Proposal for banks that have suffered mass withdrawals to be allowed to borrow at 0% interest rate

The Economic Committee proposed to apply special loans with 0% interest rate only to banks that have suffered mass withdrawals or are at risk of collapse.

On June 5, the Government will submit to the National Assembly the draft Law on Credit Institutions (amended). The new point in this draft is the addition of a provision that credit institutions are allowed early intervention by the State Bank.

Accordingly, banks are eligible for early intervention when they are subject to mass withdrawals leading to insolvency, or credit institutions fail to maintain payment ratios and capital safety for 3 and 6 consecutive months, respectively, and have accumulated losses greater than 20% of the value of charter capital and reserve funds. One of the measures applied to this group is special loans, without collateral, with an interest rate of 0% per year from the State Bank, the Deposit Insurance and other banks.

After examination, the Economic Committee proposed to only apply special loans to banks that have experienced mass withdrawals or are at risk of collapse, meaning it does not agree with the remaining cases.

The appraisal agency believes that the capital of the special loan does not come from the budget, but in the case of mobilizing resources from the Deposit Insurance and the Vietnam Cooperative Bank, it will affect the rights of members because this is the source of revenue from their fees and fund contributions.

The Economic Committee also disagreed with the regulation on the risk handling mechanism when mobilizing capital from the Deposit Insurance and the Cooperative Bank for special loans. Because such a regulation is unreasonable, does not ensure accounting principles, and does not clarify the responsibility of loan recovery of the lending entities.

"The funds of these two agencies should not be used for other purposes, such as with Deposit Insurance, which is to pay insured depositors in the event of a bank failure," the review agency said.

A commercial bank employee counts customer deposits. Photo: Thanh Tung — A commercial bank employee counts customer deposits. Photo: *Thanh Tung*

According to the Economic Committee, special loans without collateral will affect the ability to recover loans . Many opinions suggest considering adding regulations on special loans without collateral, because in principle, credit institutions must ensure the ability to pay, and clarify the responsibilities of the State Bank and related parties in case of failure to recover this loan.

The review agency requested clarification of the basis for proposing measures to designate special loans and assess the impact of such lending on designated credit institutions. In the case of designating a number of banks for special loans, the Economic Committee believes that it is necessary to clarify the basis for selection and allocation of loan amounts.

Citing the opinion of the World Bank (WB), the review agency said that this organization believes that the regulation on special lending designation may pose a risk to financial stability, pose a high risk to the financial situation of the State Bank, the Deposit Insurance and other lending institutions and spread the risk from one bank to another. In addition, the WB is also concerned about moral hazard in banks, that is, when providing special loans, it may cause higher risk-taking behavior of banks in a stressful situation.

The review agency also found that the measures mentioned in the draft only include external support, mainly from the State Bank, and do not include self-measures from banks to quickly overcome the situation of mass withdrawals. This incident needs to be handled urgently, so the agency proposed to review the regulations related to early intervention measures and measures for credit institutions suffering from mass withdrawals to come up with more specific regulations in the case of mass withdrawals from banks.

Mr. Minh

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