The Vietnam Confederation of Commerce and Industry (VCCI) said that it has received Official Letter No. 2533/UBKT15 dated January 12, 2024 from the National Assembly's Economic Committee on soliciting comments on the Draft Law on Credit Institutions (amended). VCCI sent a written comment on the Draft Law on Credit Institutions in July 2023 and the drafting agency accepted the comments on the shareholding ratio, credit limits and a number of other important issues. Regarding the eight issues emphasized by the National Assembly's Economic Committee in Official Letter No. 2533, VCCI has a number of comments.
Related person
Article 4.24.g of the draft stipulates that related persons may also include other legal entities and individuals with potential risks to the operations of credit institutions, as determined upon written request of the State Bank through inspection and supervision activities. This provision is reasonable, helping to identify cases where persons have a major influence on the operations of banks but are not considered related persons under current regulations.
However, the provision in Article 4.24.g will lead to a situation where, after the State Bank determines an individual or legal entity to be a related person, that individual, legal entity or group of related persons will violate the provisions of this Law (possibly on ownership ratio limits, or credit limits or other provisions). At that time, it is unclear how the parties will handle the situation: will the parties have to make adjustments to ensure compliance with the provisions of the law or will the State Bank's decision to determine the related person not be retroactive? It is recommended that the drafting agency clearly stipulate how to handle this case, avoid confusion when implementing in practice, and consider non-retroactive regulations to ensure the property rights of the parties, except in cases where the parties intentionally conduct fake transactions to circumvent previous regulations.
Professional ethics standards for managers, operators and some other positions of credit institutions
Article 41.1.b of the Draft stipulates that managers, executives and some positions of credit institutions must have professional ethics according to the regulations of the Governor of the State Bank. This is an important provision, affecting the personnel arrangement of credit institutions. The regulation at the level of Circular documents may not ensure the stability of the law to help credit institutions be proactive in arranging appropriate personnel. Furthermore, the Governor of the State Bank has the right to approve the proposed list, has the right to suspend, temporarily suspend, has the right to request competent authorities to dismiss, remove, and appoint replacements.
Therefore, regulations on professional ethics of managers, executives and some other positions of credit institutions should be placed in higher-level legal documents such as Government Decrees instead of being under the Governor's authority.
Cases of not holding the same position
Article 43 of the Draft stipulates cases where people cannot hold the same positions, including the provision that members of the Board of Directors and the Board of Supervisors cannot concurrently manage other enterprises.
Some businesses have reported to VCCI that this regulation will cause difficulties in staffing. Normally, the duties of the Board of Directors and the Board of Supervisors are not full-time jobs, so if they are not allowed to work for other businesses, it will be difficult to find qualified people to take on the job.
VCCI recognizes that if members of the Board of Directors and Supervisory Board are allowed to manage other enterprises, it may lead to the risk of giving priority to credit to those other enterprises. However, this issue has been dealt with by regulations on credit restrictions in Article 135. If necessary, the regulations in Article 135 should be made stricter than the prohibition on holding positions at the same time.
Therefore, we recommend that the drafting agency reconsider this issue.
Rights and obligations of managers and operators of credit institutions
Article 48 of the Draft regulating the rights and obligations of managers and operators of credit institutions has some contents that do not ensure transparency and feasibility, specifically as follows:
Article 48.6 requires managers and executives of credit institutions to be knowledgeable about the types of risks in the operations of credit institutions. It is difficult to assess whether an individual is knowledgeable about a certain issue, and there is no basis to consider a person has complied with or violated this obligation. It is recommended that the drafting agency revise the direction that managers and executives of credit institutions must read and study a number of documents on risks in the operations of credit institutions as recommended by the State Bank.
Article 48.9 requires that managers and executives are not allowed to increase remuneration, salaries, or bonuses “when the credit institution is making a loss”. This provision is unclear because determining the credit institution’s profit or loss depends on a period of time and that is historical information. At the time of making the decision to increase remuneration, salaries, and bonuses, it may not be possible to determine whether the credit institution is making a profit or a loss. It is recommended that the drafting agency adjust in the direction that if a credit institution reports a loss for a fiscal year, it will not be allowed to increase salaries, bonuses, or remuneration in the following fiscal year.
Public, information disclosure
Article 49 of the Draft stipulates the disclosure and announcement of information by credit institutions. Article 49.4 stipulates that information on managers, executives and shareholders owning 1% or more of charter capital must be posted and sent to the shareholders' meeting annually. Article 49.5 stipulates that credit institutions must disclose information on shareholders owning 1% or more of charter capital on their websites.
The form of information disclosure by posting at the headquarters and sending to the general meeting of shareholders is not really effective because the number of people accessing it is small and only temporary. Meanwhile, this is all important information, related to the public nature of the bank. In practice, the situation of bank manipulation like at SCB for a long time was not detected, partly because information about the bank's managers, operators and shareholders was not widely publicized.
Therefore, it is recommended that the drafting agency study and stipulate more clearly the obligations of public disclosure and information disclosure of credit institutions, specifically as follows:
Research to expand the scope of information that must be publicly disclosed on the website, including information about managers, executives and shareholders owning 1% or more of capital.
The study expands some information that must be disclosed that may affect the public nature of the bank, such as outstanding credit of individuals and organizations as prescribed in Article 135 and outstanding credit of large customers and customer groups as prescribed in Article 136.
The publication of this information will help to better monitor the safety of the banking system.
Wisdom
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