Directive No. 05/1998/CT-NHNN17 on Rectifying the Operations of the People's Credit Fund System

DIRECTIVE

OF THE GOVERNOR OF THE STATE BANK OF VIETNAM
On rectifying the operations of the People's Credit Cooperative System

After five years of piloting the establishment of People's Credit Cooperatives (PCCs) pursuant to Decision No. 390/TTg dated July 27, 1993 of the Prime Minister, there are now 982 grassroots PCCs, 19 regional PCCs (RPCCs), and 01 Central PCC (CPC) with 596,000 members participating, with total operating capital amounting to 1.799 trillion VND, including charter capital of 275 billion VND, and total outstanding loans reaching 1.477 trillion VND. The emergence of the PCC system has tapped idle capital within communities, expanded lending to members for production and business development; contributed to eradicating poverty, reducing poverty, and limiting usury in rural areas.

Alongside these achievements, the operations of the PCC system have revealed certain shortcomings:

The quality of operations of some PCCs has not met requirements, with low charter capital, high overdue debts, poor efficiency, no profit or insignificant profits; some PCCs have violated regulations such as: lending to non-member borrowers; pursuing pure profit; failing to strictly adhere to accounting and expenditure management systems, employee expenses; lending at interest rates exceeding the prescribed ceiling...

Management and governance have not adhered to procedures and norms, leading to internal discord in some PCCs; in some places, management follows a family-style approach; a portion of PCC staff have relaxed management principles to gain personal benefits, embezzlement, causing losses to the PCC and its members.

Staff competence remains inadequate, failing to keep up with management requirements; changes in staff positions have not fully complied with stipulated standards; thorough adherence to guidance and directives from the State Bank Branches managing the area has not been achieved.

Some PCCs have not taken advantage of leadership from Party committees, local authorities, and close cooperation with mass organizations to achieve local socio-economic development goals.

Self-inspection work at each PCC has not received adequate attention; inspections and audits by State Bank Branches in some regions regarding PCCs have not been conducted regularly and continuously, failing to detect violations and propose corrective measures, timely recommendations to higher levels for handling.

To strengthen and ensure safe and effective operations of the PCC system, contributing positively to economic growth targets; the Governor of the State Bank requests the Directors of State Bank Branches in provinces and cities to focus on implementing the following urgent tasks:

1. Take advantage of leadership from provincial and municipal Party committees, governments, pilot establishment steering committees, various departments, and mass organizations to comprehensively consolidate the operations of each PCC, including reviewing key positions such as: Chairman of the Board of Management, Head of Supervisory Board, General Director, and professional staff to ensure compliance with stipulated standards; individuals and collectives violating operational principles causing losses to the PCC and its members must be resolutely recommended for disciplinary action by local Party committees and governments, removal from the PCC, and severe cases must be handled according to the law.

2. Continue to implement the conversion and adjustment of PCC organization and operations in accordance with the Law on Cooperatives as per Circular No. 05/1997/TT-NH17 dated October 25, 1997 of the Governor of the State Bank on guiding the conversion and registration of PCCs and Credit Cooperatives under Decree No. 16/CP dated February 21, 1997 of the Government; only guide those PCCs meeting conditions as prescribed by law to proceed with conversion procedures. For PCCs that do not meet conditions, the Directors of State Bank Branches in provinces and cities shall closely cooperate with People's Committees, pilot establishment steering committees to develop appropriate resolution plans, approved by the heads of pilot establishment steering committees in provinces and cities, and report these plans to the central pilot establishment steering committee. In the meantime, temporarily halt issuing new licenses for grassroots PCCs and RPCCs.

3. Focus on improving the quality of operations of each PCC and RPCC as follows:

a. Intensify efforts to collect overdue debts; the overdue debt ratio of each PCC should not exceed 3% of total outstanding loans; avoid using debt rollover methods to reduce overdue debts. In addition to regular collection, education, and urging measures, for borrowers who deliberately delay repayment, each PCC should seek support from local Party committees, governments, mass organizations, police stations to handle the situation, apply compulsory and coercive measures, and even recommend prosecution when necessary.

b. During the phase of adjusting the PCC system's organization and operations to comply with the Law on Cooperatives and the Law on Commercial Banks, given the limited resources of CPCs and RPCCs, grassroots PCCs must carefully calculate their capital mobilization and balance sources of funds to ensure timely payment and settlement capabilities. From the date this directive is issued, while awaiting new regulations, in addition to support from CPCs and RPCCs, grassroots PCCs may only mobilize capital from members and the community within their permitted operating areas.

c. Strictly prohibit lending to non-members in any form; comply with the provisions of Article 25 of the Banking Ordinance, Credit Cooperative Ordinance, and Financial Company Ordinance. For loans to non-members and violations of Article 25 of the Banking Ordinance, immediate recovery must be carried out, and each PCC must prepare detailed reports explaining the measures for collecting each loan and report to the Director of the State Bank Branch in the province or city no later than August 5, 1998, for consolidation and reporting to the Governor of the State Bank before August 15, 1998.

d. Strictly adhere to the accounting system; open, maintain books and records, update promptly, accurately, and comprehensively in accordance with current regulations. For expenditures, employee expenses, profit distribution from capital contributions... all must be carried out in accordance with the guidance documents of the State Bank of Vietnam, Ministry of Finance, and the Bylaws. It is strictly prohibited for the Fund to apply lending interest rates exceeding the ceiling set by the Governor of the State Bank of Vietnam. Increase loan recovery efforts to ensure no losses occur, striving for profitable operations, fulfilling tax obligations to the state budget, accumulating reserves, and distributing profits to members.

4. Guide and direct each Fund to conduct internal self-inspection rounds, on this basis, each Fund should assess its current status, while promoting strengths and immediately addressing weaknesses and existing issues. For Funds where the Head of the Supervisory Board lacks the capability to complete tasks or performs them inadequately, measures to change or supplement should be considered. It must be recognized that internal self-inspection and control are decisive factors for the safety and sustainability of each Fund.

5. Coordinate with relevant functional agencies to develop plans to advise the Party committees and local authorities at various levels on handling weak Funds with the risk of losing payment capacity and solvency; regularly instruct the Heads of the Supervisory Boards of each Fund to fully perform their functions; plan on-site inspections of large-scale QTDNDs, particularly those located in towns and market towns.

6. Require QTDNDs to comply fully with information and reporting systems sent to various levels as prescribed. By the latest on the 5th day of each month, the Director of the Branch of the State Bank of Vietnam in provinces and cities shall compile reports and analyses on the operational situation of QTDNDs, sending them to the Chairman of the People's Committee of the province or city and the Governor of the State Bank of Vietnam.

7. Departments and Bureaus of the Central State Bank of Vietnam, branches of the State Bank of Vietnam in provinces and cities shall disseminate this Directive to regional and grassroots QTDNDs; develop specific plans and measures to effectively implement the contents of this Directive.

Any issues arising during the implementation process should be reported to the Governor of the State Bank of Vietnam for timely consideration and resolution./.