THE STATE BANK OF VIETNAM
Directive No. 07/CT-NHNN dated October 11, 2017 of the Vietnam State Bank on strengthening prevention and protection of violations in the field of monetary and banking, ensuring security, safety for banking operation, contributing to financial and monetary stabilization
In recent times, the banking sector has actively implemented policies and guidelines of the Party, policies of the State on restructuring credit institutions associated with handling with bad debts. Thereby, the system of credit institutions, branches of foreign banks (CIs) has achieved many positive changes and has operated safely and more effectively in the monetary and banking sector. From there, it contributes to the monetary, financial and macroeconomic stability and economic growth. The banking inspection and supervision section has promoted its active role in advising the Board of Directors of the State Bank of Vietnam (SBV) and coordinating with local authorities in the prevention and detection of violations in the field of monetary and banking; enhancing the effectiveness and efficiency of the state management on monetary, thus contributing to ensure the security and safety of banking operation.
However, prevention of violations in the field of monetary and banking is still limited. State management on banking inspection and supervision and results of adjudicating economic, civil and criminal cases related to the banking sector show common restrictions and violations such as: violations on credit extension, debt restructuring, debt classification and provisioning; Violations on capital mobilization and remittance; Violations on management, administration, inspection and internal control; Violating regulations on percentage, safety limits; Violations on accounting, financial management; violations on foreign exchange and gold trading; Violation on charter capital, shareholders, shares, stocks; violation on security of treasury; Violations in payment activities and information technology ...
These violations have been accumulating for many years in not only a bank but also a number of banks; a large group of shareholders have manipulated and dominated the bank. There are many reasons; however, the main reason comes from weak management capacity, investment in risky fields and fluctuations in the domestic and international market. The social situation is complicated but the degeneration and intentional violation of some leaders of some CIs are very serious. Therefore, correcting and handling with weaknesses of CIs should be identified as a particularly important task, both urgent and long term for the entire banking industry.
In order to implement objectives as stipulated under the Resolution No. 42/2017/QH14 dated June 21, 2017 of the National Assembly on Resolution No.42/2017/QH14 dated June 21, 2017 of the National Assembly on the pilot settlement of bad debts of credit institutions (Resolution No. 42/2017/QH14), 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” (Decision No. 1058/QD-TTg); Resolution No. 88/ND-CP dated September 13, 2017 of the Government on promulgating the Government
s Action Program to implement the Directive No. 12-CT-TW on "strengthening the Party
s leadership in assuring economic security in the context of the socialist-oriented market economy and international economic integration "(Resolution No. 88 / NQ-CP) as well as improving the efficiency and effectiveness of state management on monetary in the banking sector. The State Bank Governor requests units under the management of the State Bank and credit institutions to implement the following key tasks:
I. Objectives
To strengthen prevention and restriction of violations in the monetary and banking sector, promptly handle with violations in order to create a good monetary and banking environment, to ensure interests of depositors; to maintain stability, security and safety of credit institutions and contribute to socio-economic development.
II. Tasks and specific measures
1. For units under the management of the State Bank
a) To boost the implementation of the national strategy on prevention of corruption until 2020; to continue to implement the Decision No. 1491/QD-NHNN on the Plan to implement the Decision No. 312/QD-TTg dated February 28, 2014 of the Prime Minister on promulgating plan on implementing resolution on enhancing measures of preventing and combating terrorists in the banking sector; to implement the Decision No. 425/QD-NHNN dated March 25, 2015 of the State Bank Governor on assigning tasks to implement the national action plan on prevention and combat of money laundering and terrorist financing in the period 2015 – 2020;
b) To implement measures as mentioned under the Resolution No. 42/2017/QH14 dated June 21, 2017 of the National Assembly on the pilot settlement of bad debts of credit institutions and the Decision NO. 1058/QD-TTg dated July 19, 2017 of the Prime Minister on approving the scheme “restructuring the system of credit institutions attached with handling with bad debts in the period of 2016 – 2020”.
c) To seriously implement the banking sector’s action plan in implementing the Government
s Resolution No. 88 / NQ-CP of September 14, 1977 in implementing Directive No. 12-CT/TW on "strengthening the leadership of the Party for ensuring economic security in the socialist-oriented market economy and international economic integration”.
d)To continue completing the legal framework on management policies, banking inspection and supervision, regulations on safety of banking operation, regulations on management, administration and regulations on risk management of CIs, regulations on publicity, transparency ... in a way that is closer, safer and in line with international practices and standards in order to form higher standards and conditions in banking operations.
dd) To enhance publicity and transparency in monetary and banking activities, including formulation and implementation of laws, administration of policies and financial and operational issues of CIs; closely coordinate between monetary and fiscal policies to ensure security and safety of banking and financial activities and maintain a safe business environment for credit institutions.
e) To direct credit institutions to continue resolutely and effectively solve problems on cross ownership, violations on owning shares of shareholders or major shareholders, group benefits in credit institutions in accordance with the law; To intensify inspection and supervision and strictly handle with violations in the monetary and banking sector; To coordinate with the Ministry of Finance (the State Securities Commission) to monitor, examine and supervise transfer of shares of credit institutions listed in the securities market; To coordinate with the inspection agencies, the State Audit, the law enforcement agencies to closely monitor, examine and supervise cross-ownership transactions and cross-investment between credit institutions and enterprises operating in different areas bearing many potential risks; Verifying actual contributed capital sources of shareholders and investors contributing to credit institutions; coordinating with the investigation agencies in verifying violation cases in order to strictly handle with violations according to the law.
g) To renew and raise efficiency of banking inspection and supervision in the prevention, detection and handling of risks and violations. To intensify application of information technology and renovation of banking inspection and supervision methods in conformity with international practices and standards. To conduct comprehensive inspection and supervision at CIs, especially to intensify inspection on compliance of regulations on security and confidentiality in electronic payment and card payment; compliance with regulations on keeping cash, precious assets, valuable papers in the system, security and absolute safety of the treasury vault; compliance with regulations on investment management, synchronism and efficiency in information technology projects of CIs; compliance and implementation of contents as mentioned in the State Bank of Vietnam
s warning documents on strengthening prevention of violations in monetary and banking activities; Enhance the ability to detect, provide early warning, prevent and handle with risks and violations in the banking industry.
h) To direct CIs to step up improvement of management capacity and development of risk management and information technology systems. Strengthen effectiveness of internal self-inspection and control in each CI, especially strengthening the leadership role and responsibilities of heads of organizations and units; Establish and maintain the compliance culture within CIs. To take initiative in raising vigilance, preventing and fighting corruption and violations in organizations and units.
i) To raise efficiency of the Steering Committee for the prevention and fight against corruption and crime in the Banking Industry and in each Credit Institution in order to detect and promptly handle negative acts, crime in the banking sector. Promote prevention and combating of money laundering and international cooperation on prevention, combating of money laundering and corruption; Strengthening coordination between SBV and functional agencies in preventing and combating money laundering; To complete legal framework on money laundering and terrorist financing in order to detect and prevent corruption of domestic and international crimes.
k) To further enhance cooperation and sharing of information between the State Bank and law enforcement agencies and competent agencies in detecting and handling with violations in the monetary and financial sector; To be proactive and strictly handle with violations in accordance with the law for acts of violations, and corruption of collectives and individuals.
l) To continue stepping up propagation and dissemination of policies and provisions in the banking industry and training, raising the professional level, sense of responsibility, political ideology and professional ethics of officials and employees of the Banking Sector.
2. For credit institutions
a) Leaders of organizations must pay attention and raise responsibility in managing, inspecting and supervising operation of the unit; To thoroughly understand all key personnel in the whole system, direct the drastic deployment of measures to prevent and combat violations in the monetary and banking sector in an effective and solid manner. Particularly violations are as follows:
- Violations on lending (credit and guarantee), debt restructuring, loan classification and provisioning:
+ Through policy of debt freezing, debt rescheduling, debt restructuring of the State Bank of Vietnam to hide bad debts: Violations on debt classification, deduction, use of risk provisions and restructuring of repayment term; failing to make provisions for stock price decrease according to the provisions of law; disbursement through many related customers to avoid debt transfer; Entrusting other organizations to lend, invest in businesses that are in danger of overdue debt;
+ Violating provisions on lending activities of credit institutions to customers as stipulated under the Circular No. 39/2016/TT-NHNN dated December 30,2016, especially process of loan appraisal, checking business plans, debt repayment; inspection of collateral management, checking mortgage documents, collateral assets; inspecting and managing assets formed from loans; monitoring progress of disbursement, checking the use of loans…
+ Non-objective loan evaluation leads to ineligible loans, concentrated lending, investment in the real estate sector bearing many risks, breach of credit limit, collecting fees in contravention of regulations;
+ Borrowers using borrowed capital for wrong purposes, but lack of regular check and supervision in order to take timely and appropriate measures;
+ The actual financial situation and ability to perform contracts of the guaranteed units have not yet been fully evaluated that leads to the bank being obliged to pay in the case of the guarantor
s failure to perform the commitments; Importing and exporting foreign currency accounts for guaranteed items which are inaccurate; To inspect and supervise performance of guaranteed obligations in an irregular manner. The contract performance guarantee has not been closely monitored and the advanced payment guarantee is made to timely reduce the guarantee value according to the value of completed volume or accepted or verified by the investor.
- Violations on capital mobilization and deposit: Violations on mobilizing interest rates that are stipulated by the state bank; Violations on the application of interest rates through agreements with customers to withdraw deposits in the deposit ladder before the maturity date but still enjoy the term interest rate from the time customers deposit to withdraw money, through intermediaries to pay interest outside/broker/customer care in contravention of regulations; There is a lack of control over procedures for withdrawing money, lack of regular regulations and technological solutions to collate data, creating holes in asset management of credit institutions, causing damage to depositors
deposits.
- Violations on the management, control, internal control:
+ Not regularly review, supplement and amend the Charter to ensure compliance with the law and actual operation of credit institutions; the Charter of a number of CIs which have not yet complied with the provisions of law; the functions and duties of the Managing Board / Board of Members and the Executive Board are not clearly defined, thus leading to the situation where the Managing Board/the Members
Council intervene in the operation of the Executive Board, performing duties of the Executive Board; focusing the power on the chairman of the board of management, the chairman of the members
council or the chairman of the board of management, the chairman of the Members
Council, the standing member of the Members
Council shall decide the contents of tasks and powers of the Managing Board and the Members
Council, which are in contrary to the provisions of law, thus causing capital losses and risks to the operation of CIs.
+ Have not issued sufficient and timely internal regulations. Resolutions of the Board of Directors, decisions of the General Director on some matters that are not in accordance with the provisions of law. The control system, internal audit and risk management system is still limited, not detecting and dealing with risks and violations of CI, many violations are committed for a long time but have not been detected and treated, thus raising the moral hazard and causing damage to the CI. The unrealistic delivery of many performance indicators or target of capital mobilization, outstanding credit, and card issuance… increases risks for credit institutions.
- Violations on ratios and limits: providing credit to a customer and related persons who exceeds the credit limit as prescribed; failing to maintain the ratio of solvency as regulated. Issuance of internal regulations on liquidity management or internal regulations on liquidity management which do not contain contents related to plans and measures to hold valuable papers with high liquidity in accordance with regulations of the SBV. Providing unsecured credit, granting credit with preferential conditions to restricted subjects as prescribed. Minimum capital adequacy ratio is lower than the rate as regulated. Capital contribution, share purchase exceed the prescribed limit.
- Violations on accounting, financial management: Accounting is not true with the nature of the account; advancement and spending in contrary to the law; Use the welfare fund to buy shares that violate regulations. Accounting of accrued interest which is not compliant with the provisions of law (methods of cost accounting, cost estimate, actual collection, actual expenditure, reimbursement of revenue and expenses, incompliance with guidelines of the SBV and the Ministry of Finance) resulting in large accrued interest at a number of CIs, which pose a risk to the system.
- Violations on foreign exchange and gold trading activities: Selling foreign currencies to customers, but the foreign currency sale and purchase contracts do not specify purposes of using foreign currency. There is no list of revenues and expenditures of foreign currency when conducting foreign currency purchase and sale transactions in cash in contravention of regulations. Do not enter an account to track transaction in accordance with regulations. CIs use gold deposited by clients to do business, causing losses. It has not seriously implemented the foreign currency remittance to state corporations and economic groups. Regulations on conditions and procedures for preservation of property have not been issued.
- Violations on charter capital, shareholders, shares, shares: Taking advantage of loopholes in regulations on ownership through the use of individuals, organizations not belonging to related subjects as prescribed. Contributing capital to purchase shares of CIs and subsidiaries and affiliated companies of credit institutions to an enterprise is in contravention of the law. Investors receive large volume of shares with limited financial capacity (buy credit or borrow money from CIs to buy shares). Cross-ownership, cross-investment creates unrealistic capital raising; indirectly owning CIs through other individuals and organizations and taking advantage of capital borrowing and appropriating capital of CIs, causing bad debts and risks to the operations of CIs.
- Violations on vault safety: Not publicly post at the place of transaction to exchange money that is not qualified for circulation. Failing to comply with the regulations on packaging, sealing, forwarding, preservation, transportation, inventory of precious assets and valuable papers. There is no plan for guarding and protecting the vault in accordance with regulations. Failing to select and classify money not qualified for circulation. Failing to install vault safety equipment, fire prevention and fighting for vaults. The preservation of cash, precious assets, valuable papers during the lunch break is not in accordance with regulations. Use and preservation of the key of vault door, vault, safe, containers money on specialized vehicles is not in accordance with law. Using vaults is not in accordance with the structure and technical standards, using vault doors is not in accordance with technical standards. Have not fully opened books in accordance with regulations and procedures of cash receipts and payments; To open books for monitoring export and import of assets which are not tight and hand over key in contravention of the provisions of law. Not fully installing vault safety equipment such as: fire prevention and fighting equipment; camera monitoring and image storage time; Infrared alarm ... Failing to implement on packaging, sealing according to regulations.
- Violations on payment activities and informatics technology: failing to comply with internal procedures related to payment activities of the bank; providing intermediary payment services without a license; Using unlicensed or expired software; Failing to check and review accounts allocated to employees on the system to ensure the right people, right authority; Failing to inspect and assess safety of information before deploying the application of software provided to customers; having not built the provisional data center that can replace the main data center when the disaster occurs; using systems that have weak security and authentication and are vulnerable to interference; IT systems have not been maintained; Failing to comply with regulations related to equipment, management, operation and safety of ATMs; failing to comply with regulations and guidelines of the State Bank in providing intermediary payment services; Failing to comply with regulations on authenticating customers when providing payment services and payment intermediaries; tight management of the accepting units has not yet been carried out, leading to the situation whereby clients are allowed to perform POS transactions.
- Other violations:
+ Carrying out professions on discount of export documents but this service has not yet been registered yet; failing to open books to monitor fixed assets, archive incomplete invoices and vouchers, failing to make depreciation of fixed assets according to regulations; liquidating fixed assets without approval of competent authorities; using the welfare fund to buy assets with welfare purpose for officials and employees but use for real estate business purposes.
+ Bankers intentionally collude with external criminals, initiatively ignore and do not detect counterfeit documents in transactions or bank staff and bankers trust patrons or entice customers, failing to comply with internal procedures, failing to evaluate or appraise records in a sketchy manner; failing to promulgate internal regulations, guidelines and procedures for controlling and managing property dossiers and other papers; Taking advantage of the bank
s payment system to conduct counterfeit transactions, stealing information to forge credit cards and payment cards that cause damage to CIs.
b) To direct units in the system to examine and review all activities in order to ensure compliance with the provisions of law on monetary and banking as prescribed by relevant laws; On that basis, detecting and preventing violations and effectively implementing solutions to correct violations.
c) To review, amend or promulgate new internal regulations/procedures, especially regulations on deposit, savings, loans, mortgages; regulations on safety of treasury, money safes, transaction codes, safety, confidentiality of information, management of prints; conditions, procedures for receiving and delivering assets to customers; Responsibilities of relevant departments (accounting, budgeting) in ensuring safety of assets; regularly check inventory, compare vaults and cash fund; To restrict or prevent leaders and staff from colluding with each other and abusing their positions, powers, familiarity, proximity and loopholes to commit fraudulent acts, to ensure that employees comply with internal procedures and regulations and minimize moral hazard in the banking operation.
d)To consolidate the organizational model, raise efficiency of administration and operation of internal control and audit in order to limit risks and violations; To review, promulgate and strictly implement internal regulations on the rotation of officials, especially positions of leadership, treasury, credit, payment, mobilization, bad debts, foreign exchange business, information technology, customer management and other positions working directly with customers and directly doing transactions.
dd)To raise the effectiveness of internal control and audit work; To step up the internal audit activities, to conduct unscheduled inspections in order to raise the effectiveness of preventive measures and reduce moral risks in banking activities.
e) To develop and manage employees of the bank to carry out rotation of employees, to raise the capacity for credit assessment and appraisal and ethics of employees;
g) To enhance transparency and publicity in the operations of CIs, especially credit activities; thoroughly handle cross-ownership situation, violate limits on the ownership of capital; preventing, dealing with group interests, shareholders/major shareholders dominate credit institutions.
h) To strictly observe requests, recommendations and warnings of the State inspection agencies and the State audit agencies; To actively implement measures to prevent, detect and strictly handle with violations, negative acts and corruption of individuals and units under their management.
i) To closely coordinate with law enforcement agencies and functional agencies in detecting and handling with violations in the monetary and banking field to provide timely assistance in order to minimize Losses for customers and credit institutions.
k) To promote propaganda and education to raise awareness, understanding of law and regularly inform staff and employees on new methods, tricks and violations; developing, issuing and strictly enforcing ethics code of each CI; encouraging officials and employees to actively participate in the prevention, combat, detection and denunciation of violations, thus contributing to ensuring security and safety for banking activities.
l) To implement communication and dissemination of products and services (especially procedures) for customers to understand products, services and processes before using products and services of CIs; ensuring confidentiality of personal information, business; and performing transactions at credit institutions in accordance with the State Bank’s regulations to prevent and limit risks during the implementation.
m) To promptly report to the State Bank (through the Banking Inspection and Supervision Agency and the State Bank’s branches in provinces or cities where the CIs are headquartered) on violations; Difficulties, obstacles and proposals in the course of operation for consideration and settlement;
III. Implementation organization
1. This Directive takes effect on its signing date.
2. Chief of the Office, Chief of Banking Inspection & Supervision Department, heads of units under the management of the State Bank, Directors of the State Bank’s branches in provinces and centrally run cities ; Chairmen of the Management Board; Chairmen of the Member Board and General Directors (Directors) shall implement and organize the implementation of this Directive; build the plan and specific program and actively examine and urge to implement the Directive./.
FOR GOVERNOR
Le Minh Hung
Vietnamese
Directive 07/CT-NHNN DOC (Word)
Directive 07/CT-NHNN ZIP (Word)
