Lawmakers pass new law on credit institutions

Laws - The 7th session of the 12th National Assembly approved the amended Law on Credit Institutions last Wednesday. The law includes a number of new provisions relating to the operations, organisation and management of credit institutions that aim to guarantee the security of the banking system.

The most remarkable change from the 1997 law is the abolition of the prime interest rate structure. Under the new law, the State Bank of Viet Nam (SBV) will announce interbank and other rates to manage monetary policy. The prime rate was eliminated as unreflective of the supply-demand relationship on the market and was viewed as interventionist by financial markets.

The law no longer requires commercial banks to maintain a compulsory reserve ratio of 20 per cent of total deposits. Instead, the SBV is granted the power to set the compulsory reserve rate.

Another new point is that, from now on, the SBV will have the right to invest and buy shares in other credit institutions and serve as the representative of State capital in credit institutions. It also gains the right to use its legal capital for the establishment of enterprises to carry out the functions and obligations of the State Bank as assigned in the Decision of the Prime Minister.

The new law, which takes effect next January 1, also provides for the functions, powers and organisation of bank inspections and oversight under the SBV.