Banks with accumulated losses of 15% of capital may face early legal intervention

The draft Law on Credit Institutions (amended) is being considered for approval by the 15th National Assembly during this session. The draft has a number of notable additions, including provisions on early intervention in credit institutions.

Banks with accumulated 15 charter capital may be subject to some early intervention measures, picture 1 — Banks with accumulated losses of 15% of charter capital may be subject to some special intervention measures (Photo TL)

According to the provisions in the Draft, the State Bank (SBV) will consider deciding to intervene early when a credit institution or foreign bank branch falls into one of the following cases:

The accumulated loss of a credit institution or foreign bank branch is greater than 15% of the charter capital, allocated capital and reserve fund on the most recent audited financial statements or according to the inspection or audit conclusion of a competent state agency and violates the minimum capital safety ratio prescribed in Point b, Clause 1, Article 138 of this Law.

In case credit institutions and foreign bank branches have ratings below the average level according to regulations of the Governor of the State Bank.

Credit institutions and foreign bank branches violate the solvency ratio prescribed in Point a, Clause 1, Article 138 of this Law for 30 consecutive days.

Regarding restrictive measures for credit institutions and foreign bank branches, the Draft Law requires:

Firstly, credit institutions and foreign bank branches do not pay dividends, interest, distribute after-tax profits after setting aside funds, and transfer profits back to the country; limit the transfer of shares, capital contributions, and assets.

Restrict ineffective and high-risk business activities; reduce credit limits, capital contributions, and share purchases; restrict credit growth.

Suspend or temporarily suspend one or several banking activities or other business activities that show signs of violating the law; do not add new activities or expand the network.

Suspend managers and executives who violate legal regulations or pose major risks to the operations of credit institutions and foreign bank branches; request early election and appointment of replacements for managers and executives who violate legal regulations or pose major risks to the operations of credit institutions and foreign bank branches. Other measures are implemented under the authority of the State Bank.

In addition, credit institutions and foreign bank branches that violate the minimum capital safety ratio prescribed in Point b, Clause 1, Article 138 of this Law for 6 consecutive months or suffer massive withdrawals and have a report sent to the State Bank will also be subject to early intervention measures.

The draft law also stipulates a number of requirements for credit institutions and foreign bank branches, including:

Firstly, credit institutions and foreign bank branches will have to increase their charter capital and granted capital; increase their holdings of highly liquid assets and implement other solutions to meet the requirements of ensuring safety in banking operations.

Second, request to cut operating costs, management costs, remuneration, salaries, bonuses; request to refund remuneration and bonuses for managers, executives, and members of the Board of Supervisors.

Third, strengthen risk management; reorganize the administrative and operational apparatus.

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