Under-performing banks may have to file for bankruptcy if they cannot meet new conditions set out by the central bank under a recently issued circular that is effective on April 27.

Circular No07/2013/TT-NHNN requires that certain banks restructure through merger or acquisition with other credit institutions.

Under the new policy, the central bank could put a weak bank’s operations under its direct control. This would depend on the bank’s financial situation, risk level and legal violations.

Under the new rule, the central bank will also require the owners of such credit institutions to increase legal capital while the central bank will either create a restructuring plan for the bank or require the bank to merge with or be bought by other credit institutions.

Under this plan, other credit institutions could buy shares of banks or contribute capital under the central bank’s control so that safe capital ratios would be ensured.

The central bank said it would interfere in a bank’s operations if the bank’s accumulated losses exceed its real value of legal capital.

This information will also be published on the credit institution’s websites, in the media or at a shareholders’ convention.

The SBV governor will decide the length of time that a credit institution is under the central bank’s special control.

The time can be extended if the credit institution demonstrates that it can return to normal status, or if it needs more time to prepare for merger or acquisition.

If the bank ultimately cannot meet any of these conditions, then it will have to file for bankruptcy.

Along with Circular 07, the prime minister has formed a steering committee for the “Restructuring the credit institution system from 2011-15” project, with the participation of various ministries, sectors and management authorities of Hanoi and HCM City .

This is considered a preparatory step to the bank’s measures to reform and resolve bad debts.-VNA