Circular No. 03/2014/TT-NHNN stipulates on the System Safety Guarantee Fund for People's Credit Cooperatives (the Preservation Fund), including the payment of participation fees, management, and utilization of the Preservation Fund to support the operations of people's credit cooperatives.

CIRCULAR

Provisions on the Safety Assurance Fund for the People's Credit Cooperative System

 Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Cooperatives No. 23/2012/QH13 dated November 20, 2012;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013, of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of Banking Inspection and Supervision;

The Governor of the State Bank of Vietnam issues the Circular stipulating provisions on the Safety Assurance Fund for the People's Credit Cooperative System.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular stipulates the procedures for contribution, management, and utilization of the Safety Assurance Fund for the People's Credit Cooperative System (hereinafter referred to as the Safety Preservation Fund) aimed at supporting the assurance of safety in the operations of the People's Credit Cooperative System.

2. The Safety Preservation Fund is a financial fund of credit cooperative organizations (including cooperative banks and people's credit cooperatives) established by cooperative banks based on contributions from cooperative banks and member people's credit cooperatives, placed at the cooperative bank and managed and utilized according to this Circular and relevant laws.

Article 2. Applicability

1. Cooperative banks.

2. Rural credit cooperatives.

3. Organizations and individuals related to the payment, management, and use of the Safety Fund.

Article 3. Principles of Operation

1. The Safety Fund is a financial fund owned jointly by members (cooperative banks and rural credit cooperatives), managed and used by the cooperative bank according to this Circular.

2. The Safety Fund is used to provide loans with repayment to rural credit cooperatives when they face financial difficulties and need support to return to normal operations.

3. The operation of the Safety Fund is not for profit purposes, following the principle of self-management and self-responsibility.

4. Operating costs of the Safety Fund are covered by interest from loans and investments made by the Safety Fund.

5. Idle funds of the Safety Fund are used on the principle of ensuring capital safety and meeting loan support requirements for rural credit cooperatives.

Chapter II

SPECIFIC PROVISIONS

Article 4. Payment into the Safety Fund

1. Cooperative banks and people's credit cooperatives (except those currently under special supervision) have the responsibility to fully and timely contribute to the Safety Preservation Fund once a year before January 31 of the following year. The contribution to the Safety Preservation Fund by cooperative banks and people's credit cooperatives as stipulated in this Circular shall be implemented starting from the 2014 fiscal year.

2. The annual contribution rate is 0.08% of the average outstanding loans of the previous year ending December 31 of the cooperative bank or people's credit cooperative.

The average outstanding loan amount for a year is calculated by dividing the total outstanding loans (groups 1 and 2 according to the classification of debts by the State Bank of Vietnam) at the end of each month during the year by the actual number of months to be counted. For cooperative banks, the aforementioned outstanding loan amount excludes the portion of loans for capital adjustment to member people's credit cooperatives.

When the total operating capital of the Safety Preservation Fund reaches 1.5 times the total assets of the credit cooperative system, the Safety Preservation Fund will temporarily stop collecting contributions from members and resume collection when the total operating capital of the Safety Preservation Fund falls below the aforementioned level.

The amount contributed to the Safety Preservation Fund is recorded as operational expenses of the cooperative bank or people's credit cooperative.

3. Any surplus from income and expenses in the operation of the Safety Preservation Fund, retained earnings from state-supported capital at the cooperative bank as prescribed by law, shall be used to supplement the Safety Preservation Fund.

Article 5. Management of the Preservation Fund

1. The Safety Preservation Fund shall be managed according to the Management and Utilization Regulations of the Safety Preservation Fund established and issued by the cooperative bank after being approved by the General Assembly of Members of the cooperative bank to implement throughout the people's credit cooperative system. Any amendments or supplements to the Management and Utilization Regulations of the Safety Preservation Fund must be approved by the General Assembly of Members of the cooperative bank.

2. The Management and Utilization Regulation of the Preservation Fund must at least include the following contents:

a) The principle of organizing and managing the Safety Preservation Fund is to provide support loans with repayment to people's credit cooperatives when they encounter financial difficulties and difficulties in payments that can be overcome to return to normal operations; not for profit-making purposes, self-reliance, and self-responsibility.

b) Specific provisions on the utilization of the Preservation Fund, including:

- People's credit funds may borrow support loans as stipulated in Clause 1, Article 6 of this Circular;

- Procedures, formalities, and application files for requesting support loans;

- The amount of support loans; the term of support loans; the interest rate on support loans; commitments upon receiving support loans.

c) Mechanism for disbursing capital for support loans;

d) Measures for monitoring, correcting, and consolidating the activities of people's credit funds that have borrowed support loans; mechanisms for inspecting and supervising the use of borrowed capital by people's credit funds that have received support;

đ) Principles, conditions, and authority for handling risks related to support loans that cannot recover capital;

e) The use of temporarily idle capital of the Preservation Fund;

g) Financial revenue and expenditure mechanisms serving the operation of the Preservation Fund in accordance with relevant laws;

h) Regulations on reporting requirements for people's credit funds that have borrowed support loans.

Article 6. Utilization of the Preservation Fund

1. The Preservation Fund shall be utilized to provide support loans to people's credit funds when they encounter financial difficulties and payment difficulties to return to normal operations.

2. On the basis of ensuring the safety of capital and meeting the requirements for providing support loans to people's credit funds, the temporarily idle capital of the Preservation Fund shall be:

a) Deposited in cooperative banks or commercial banks in accordance with the Management and Utilization Regulation of the Preservation Fund;

b) Purchased government bonds, treasury bills, and State Bank of Vietnam bills.

Article 7. Documents, Procedures, Formalities, Terms, and Interest Rates for Support Loans from the Preservation Fund

Documents, procedures, formalities, terms, and interest rates for support loans shall be implemented in accordance with the Management and Utilization Regulation of the Preservation Fund established by the cooperative bank.

Article 8. Termination and Liquidation of the Preservation Fund

The termination and liquidation of the Preservation Fund shall be carried out according to the decision of the State Bank of Vietnam.

Chapter III

REPORTING AND INSPECTION, SUPERVISION

Article 9. Reporting to the State Management Authority

1. Annually, no later than July 15, the cooperative bank has the responsibility to submit a report on the six-month operation situation of the Safety Preservation Fund to the State Bank of Vietnam (Supervisory and Inspection Authority).

2. Annually, no later than 45 days after the end of the fiscal year, the cooperative bank has the responsibility to submit reports to the State Bank of Vietnam (Supervisory and Inspection Authority):

a) Report on the operation situation and financial status of the Safety Preservation Fund in the previous year;

b) Report on the results of internal audit by the Supervisory Board of the cooperative bank regarding the operation situation and financial results of the Safety Preservation Fund.

3. Ad hoc reports upon request of the State Bank of Vietnam.

Article 10. Internal Report

The cooperative bank has the responsibility to submit a report on the annual operation and financial status of the Safety Preservation Fund to members no later than January 31 annually; simultaneously, it bears the responsibility to report and explain to members regarding the above-mentioned reports as required.

Article 11. Management and Supervision by State Management Agencies

The State Bank of Vietnam shall inspect and supervise cooperative banks in the establishment, management, and use of the Reserve Fund.

Chapter IV

RESPONSIBILITIES OF RELATED UNITS

Article 12. Responsibilities of the State Bank of Vietnam

1. The Banking Inspection and Supervision Authority:

Inspect and supervise cooperative banks in the establishment, management, and use of the Reserve Fund in accordance with this Circular.

2. Units under the State Bank of Vietnam:

Coordinate with the Inspection and Supervision Agency to handle issues and difficulties arising during the implementation of the establishment, management, and use of the Reserve Fund.

Article 13. Responsibilities of Cooperative Banks

1. Establish the Reserve Fund in accordance with this Circular.

2. Calculate and pay the participation fee for the Reserve Fund on time and in full.

3. Check the calculation and payment of fees and urge people's credit funds to pay the participation fee for the Reserve Fund on time and in full.

4. Manage, use, and be responsible for the use of the Reserve Fund.

5. Establish the Management and Utilization Regulations of the Safety Preservation Fund, submit to the General Assembly of Members of the cooperative bank for approval to issue and implement throughout the people's credit cooperative system as stipulated in Clause 2, Article 5 of this Circular and relevant laws.

6. Report on the operation status and financial situation of the Reserve Fund at the General Assembly of cooperative bank members.

7. Strictly implement the reporting system with state management agencies.

Article 14. Responsibilities of People's Credit Funds

1. Calculate and pay the participation fee for the Reserve Fund on time and in full.

2. Strictly implement the regulations on the management and use of the Reserve Fund and relevant laws.

3. Use the loan support from the Reserve Fund for its intended purpose.

Chapter V

IMPLEMENTATION

Article 15. Transitional Provisions

1. Transfer the entire amount of fees contributed by people's credit cooperatives participating in the pilot Safety Assurance Fund for the People's Credit Cooperative System into the Safety Preservation Fund. The fees contributed by people's credit cooperatives participating in the pilot Safety Assurance Fund for the People's Credit Cooperative System shall be deducted from the fees payable in 2014 and subsequent years.

2. Transfer the entire outstanding balance of loans made during the implementation period of the pilot Safety Assurance Fund for the People's Credit Cooperative System into the Safety Preservation Fund. People's credit cooperatives with outstanding balances during the pilot Safety Assurance Fund for the People's Credit Cooperative System period must recognize and repay the loans borrowed from the Safety Preservation Fund.

3. The cooperative bank shall provide specific guidance on the procedures and formalities for the transfer as stipulated in Clauses 1 and 2 of this Article.

Article 16. Effective Date

This Circular takes effect from March 15, 2014.

Article 17. Implementation Organization

The Director of the Office, the Chief Inspector, the Heads of units under the State Bank of Vietnam, the Governors of the State Bank branches in provinces and centrally-administered cities, the Chairmen of the Board of Directors, and the General Managers (Directors) of cooperative banks and people's credit cooperatives are responsible for implementing this Circular./.