This content is from: Local Insights

Vietnam: Banking system restructuring legislation

As one of Vietnam's efforts to strengthen the national banking system, which has been unstable in recent times, on November 20 2017 the National Assembly introduced a new law amending and supplementing a number of articles of the 2010 Law on Credit Institutions (Amended LOCI). The new law came into effect on January 15 2018.

The Amended LOCI mainly focuses on regulations dealing with underperforming credit institutions. In particular, it concentrates on, among others, the plans that are available for dealing with those credit institutions which are subject to special control by the State Bank of Vietnam (SBV), including: (i) the recovery plan; (ii) the merger, consolidation and transfer of all shares and capital contributions plan; (iii) the dissolution plan; (iv) the mandatory transfer plan; and, (v) the bankruptcy plan.

Bankruptcy appears for the first time as a plan for restructuring the banking system. Previously, after considering proposals from its specially appointed control board supervising a credit institution, if the SBV decided to discontinue the credit institution's special control/recovery plans due to the institution's inability to recover, the credit institution would be requested to apply for a court declaration of bankruptcy under the general laws on bankruptcy. There were no specialised regulations on handling the rights of the credit institution's customers other than the general principles set out under the laws on bankruptcy.

Under the Amended LOCI, the special control board may consider whether the credit institution should undergo bankruptcy proceedings in the early stages, without the need to apply a recovery plan first. After the issuance of in-principle approval of bankruptcy by the government or the prime minister, a bankruptcy plan will be proposed based on the actual status of the credit institution. The SBV will submit the proposal to the government for approval and after obtaining the approval, will direct, inspect and supervise the implementation of the approved bankruptcy plan.

Notably, the Amended LOCI identifies the minimum compulsory contents of a bankruptcy plan, including (i) the assessment of the actual situation and the handling process of the credit institutions subject to special control; (ii) the assessment of the impact of bankruptcy plan's implementation on the safety of the banking system; (iii) a deposit payment plan for individual customers; and, (iv) a roadmap for the implementation and responsibilities involved in carrying out the bankruptcy plan.

With this new legal framework for bankruptcy of credit institutions, it seems that Vietnam's government is ready to let a credit institution be declared bankrupt – which has never happened in practice before – on the condition that a detailed bankruptcy plan has been adopted by the special authorities (ie the SBV and the Deposit Insurance of Vietnam), instead of applying the general bankruptcy regulations alone.

Including bankruptcy as one of the available measures for restructuring the banking system is expected to promote the implementation of the project on restructuring underperforming credit institutions and dealing with non-performing loans in the 2016 to 2020 period. This is a strong action by the government which should be an effective measure for eliminating weak credit institutions from the system.

Nguyen Thi Thanh HuongNguyen Thi Ha Thu

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial