Directive No. 04/CT-NH3 on continuing to strengthen inspection, supervision, and auditing work in the banking sector

DIRECTIVE

OF THE STATE BANK OF VIETNAM

Regarding the continued strengthening of inspection work

supervision and auditing in the banking sector

In recent times, the inspection, examination, supervision, and auditing activities in the banking sector have been given significant attention, contributing to improving compliance with management and business regulations, gradually bringing banking operations into order and discipline, positively contributing to the stability and development of the national banking system, reflected mainly in the following aspects:

- Improving one step further the management mechanisms of the State Bank of Vietnam, monetary policy tools, and business regulations for credit institutions; - Emphasizing organizational consolidation, strengthening inspection, examination, and supervision activities within the State Bank of Vietnam, credit institutions, and incorporating auditing into banking operations;

- Efforts have been made in implementing administrative, economic measures, including transferring cases to legal authorities for prosecution and investigation regarding violations by staff in the banking sector.

However, the results of inspection, examination, and supervision activities have not met requirements, manifested as follows:

- Violations of management and business regulations still occur, particularly in credit operations, loan guarantees, deferred letter of credit guarantees... leading to an increase in overdue debts; poor business quality affecting the reputation of banking activities.

- Self-examination and correction of errors are not conducted regularly and promptly; there is insufficient strictness and seriousness in handling violations, many issues remain unresolved and prolonged;

- There are no comprehensive and effective measures to promptly prevent violations, allowing them to recur in many places.

To promote positive aspects and achieved results, while addressing existing shortcomings and deficiencies in management, inspection, and examination of banking activities; thereby continuing to strengthen inspection, examination, and supervision activities, the Governor of the State Bank of Vietnam instructs:

1. Focus on directing to improve internal inspection, supervision, and auditing activities in the banking sector:

- Continue to strictly direct the nationwide wide-scale inspection campaign on credit and guarantee operations and financial revenue and expenditure management of credit institutions (according to the plan and outline disseminated at the end of 1995, implemented from the beginning of 1996); including units within the people's credit fund system;

- Closely coordinate and create favorable conditions necessary for the banking credit operation inspection campaign according to Directive No. 574/TTNN of the National Inspectorate, aiming to ensure consistency and avoid overlapping during the inspection and examination of credit institutions;

- Pay utmost attention to the internal supervision of credit institutions and internal auditing within the State Bank of Vietnam system. Strengthen self-inspection activities in commercial banks and credit institutions to immediately address any violations arising from specific daily business processes.

- Regularly focus on coordinating and cooperating with People's Inspection Committees, Party Inspection Committees, and mass organizations' inspection committees in banking units to identify and effectively address and resolve any internal deficiencies promptly.

- Promptly exploit the results of international auditing of the Vietnam Agricultural Bank system, gradually incorporate internal auditing into State Bank of Vietnam units, and simultaneously create favorable conditions necessary for state auditing at the Vietnam Commercial Bank and other credit institutions when required.

2. Based on the results of inspections and examinations in the sector; findings by legal authorities and issues raised by the press..., credit institutions and subordinate units must concentrate on clearly analyzing, identifying causes, assigning specific responsibilities, and strictly dealing with violations, implementing recovery measures, especially in regions and banks with prominent lending, loan guarantee, and deferred letter of credit guarantee cases...

Each credit institution must proactively develop a specific plan to implement recovery measures, while coordinating with the State Bank of Vietnam and legal authorities on the local level to promptly clarify responsibilities, deal with, and recover funds for the bank.

All measures should be applied: economic, administrative, and legal. By the end of the third quarter of 1996, all discovered cases must be thoroughly resolved, and similar cases prevented from recurring.

Implement comprehensive solutions to prevent violations and the exploitation of loopholes for fraud, collusion, and embezzlement. Pending the promulgation of the Banking Law, urgently review and amend management and business regulations that are no longer appropriate, focusing on those related to credit, guarantees, and re-guarantees for loans, deferred letter of credit guarantees, collateral, and mortgage loans; simultaneously study and issue additional management and business regulations, focusing on risk prevention regulations to ensure capital safety...

4. Continue to consolidate the organizational structure of inspection and supervision of the State Bank of Vietnam and internal supervision of credit institutions; From now until the end of 1996, gradually implement steps to ensure that 50% of the staffing of provincial and city branches of the State Bank of Vietnam are dedicated to management, inspection, examination, and supervision. Emphasize both the quantity and quality of cadres; the content and methods of inspection, examination, and supervision; gradually enhance the effectiveness and efficacy of management and supervision activities in the banking sector.

From now on, if any violation occurs in any credit institution or region, the General Directors of credit institutions and the Directors of State Bank of Vietnam branches in those areas must proactively cooperate to promptly inspect, identify causes, assign responsibility, and take serious measures to handle the situation, and report promptly to the Central State Bank.

The Central State Bank will issue detailed guidance documents on the implementation plan of this directive. It is requested that heads of units under the State Bank of Vietnam, Chairmen of Management Boards, and General Directors (Directors) of credit institutions fulfill their functions and duties to organize the implementation of the contents of this directive well; they must report comprehensively and seriously to the Central State Bank every month.