Wednesday , June 7 2023

Banks to get 0% interest loans during runs under proposed law changes

Banks facing a risk of insolvency due to a run could receive interest-free loans from the central bank and other agencies if proposed changes to the laws are approved.

The State Bank of Vietnam has drawn up amendments to the Law on Credit Institutions to handle bank runs.

It said Vietnam has to learn from the crises at Silicon Valley Bank and Signature Bank of the U.S. and Credit Suisse of Switzerland, and have measures in place to cope with bank runs.

The changes to the law envisage classifying banks suffering from runs as needing “early intervention” by the central bank. It will also apply to banks with accumulated losses greater than 20% of capital plus reserves.

Under the proposed changes, when early intervention is required, “special loans” will be provided at 0% interest.

The State Bank of Vietnam will also get the Vietnam Deposit Insurance, Vietnam Cooperative Bank and other credit institutions to provide these loans.

Following the changes banks that provide these loans will be rewarded with refinancing loans at 0% interest, a 50% reduction in their reserve ratio and long-term deposits from Vietnam Deposit Insurance.

Runs have occurred at some Vietnam banks. Last October customers withdrew en masse from Saigon Commercial Bank.

In the past there were similar occurrences at ACB, DongABank, Vietnam Construction Bank, and Ocean Bank after negative news surfaced about their bosses.

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