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Legal Update

Evaluation and Rating of Joint-Stock Commercial Banks

2 July 2008
Mayer Brown JSM Legal Update
The State Bank of Vietnam issued Decision No.06/2008/QD-NHNN on 12 March 2008 on the evaluation and rating of joint-stock commercial banks ("Regulation").  This sets forth certain criteria by which joint-stock commercial banks (the "Banks") may evaluate and rate themselves. The State Bank and its branches then peruse and approve the rating reports.
Full Update

I.  The Regulation sets forth the pertinent evaluative criteria in tandem with a 100-point scale:
1. The scale is comprised as follows:

a.  Equity - 15 points;
b.  Asset quality - 35 points;
c.  Management capacity - 15 points;
d.  Business performance - 20 points; and
e.  Liquidity - 15 points.

2.  The Bank is downgraded in the following cases:

a.  Chapter capital is less than legal capital;
b.  Insufficient capital;
c.  General failure to follow the State Bank's instructions;
d.  Bad debt ratio greater than 3%;
e.  Failure to follow the State Bank's instuctions on encouraging effective means of capital increase;
f.   Ratio of securities depreciation provisions of the total investment balance in the balance sheet exceeds 1%;
g.  The ratio of earning assets to the total on-balance sheet assets attains less than 75%;
h. The off-balance sheet commitment quality ratio is greater than 3%;
i.  Failure to either have enough members of the Board of Directors or the Supervisory Board, or to issue full and standardized internal regulations;
j.  Weak and inefficient internal inspection and auditing system;
k. Violation of regulations on stockholders, shares and stocks; 
l.  Poor business performance;
m. Failure to assure a liquidity ratio in accordance with the State Bank's regulations.
II.  The total score of the Banks is calculated by adding up all the points attained under each indication. The grades include four levels:
1.  Grade-A 80 points or more;
2.  Grade-B 60 to 79 points;
3.  Grade-C 50 to 59 points;
4.  Grade-D less than 50 points.
III.  The Banks are required to evaluate and rate themselves yearly and send self-rated reports before 10 May of the upcoming year to the State Bank branch in the province/city where the Banks' head-offices are located. The State Bank branches will comment on the self-ratings of the Banks and submit the ratings to the State Bank for approval in June.

The Regulation takes effect as of 19 April 2008.
For further information, please contact:
Dao Nguyen ( );
Ephraim N. Wittman ( ); or
Hanh Bui ( )
Learn more about our Hanoi and Ho Chi Minh City offices and Financial Services Regulatory practice .

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