash payment in the 2006-2010 period, with a vision toward 2020 (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister in 2006 for approval).

5. The Scheme on modernization of banks and payment systems, phase II, financed by the World Bank (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, completing this Scheme before December 31, 2007).

6. The Project on the system of information on management and modernization of banks, financed by the World Bank (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Project to the Prime Minister before June 31, 2007, for approval).

7. The Scheme on the roadmap for improving the convertibility of the Vietnamese currency, step by step overcoming the phenomenon of dolarization in the economy (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister in 2006 for approval).

8. Formulation of the Scheme on propaganda for and development of small-scale financial activities and promotion of the role of small-scale financial activities in the cause of hunger eradication and poverty reduction (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this Scheme to the Prime Minister before December 31, 2007, for approval).

9. Formulation of a government decree providing for the supply of information in service of formulation and conduct of the national monetary policy (the State Bank shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, formulating and submitting this decree to the Government in 2006 for approval).

10. To study and formulate regulations on forms and mechanisms of disclosure of information on inflation (the General Department of Statistics shall assume the prime responsibility for, and coordinate with the State Bank of Vietnam and concerned ministries and branches in, formulating and implementing these regulations in 2006).