Circular No. 01/2017/TT-BTC guiding the financial regime for Asset Management Companies of Credit Organizations in Vietnam

CIRCULAR

Guidelines on financial regulations for Asset Management Companies of Vietnamese Credit Institutions

On the basis of Law on Enterprises No. 68/2014/QH13 November 26, 2014;

Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government regarding the establishment, organization, and operation of Asset Management Companies of Vietnamese Credit Institutions;

Decree No. 115/2015/ND-CP dated March 31, 2015 of the Government amending and supplementing certain provisions of Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government regarding the establishment, organization, and operation of Asset Management Companies of Vietnamese Credit Institutions;

Decree No. 18/2016/NĐ-CP dated March 18, 2016 of the Government amending and supplementing certain provisions of Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government stipulating the establishment, organization, and operation of Asset Management Companies of Vietnamese Credit Institutions;

Decree No. 91/2015/NĐ-CP dated October 13, 2015 of the Government on state capital investment in enterprises and management and use of capital and assets in enterprises;

Decree No. 87/2015/NĐ-CP dated October 6, 2015 of the Government on supervision of state capital investment in enterprises; financial supervision, evaluation of business efficiency, and public disclosure of financial information of state-owned enterprises and enterprises with state capital;

Decree No. 215/2013/NĐ-CP dated December 23, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance hereby issues this Circular guiding the financial regime for Vietnamese Asset Management Companies.

Article 1. Scope of Regulation and Applicability

1. This Circular guides the financial regime for the Vietnamese Asset Management Company (hereinafter referred to as VAMC).

2. The financial regime of VAMC shall be implemented in accordance with the provisions of Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government on the establishment, organization, and operation of Asset Management Companies of Vietnamese Credit Institutions (hereinafter referred to as Decree No. 53/2013/NĐ-CP); Decree No. 34/2015/NĐ-CP dated March 31, 2015 of the Government amending and supplementing certain provisions of Decree No. 53/2013/NĐ-CP (hereinafter referred to as Decree No. 34/2015/NĐ-CP); Decree No. 18/2016/NĐ-CP dated March 18, 2016 of the Government amending and supplementing certain provisions of Decree No. 53/2013/NĐ-CP (hereinafter referred to as Decree No. 18/2016/NĐ-CP), specific guidance provided in this Circular. For matters concerning financial mechanisms not specified in the aforementioned Decrees, VAMC shall implement according to the laws applicable to limited liability companies wholly owned by the State.

3. This Circular applies to VAMC, credit institutions implementing debt sales to VAMC, and related organizations and individuals.

Article 2. Operating Capital of VAMC

1. The owner's investment capital includes:

1.1 Charter capital of 2,000 billion VND.

1.2 Investment development fund.

1.3 Other sources of own capital as prescribed by law for limited liability companies wholly owned by the State.

2. Raised capital:

2.1 Bonds issued by VAMC to purchase non-performing loans at market value and special bonds issued by VAMC in accordance with the regulations of the State Bank of Vietnam.

2.2 Other sources of funds raised as prescribed by law for limited liability companies wholly owned by the State.

Article 3. Use of Capital and Assets

1. VAMC is responsible for managing, using, and monitoring all existing assets and capital, conducting accounting in accordance with current accounting regulations; fully, accurately, and promptly reflecting the situation of capital and asset usage and changes during the course of business; determining responsibility and forms of handling for each department and individual in cases of damage or loss of assets or capital of VAMC.

2. VAMC may use operating capital to serve business activities in accordance with Decree No. 53/2013/NĐ-CP, Decree No. 34/2015/NĐ-CP, Decree No. 18/2016/NĐ-CP, and other amended and supplemented documents (if any), specific guidance provided in this Circular, and relevant laws in accordance with the principle of ensuring safety and developing capital:

2.1 Special bonds can only be used to purchase non-performing loans of credit institutions as stipulated in Clause 1, Article 7 of Decree No. 53/2013/NĐ-CP.

2.2 VAMC may use lawful sources of capital of VAMC except for special bonds as stipulated in Clause 1, Article 7 of Decree No. 53/2013/NĐ-CP to purchase non-performing loans at market value as stipulated in Clause 2, Article 7 of Decree No. 53/2013/NĐ-CP and Clause 5, Article 1 of Decree No. 34/2015/NĐ-CP. The debt purchased by VAMC at market value when converted into equity contribution or share capital is considered an investment. VAMC shall follow and account for this investment in accordance with the law.

2.3 VAMC may use capital to invest in and purchase fixed assets to serve VAMC's operations in accordance with the principle of equipping in line with VAMC's operational needs, efficiently, economically, and in compliance with the State's regulations for limited liability companies wholly owned by the State regarding basic construction investment and fixed asset procurement.

2.4 VAMC may only use capital to invest externally (not through the purchase and sale of debts and assets) in the following forms:

a) Depositing money in commercial banks to ensure capital safety and efficiency;

b) Participating in capital contributions and purchasing shares as stipulated in Point g, Clause 1, Article 12 of Decree No. 53/2013/NĐ-CP.

2.5 Repairing and upgrading collateral assets already recovered by VAMC as stipulated in Point d, Clause 1, Article 12 of Decree No. 53/2013/NĐ-CP with the aim of increasing value and facilitating the disposal of assets to recover debts.

2.6 VAMC may use capital to invest and provide finance to borrowers to address temporary financial difficulties and restore production and business operations as stipulated in Clause 3, Article 17 of Decree No. 53/2013/NĐ-CP.

2.7 VAMC shall establish provisions for risk reserves in operating expenses in accordance with Article 4 of this Circular.

3. The leasing of assets for operations; management and use of fixed assets; leasing, mortgaging, pledging of assets; liquidation and sale of fixed assets of VAMC shall be carried out in accordance with the regulations of the State for limited liability companies wholly owned by the State.

Article 4. Establishment and use of provisions

1. For non-performing debts purchased at market value: VAMC shall establish and use provisions in accordance with the regulations of the State Bank of Vietnam.

2. For guarantees stipulated in Clause 4, Article 17 of Decree No. 53/2013/NĐ-CP, investments and provision of finance to borrowers in the form of guarantees and loans: VAMC shall establish and use provisions in accordance with the regulations of the State Bank of Vietnam on loan classification, risk reserve establishment, and utilization in banking operations of credit institutions.

3. For inventory write-down provisions, investment impairment provisions, doubtful receivables provisions (excluding receivables from credit institutions): VAMC shall establish and use provisions in accordance with general regulations applicable to enterprises.

Article 5. Management of revenue and expenses of VAMC

1. The Board of Members of VAMC shall be responsible to the State Bank of Vietnam and to the law for organizing strict management to ensure the accuracy, honesty, and legality of revenues and expenses of VAMC.

2. All revenues and expenses arising from VAMC's activities must have complete documentation and vouchers in accordance with the law and be fully reflected in VAMC's accounting books.

3. VAMC's revenues and expenses are determined in Vietnamese Dong; in cases where income or expenditure is in foreign currency, it must be converted into Vietnamese Dong according to current laws.

4. The recording of VAMC's revenues and expenses must comply with the principle of matching revenues and expenses.

Article 6. Revenue

1. The content of revenue of VAMC shall be carried out in accordance with the provisions of Clause 1, Article 23 of Decree No. 53/2013/NĐ-CP, Clause 13, Article 1 of Decree No. 34/2015/NĐ-CP, and Clause 1, Article 1 of Decree No. 18/2016/NĐ-CP.

2. As for the revenue stipulated in Clause 1, Article 1 of Decree No. 18/2016/NĐ-CP, VAMC shall implement as follows:

2.1 Revenue of VAMC calculated based on the remaining principal balance at the end of the period of the debt purchased with special bonds.

a) Annually, VAMC records into revenue a sum of money calculated based on the remaining principal balance at the end of the period of the debt being recorded on the internal ledger of VAMC's balance sheet according to the ratio prescribed by the State Bank of Vietnam after consultation with the Ministry of Finance.

b) The remaining balance at the end of the period of the bad debt purchased with special bonds is the book value of the remaining principal balance of the bad debt at VAMC on December 31 of the year determining the revenue, or on the date when the special bond is settled.

2.2 Revenue of VAMC from the amount recovered from bad debts purchased with special bonds.

a) VAMC records into revenue a sum of money calculated based on the amount recovered from bad debts purchased with special bonds according to the ratio prescribed by the State Bank of Vietnam after consultation with the Ministry of Finance, minus the sum of money VAMC has collected annually based on the remaining principal balance at the end of the period of the same debt as stipulated in Subpoint a, Point 2.1, Clause 2 of this Article.

In case this amount is smaller than the amount VAMC has collected annually as stipulated in Subpoint a, Point 2.1, Clause 2 of this Article, VAMC does not need to refund credit organizations the amount already collected.

b) The amount recovered from bad debts purchased with special bonds of VAMC is the amounts VAMC receives through implementing measures to handle bad debts prescribed in Article 16 of Decree No. 53/2013/NĐ-CP and Decree No. 34/2015/NĐ-CP.

3. Principles for recognizing revenue

3.1 For revenue of VAMC calculated based on the remaining principal balance at the end of the period of the debt purchased with special bonds: VAMC records into income on December 31 each year or on the date when the special bond is settled.

3.2 For revenue of VAMC from the amount recovered from bad debts purchased with special bonds: VAMC records into income no later than the end of the month when the debt is recovered.

3.3 For revenue from selling debts, selling collateral assets for debts purchased at market price: VAMC records into income at the time of transferring rights and obligations to the buyer.

3.4 For revenue from capital contribution and share purchase activities: revenue is the profit distributed when there is a resolution or decision to distribute profits.

3.5 For revenue from other activities (including revenue from advisory and brokerage services for buying and selling, handling debts and assets; revenue from leasing and exploiting assets; revenue from financial activities; revenue from auctioning assets and other revenues): revenue is the total amount accepted for payment by customers regardless of whether the payment has been received or not.

3.6 For receivables that have been recorded as revenue but remain uncollected beyond the due date, VAMC records them into expenses and tracks them off-balance-sheet to urge collection. When collected, they are recorded into business operation revenue. Remaining receivables are provisioned according to the legal regulations applicable to enterprises.

Article 7. Expenses

1. The content of expenses of VAMC shall be carried out in accordance with the provisions of Clause 2, Article 23 of Decree No. 53/2013/NĐ-CP.

2. Principles for recognizing expenses

2.1 For expenses incurred in purchasing bad debts at market value, they shall be recorded when there is income generated from handling the bad debts as follows:

a) In cases where the loan is recovered in multiple installments:

- In the case where the revenue obtained during the period from handling the debt (recovering debt from borrowers; selling debt; exploiting and selling collateral assets of the debt) is greater than or equal to the cost of purchasing the debt: the entire cost of purchasing the debt shall be transferred to the current period's expenses.

- In the case where the revenue obtained during the period from handling the debt (recovering debt from borrowers, debtors, guarantors; selling debt; exploiting and selling collateral assets of the debt) is less than the cost of purchasing the debt:

A portion of the cost of purchasing the loan shall be transferred to the current period's expenses, equivalent to the actual amount received from handling the loan.

When the loan continues to be recovered, the remaining cost of purchasing the loan shall continue to be transferred to expenses according to the principle stated above.

When the final remaining part of the loan is recovered, the entire remaining cost of purchasing the loan shall be transferred to the current period's expenses.

b) In cases where the loan is recovered in a single installment: the entire cost of purchasing the loan shall be transferred to the current period's expenses at the time of recovery.

2.2 For expenses related to repairing and upgrading assets:

a) In the case where bad debts are purchased at market value: VAMC may record advance expenses (detailed for each debt) corresponding to the costs for repairing and upgrading assets. When the asset is sold or the bad debt associated with the asset is recovered or money is obtained from exploiting the asset, the proceeds must be recorded as revenue, while the settlement of the advance expense corresponding to the cost VAMC has used for repairing and upgrading the asset shall be carried out according to the provisions of Clause 1 of this Article.

b) In the case where bad debts are purchased with special bonds: VAMC may record advance expenses (detailed for each debt) corresponding to the costs for repairing and upgrading assets. When the asset is sold or the bad debt associated with the asset is recovered or money is obtained from exploiting the asset, VAMC gradually settles the receivable corresponding to the cost VAMC has used for repairing and upgrading the asset.

2.3 For other expenses (including debt collection costs; advisory and brokerage fees for buying, selling, and handling debts and assets; costs for selling debts, selling shares, and transferring capital contributions; risk reserve provisioning costs; salary, bonus, and allowance costs for staff; asset auction costs; company management costs; interest payment costs; asset-related costs, and other costs): VAMC only recognizes actual expenses incurred based on valid invoices and receipts for each expense.

3. VAMC shall not include the following items in expenses:

3.1 Expenses unrelated to VAMC's business operations.

3.2 Penalties for administrative violations that individuals must pay according to the law.

3.3 Expenses without valid documentation.

3.4 Expenses that have been recorded but not actually paid.

3.5 Expenses covered by other sources of funding.

3.6 Other unreasonable and invalid expenses.

Article 8. Distribution of profits and establishment of funds.

1. The profit of VAMC is determined by subtracting total reasonable expenses incurred during the period from the total revenue generated during the period as prescribed.

2. Distribution of profits and establishment of funds for VAMC.

After covering previous year's losses, fulfilling financial obligations to the State as stipulated by law, the remaining profit shall be distributed in the following order:

2.1 Allocate up to 30% into the development investment fund.

2.2 Allocate funds for awards and welfare benefits for employees at VAMC. The allocation of funds for awards and welfare benefits for employees shall be carried out in accordance with the provisions of the law on the allocation of funds for awards and welfare benefits for employees of a limited liability company wholly owned by the State.

2.3 Allocate funds for rewards for managers and supervisors at VAMC. The allocation of funds for rewards for managers and supervisors at VAMC shall be carried out in accordance with the provisions of the law on the allocation of funds for rewards for managers and supervisors of a limited liability company wholly owned by the State.

2.4 In cases where the remaining profit after allocating the development investment fund as stipulated in Point 2.1 of this Clause is insufficient to allocate the funds for awards and welfare benefits for employees, and rewards for managers and supervisors at VAMC as prescribed, VAMC may reduce the amount allocated to the development investment fund to supplement the sources for fully establishing the funds for awards and welfare benefits for employees; and rewards for managers and supervisors as prescribed, but the maximum reduction shall not exceed the amount allocated to the development investment fund in the fiscal year.

2.5 Any remaining profit (if any) after allocation as prescribed in Points 2.1, 2.2, 2.3, and 2.4 of this Clause shall be remitted to the State budget.

Article 9. Management and utilization of funds.

VAMC manages and uses the funds in accordance with the current regulations of the State for a limited liability company wholly owned by the State.

1. Financial plans, financial oversight, performance evaluation and classification of VAMC shall be carried out in accordance with the current regulations of the State for a limited liability company wholly owned by the State and the specific provisions of this Circular regarding the characteristics of VAMC, specifically:

1.1 VAMC is responsible for preparing and submitting to the State Bank of Vietnam and the Ministry of Finance a draft financial plan before March 1 of the planning year.

1.2 The State Bank of Vietnam shall take the lead and coordinate with the Ministry of Finance to review the financial plan prepared by VAMC to issue formal comments in writing and hand over to VAMC before April 30 of the planning year the financial plan indicators; the performance evaluation and classification indicators of VAMC. The performance evaluation and classification indicators shall not be adjusted throughout the implementation period (except in cases of force majeure).

1.3. Based on the financial plan indicators assigned by the State Bank of Vietnam, the Chairman of VAMC's Board of Members shall approve detailed financial plans for implementation.

2. VAMC shall organize accounting and statistical work in accordance with the current laws; prepare, record initial documents, update accounting books, ensuring full, timely, truthful, accurate, and objective reflection of economic and financial activities.

3. VAMC's fiscal year begins on January 1st and ends on December 31st of the Gregorian calendar year.

4. At the end of each accounting period (quarterly or annually), VAMC shall prepare and submit financial reports to the State Bank of Vietnam and the Ministry of Finance in accordance with current laws.

5. VAMC shall submit the audited annual financial report by the State Audit Agency or an independent auditor along with the audit report to the Ministry of Finance and the State Bank of Vietnam, and simultaneously publish this Report on VAMC's official website immediately upon receipt of the audit report.

6. In addition to periodic financial reports and statistical reports established and submitted in accordance with the regulations, VAMC must establish and submit ad hoc reports when requested by the State Bank of Vietnam and the competent management agency.

Article 11. Responsibilities of the management agency

1. Responsibilities of the Ministry of Finance:

1.1 Implement state management functions over finance of VAMC in accordance with the law;

1.2 Coordinate with the State Bank of Vietnam to handle financial issues of VAMC.

2. Responsibilities of the State Bank of Vietnam:

2.1 Implement state management functions over all activities of VAMC in accordance with the law. Quarterly and annually (no later than 30 days from the end of the quarter or year), the State Bank of Vietnam shall notify the Ministry of Finance of the financial situation of VAMC and any violations of financial regulations discovered during inspections, audits, and supervision (if any) to promptly coordinate measures for handling.

2.2 Perform the function of state owner of VAMC:

a) Decide and be responsible for decisions within the scope of authority of the state owner as prescribed by law.

b) Chair and coordinate with the Ministry of Finance to submit to the Prime Minister for consideration and decision on financial issues exceeding their authority.

c) Based on the provisions of the law and the operational characteristics of VAMC, specify guidelines and implement financial oversight, performance evaluation, and classification for VAMC, and submit to the Ministry of Finance the financial oversight plan and the results of financial oversight reports in accordance with the law for state-owned enterprises.

d) Chair and coordinate with the Ministry of Finance to submit to the Prime Minister for decision on changing VAMC's charter capital based on the proposal of VAMC's Board of Members.

Article 12. Implementation Provisions

1. This Circular takes effect from February 21, 2017 and applies from the 2016 fiscal year.

2. This Circular replaces Circular No. 209/2013/TT-BTC dated December 27, 2013 of the Ministry of Finance guiding the financial regime for VAMC, and Circular No. 171/2015/TT-BTC dated November 9, 2015 of the Ministry of Finance amending and supplementing certain articles of Circular No. 209/TT-BTC.

3. In the course of implementation, if there are difficulties, please reflect them to the Ministry of Finance for research, consideration, and resolution./.