Directive No. 04/2004/CT-NHNN on Strengthening Management and Supervision to Ensure Safe, Effective, and Sustainable Credit Operations

DIRECTIVE

Regarding Strengthening Management and Supervision to Ensure Safe, Effective, and Sustainable Credit Operations

an toàn - hiệu quả - bền vững

In recent times, credit organizations have implemented practical measures to improve credit quality and achieved positive results. However, credit operations still contain risks, with some signs of returning to a subsidized system, and bad debts continue to arise. The main cause of this situation is the insufficient enforcement of loan regulations and supervisory provisions for credit organizations. Many credit organizations have not met certain safety indicators in their operations, particularly the supply and demand dynamics in the credit market have not been adequately addressed.

To minimize risks in banking credit operations, continuously enhance the safety, effectiveness, and sustainability in credit activities, the Governor of the State Bank of Vietnam requests the Boards of Directors, General Managers (Directors) of credit organizations and Heads of units under the State Bank of Vietnam to implement the following contents:

I. FOR CREDIT ORGANIZATIONS

1. Fully and strictly comply with legal provisions on lending, guaranteeing, and leasing finance. Each credit organization should review its guidance on implementing State Bank of Vietnam regulations for each form of credit provision to promptly supplement and modify them to suit the actual operation of banks while ensuring compliance with legal provisions, and strengthen supervision over credit activities to reduce credit risks.

2. Implement effectively the directives of the Governor of the State Bank of Vietnam on improving credit quality as stipulated in Directive No. 08/2003/CT-NHNN dated December 24, 2003.

3. Strictly adhere to the provisions of the Loan Regulation for Credit Organizations issued pursuant to Decision No. 1627/2001/QĐ-NHNN dated December 31, 2001 of the Governor of the State Bank of Vietnam. Credit organizations must closely follow the Loan Regulation for Credit Organizations to guide affiliated units to consider loans proactively and flexibly according to their actual conditions, but must ensure safety and sufficient legal basis for handling disputes. When considering credit for projects and plans, attention should be paid to the efficiency of borrowed capital, specifically:

3.1. Proactively approach strategic plans, development programs of industries and localities approved by competent authorities; economic and social development policies of the Party and the State during each period, to analyze, evaluate, and determine capital needs, including bank credit, to set directions for credit provision, determine credit limits for each product, industry, or investment area to ensure safety and diversify credit risks. Based on the determined credit direction, credit organizations need to cooperate to select high-efficiency investment projects and business plans for credit provision, especially those using large amounts of capital requiring joint financing from multiple credit organizations.

3.2. For parts of commercial banks' investments in projects involving loans from non-credit organizations: banks must ensure the safety and efficiency of investment capital, recover all capital, comply with current legal provisions on lending, security for loans, and risk ratio regulations, and minimize term risk.

3.3. Credit organizations must comply with regulations on providing, exploiting, and utilizing credit information, preventing situations where a borrower obtains loans from multiple credit organizations without risk assessment.

4. Adhere to regulations related to the safety of credit activities and bear responsibility for the safety and effectiveness of credit activities:

4.1. Credit organizations must proactively develop plans for raising and using capital to ensure both overall operational safety and reasonable source-use structure regarding terms in credit activities. Regularly monitor and inspect the implementation of regulations on the maximum proportion of short-term capital used for medium and long-term loans.

4.2. Classify assets According to risk levels and establish risk reserves as prescribed, promptly address emerging credit risks according to current regulations. Do not allow overdue debts to persist, reducing credit quality.

4.3. Take active measures to proactively increase capital safety ratios. For credit organizations that have not reached the 8% capital adequacy ratio, specific solutions must be formulated to strive for the capital-to-risk asset ratio to reach and exceed 8%.

Strictly comply with regulations on maximum lending and guarantee limits for a single customer, proactively propose solutions to meet customers' borrowing needs promptly while ensuring the safety, quality, and effectiveness of credit activities.

4.5. Strictly comply with regulations on collateral for loans by credit organizations as prescribed by the Government and guidelines of the State Bank. Pay special attention to measures to ensure the safety of credit capital, especially in cases of unsecured loans or loans secured by assets formed from borrowed funds.

5. Conduct reviews, evaluations, and classifications of debts based on reasons for difficulty in recovery to manage, supervise, and handle debts appropriately, thereby minimizing extended and overdue debts:

5.1. Conduct classification and evaluation of the recoverability of all extended debts, adjusted terms, and overdue debts. On this basis, concentrate staff to collect debts, avoiding prolonged arrears when customers have the ability to repay; apply measures to fully recover debts, including deducting from deposit accounts. Firmly prevent new overdue debts arising due to subjective reasons.

5.2. For debts from customers who deliberately delay repayment, have financial capacity, and possess assets but do not repay the bank:

a) Initiate legal proceedings against customers who violate credit contracts in accordance with the provisions of the law;

b) Closely coordinate with local enforcement agencies to recover debts. In cases where financial institutions are managing assets but have not yet sold them, complete the necessary documentation to facilitate debt recovery.

c) Compile and report to the Governor of the State Bank of Vietnam the results of handling overdue debts on a semi-annual basis.

6. Strengthen coordination and collaboration among departments within a financial institution and between financial institutions in credit activities to strictly control the compliance with credit issuance procedures, ensuring close monitoring of loans from their inception until full repayment.

II. FOR UNITS BELONGING TO THE STATE BANK OF VIETNAM

1. Units at the headquarters of the State Bank of Vietnam

1.1. Within the scope of their functions and responsibilities, units at the headquarters of the State Bank of Vietnam shall effectively perform the central bank's management and supervision functions over financial institutions to promptly identify and address issues and recommendations raised by financial institutions and related units, thereby facilitating credit activities according to the principles of safety, efficiency, and sustainability, and enhancing the role of management and supervision of the State Bank of Vietnam.

1.2. The Credit Information Center must implement specific measures to strengthen its organizational structure and personnel in terms of capacity, expertise, and professional skills, gradually improving the quality of customer information provided to financial institutions, clearly defining the cooperation mechanisms for providing, using, and exploiting information between the Credit Information Center and financial institutions, with particular emphasis on enhancing the quality of customer evaluation information in terms of both the number of customers and the content of the information provided.

1.3. The Department of Banks shall study and submit to the Governor of the State Bank of Vietnam proposals for expanding the scope of debt resolution using risk reserve funds, aiming to increase the autonomy and responsibility of financial institutions, allowing them to proactively handle outstanding debts due to objective reasons that make recovery impossible, which are not covered by existing state regulations on debt resolution.

2. Branches of the State Bank of Vietnam in provinces and centrally-administered cities

2.1. The Governor of the State Bank of Vietnam branches in provinces and centrally-administered cities shall regularly monitor and coordinate with financial institutions in their jurisdictions to implement specific measures to enhance the autonomy and responsibility of financial institutions in their business operations and prevent unfair competition among financial institutions.

2.2. Conduct inspections and oversight of the implementation of legal provisions regarding lending and loan guarantee mechanisms, guarantees, and financial leasing by financial institutions.

2.3. Regularly compile and report in a comprehensive, detailed, and timely manner on the implementation of the Governor's directives in this Directive in their jurisdiction to the State Bank of Vietnam (Credit Department).

III. IMPLEMENTATION

1. Heads of relevant units at the headquarters of the State Bank of Vietnam, Boards of Directors, General Managers (Managers) of financial institutions, Governors of State Bank of Vietnam branches in provinces and centrally-administered cities, and related units are responsible for strictly implementing this Directive.

2. This Directive takes effect fifteen days after its publication in the Official Gazette.

 In the course of implementation, any difficulties encountered should be reported to the Governor of the State Bank of Vietnam for consideration and resolution./.