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Sunday, July 14, 2024

Draft law allows interest-free lending to institutions facing bank runs

The Saigon Times

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HCMC – The State Bank of Vietnam, or SBV, has sent a draft of the amended Law on Credit Institutions to the National Assembly, in which local banks could ask for interest-free loans if they face a bank run.

The SBV, the central bank, said that Vietnam should draw lessons from the bank runs that struck the Silicon Valley Bank, and the Signature Bank in the U.S. and from the collapse of Credit Suisse in Switzerland.

As per the draft, banks with accumulated losses exceeding 20% of their charter capital and reserves and those that face massive cash withdrawals from clients and become insolvent would need early interventions by the SBV.

Those banks would be allowed to take out loans at a zero interest rate from the SBV. Additionally, the SBV would designate the Deposit Insurance of Vietnam, Vietnam Cooperative Bank, or others to provide special interest-free loans if necessary.

The SBV would carry out various measures to support the liquidity of local banks facing massive withdrawals, such as purchasing the banks’ valuable papers on open market operations, conducting foreign exchange transactions and recapitalizing banks.

According to the draft, the SBV and the Government Inspectorate would supervise banking activities, prevent manipulation in the banking system, and timely detect and strictly handle violations.

The SBV also proposed adjusting the regulations on credit growth limits, capital contribution and purchase of shares at credit institutions.

Individuals would not be allowed to own over 3% of charter capital (currently 5%). Shareholders would not be allowed to own more than 15% of the charter capital of a credit institution, down 5% compared to the rates in the current regulations.

Large shareholders of a bank and related persons are allowed to own a maximum of 5% of the charter capital of another bank.

The draft amendment proposes reducing the maximum credit limit for customers from 15% to 10%.

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