Financial Crime World

SBV Implements Stringent Regulations to Ensure Financial Stability

In a bid to safeguard Vietnam’s financial system from potential risks, the State Bank of Vietnam (SBV) has issued new regulations aimed at strengthening the governance and risk management practices of credit institutions and foreign bank branches.

Enhancing Governance and Risk Management

The 2024 Law on Credit Institutions introduces several key measures designed to enhance the stability and resilience of the banking sector. These include:

  • Early Intervention: The SBV will implement stricter requirements and restrictions on credit institutions or foreign bank branches that fail to meet regulatory capital adequacy ratios, suffer losses exceeding 15% of their charter capital, or experience a decline in performance.
  • Bank Run Response: Credit institutions must notify the SBV immediately in the event of a bank run and take swift action to cease paying dividends, suspend credit extensions, and implement alternative measures for deposit repayment.
  • Stricter Share Ownership Rules: The new law limits individual shareholders’ ownership to 5% or less of an institution’s charter capital, while organizations are capped at 10%. Major shareholders and related parties are restricted from collectively owning more than 15%.
  • Settlement of Bad Debts: The law provides clearer guidelines for handling non-performing loans secured by land use rights and immovables.
  • Disclosure Obligations: Credit institutions must disclose information about their shareholders, holdings, and related parties to enhance transparency and accountability.

Key Responsibilities

The Prime Minister has assigned specific authorities to various ministries and agencies to implement the new law. These include:

  • The State Bank of Vietnam: Issuing decrees on licensing conditions for credit institutions and foreign bank branches, non-cash payments, microfinance programs, and approving credit overextensions.
  • Ministry of Finance: Issuing decrees on the organization and operation of the Vietnam Development Bank and financial regulations governing policy banks.
  • Ministry of Labor – War Invalids and Social Affairs: Issuing a decree on salaries and allowances for officials and public employees of policy banks.
  • Ministry of Natural Resources and Environment: Issuing a decree on the registration of changes to land regarding collateral.
  • Ministry of Justice: Issuing a decree on collateral registration for land use rights, property on land, and property on land for debts originating from bad debts.

Conclusion

The 2024 Law on Credit Institutions marks a significant step towards enhancing the stability and competitiveness of Vietnam’s financial sector. By implementing these new regulations, credit institutions and foreign bank branches will be better equipped to navigate the complexities of the financial landscape, ensuring the continued growth and development of Vietnam’s economy.