Directive No. 02/2005/CT-NHNN on improving credit quality, credit growth commensurate with capital mobilization capacity and risk management, ensuring system safety

DIRECTIVE OF THE GOVERNOR OF THE STATE BANK

Regarding improving credit quality and ensuring credit growth commensurate with

the ability to mobilize capital and risk management, ensuring the safety of the system

Implementing Resolution No. 41/2004/QH11 dated December 3, 2004 of the National Assembly on tasks for economic and social development in 2005, and Resolution No. 01/2005/NQ-CP dated January 14, 2005 of the Government on major measures to guide the implementation of the socio-economic plan and state budget for 2005, which assigns the State Bank of Vietnam to implement proactive measures to manage monetary policy, exchange rates, and interest rates in accordance with market trends and objectives, improve credit quality, and enhance the safety of banking operations. In the first months of 2005, the economy was stable and developing, with the consumer price index increasing by 3.7% in the first quarter; credit activities continued to expand but credit risks were not strictly controlled and assessed, failing to meet international standards and integration requirements.

To contribute to promoting high and sustainable economic growth, maintaining monetary stability, and controlling inflation, credit institutions and units under the State Bank of Vietnam shall implement the following measures:

I. For Credit Institutions

1. Synchronize measures to mobilize capital from domestic markets, effectively utilize financial support from international organizations for rural credit projects, small and medium-sized enterprises, actively address outstanding debts to promptly meet the economy's credit capital needs, while ensuring credit safety and efficiency.

2. The rate of credit growth must be consistent with actual capital mobilization, annual credit targets, and the capacity to control credit quality; ensure available funds for payment needs and business operation safety.

3. Strictly comply with legal provisions on lending, guarantees, leasing, discounting, factoring, and collateral; consider and decide on secured and unsecured loans, including those secured by assets formed from borrowed funds, avoiding complications when disposing of collateral to recover loans. Special attention should be given to measures to improve credit quality and prevent bad debt increases.

4. Credit institutions must strengthen supervision over compliance with lending principles and procedures, avoid incidents leading to asset losses; reorganize organizational structures, enhance staff training to meet banking business requirements in an integrated environment.

5. Review, supplement, and revise credit business regulations and procedures to ensure compliance with legal provisions, suitability for business conditions, and prevention of credit risks. Credit institutions urgently issue and implement operational regulations:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Regulations on risk management, particularly credit risk; internal information management and business operation systems that operate smoothly from headquarters to branches in various regions.

b. Regulations on restructuring loan repayment terms in accordance with Clause 2 and Clause 6 of Article 1 of Decision No. 127/2005/QD-NHNN dated February 3, 2005 of the Governor of the State Bank of Vietnam amending and supplementing certain provisions of the Credit Institution Lending Regulation issued pursuant to Decision No. 1627/2001/QD-NHNN dated December 31, 2001 (hereinafter referred to as Decision 127).

c. Procedures for monitoring the borrowing, use, and repayment processes of customers in accordance with Decision 127.

d. Increase the number and quality of staff responsible for internal control of credit activities; innovate credit control methods towards centralized management, strict supervision, and timely risk resolution.

6. Conduct analysis and evaluation of the scale, structure, and effectiveness of credit for various economic sectors, economic components, and rural and urban areas, based on which implement measures to expand safe, effective, and sustainable credit.

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Proactively study planning and development plans of various economic sectors and localities; assess and forecast capital needs, capital mobilization capabilities, and credit risk levels to determine credit growth rates and credit capital structures for each sector, locality, rural, and urban areas.

b. Closely monitor foreign currency loan recipients and growth rates to avoid exchange rate, interest rate risks, and impact on overall credit growth.

c. For investment projects requiring large amounts of capital and long-term repayment periods, implement joint financing; expand loans for projects with quick returns from small and medium-sized enterprises, collective economies, and individual businesses.

d. Strengthen control over loans for housing business projects, infrastructure construction projects in urban and industrial zones, ensuring appropriate ratios of outstanding loans for these projects, as well as loans secured by real estate.

7. Implement regulations to ensure risk control and credit activity safety:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Develop and implement a comprehensive internal system of regulations and procedures for risk management; particularly focusing on customer lending policies, credit handbooks, customer assessment and ranking regulations, credit quality assessment, and bad debt handling.

b. Expand medium- and long-term credit at appropriate levels, ensuring loan maturity matches the maturity of mobilized capital sources.

c. Comply with regulations on loan limits, guarantees, leasing, discounting, and factoring for a single customer and business operation safety ratios.

For coal-fired thermal power plants where the enterprise holds 100% of the registered capital and uses 100% of its own capital to invest in the project approved by the competent authority, E is determined as 100%;Coordinate closely with ministries, sectors, localities, and borrowing customers to promptly recover loans for construction projects, according to the State's policy to resolve outstanding construction project debts by the end of 2006.

8. For loans to state-owned companies and state-owned enterprises undergoing shareholding, transfer, lease, and management form conversion:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Timely meet the effective capital borrowing needs and debt repayment capacity of state-owned enterprises.

b. The provision of capital loans to state companies must be carried out strictly in accordance with the provisions of the law on lending and Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government on the Financial Management Regulations for State Companies and State Capital Investment in Other Enterprises, including the provisions regarding the approval authority for loan contracts, mortgage contracts, and pledge contracts of the Board of Directors and the representative of the state company's owner.

c. Commercial banks proactively participate in formulating and deciding on restructuring plans for state-owned enterprises that have borrowed from the bank, acting as creditors, in line with the policy and solutions for further reforming state-owned enterprises as stipulated in Resolution No. 9 of the Ninth Plenary Session of the Central Committee of the Communist Party of Vietnam's Ninth Term. The handling of loans and new lending to these enterprises shall be implemented according to the provisions of the Law on State-Owned Enterprises (transfer, sale, lease, leasing, shareholding, merger, consolidation, division, dissolution, bankruptcy) and the Government's Circular No. 601/CP-ĐMDN dated May 6, 2004 on receiving and fulfilling financial obligations of restructured state-owned enterprises towards credit organizations.

d. For cases of delayed debt recognition and repayment, credit organizations shall apply resolute measures in accordance with the law to recover loans, including the disposal of mortgaged and pledged assets and guarantees, and initiating lawsuits before courts.

9. Mobilize funds to invest in modernization projects for technology and equipment serving business activities; at the same time, promptly put new technologies and equipment into operation to diversify banking services, payment systems, and banking utilities, thereby enhancing business efficiency and competitiveness.

II. Regarding units under the State Bank of Vietnam

1. Within their functions and tasks, units at the headquarters of the State Bank of Vietnam shall perform the following tasks:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Propose and implement prudent and flexible monetary policy management solutions aimed at macroeconomic stability and promoting economic growth. Closely monitor macroeconomic-monetary developments and market signals to make necessary adjustments in monetary policy and credit management, preventing significant fluctuations in interest rates and exchange rates that could adversely affect banking credit activities.

b. Effectively fulfill the functions and tasks and enhance the role of supervision of the State Bank of Vietnam over credit institutions to promptly identify and resolve issues and recommendations, creating favorable conditions for the business operations of credit institutions.

c. Study and submit to the Governor of the State Bank of Vietnam for amendment and supplementation of regulations on foreign currency lending, guarantees, financial leasing, and other credit provisions in line with international practices and standards, enhancing the autonomy and responsibility of credit institutions.

2. Regarding the State Bank of Vietnam Inspectorate:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Strengthen inspection and supervision of compliance with laws on credit activities; promptly detect and take resolute measures against all violations.

b. Monitor and analyze restructured loan terms of credit institutions to issue warnings and require credit institutions to take appropriate measures to recover loans and prevent credit risks.

c. Promptly develop and submit to the Governor of the State Bank of Vietnam for issuance of regulations on an early warning system for risks specific to each credit institution and the entire banking system to timely identify and address cases with potential payment insolvency, ensuring system safety. Simultaneously, complete the overall project on inspection and supervision of risks and safety of the credit system, aligning with international standards and the operational conditions of the Vietnamese banking system.

d. Study and submit to the Governor of the State Bank of Vietnam for issuance of regulations on minimum requirements for internal risk management systems of credit institutions and regulations on ranking credit institutions based on the CAMEL criteria.

3. The Department of Banks and Non-Bank Credit Institutions shall promptly complete and submit to the Governor of the State Bank of Vietnam for issuance of regulations:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Regulations on loan classification, provisioning, and utilization for credit risk management in banking activities consistent with the policy of credit mechanism reform and synchronized with Decision 127.

b. Regulations on capital safety, risk monitoring, internal auditing, establishment, operation commencement, and termination of trading offices, branches, representative offices, and non-profit units of commercial banks.

4. The Accounting and Finance Department shall promptly complete and submit to the Governor of the State Bank of Vietnam for issuance of accounting regulations for lending consistent with Decision 127.

5. The Credit Information Center shall implement technological solutions and improve the quality of its staff to strengthen its role and enhance its ability to collect, process, and provide information to effectively support the operations of credit institutions; serving the supervisory activities of the State Bank of Vietnam.

6. Regarding the State Bank of Vietnam Branches in provinces and centrally-administered cities:

1. Supplementing Point 6a following Article 6 of Circular No. 02/2019/TT-BVHTTDL dated July 5, 2019 of the Minister of Culture, Sports and Tourism on the procedures for legal expertise regarding copyright and related rights as follows: Continuously monitor, inspect, and supervise the implementation of legal provisions on lending, guarantees, financial leasing, discounting, factoring, loan security, and other forms of credit provision; proactively coordinate with credit institutions in the area to promptly address violations and curb unhealthy competition among credit institutions.

b. Advise local party committees and governments and proactively coordinate and inform state commercial bank branches in the area about formulating and implementing restructuring plans for state-owned enterprises that have borrowed from the bank, in line with the policy of Resolution No. 9 of the Ninth Plenary Session of the Central Committee of the Communist Party of Vietnam's Ninth Term and the Law on State-Owned Enterprises.

III. Implementation:

1. This Directive shall take effect fifteen days after its publication in the Official Gazette.

2. The Head of the Office, the Director of the Legal Affairs Department, the Director of the Monetary Policy Department, and the Heads of units under the State Bank; the Governors and General Directors (Directors) of credit organizations in provinces and centrally governed cities; and the Management Boards and General Directors (Directors) of credit institutions are responsible for implementing this Directive./.