Circular No. 05/2013/TT-BTC guiding financial regulations for credit institutions and foreign bank branches

CIRCULAR

Guidelines on financial regulations for credit institutions,

foreign bank branches

Pursuant to the Enterprise Law dated November 29, 2005;

Pursuant to the Law on Credit Organizations dated June 16, 2010;

Pursuant to Decree No. 57/2012/NĐ-CP dated July 20, 2012 on financial regulations for credit institutions and foreign bank branches;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Considering the proposal of the Director of the Department of Financial Institutions and Financial Organizations;

The Minister of Finance hereby promulgates this Circular guiding financial regulations for credit institutions and foreign bank branches.

PART I
GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular guides the implementation of financial regulations for credit institutions and foreign bank branches operating in Vietnam.

Financial activities of credit institutions and foreign bank branches shall be carried out in accordance with the provisions of the Law on Credit Institutions dated June 16, 2010; Decree No. 57/2012/NĐ-CP dated July 20, 2012 of the Government on financial regulations for credit institutions and foreign bank branches (referred to in this Circular as Decree No. 57/2012/NĐ-CP); specific guidelines set forth in this Circular, and other legal documents governing financial management that are relevant.

Article 2. Applicability

This Circular applies to credit institutions and foreign bank branches established, organized, and operating in accordance with the Law on Credit Institutions dated June 16, 2010.

This Circular does not apply to credit institutions that are microfinance organizations, policy banks, cooperative banks, and people's credit funds.

Chapter II
SPECIFIC PROVISIONS

Article 3. Shareholders' equity of credit institutions

1. Charter capital.

2. Foreign exchange rate differences:

a) Differences arising from the consolidation of financial statements of credit institutions (parent company) and subsidiaries using accounting currencies different from the Vietnamese dong;

b) Differences arising during the construction period of unfinished investment projects which are recorded in shareholders' equity in accordance with the law.

3. Revaluation surplus is the difference between the book value of assets and their revalued value when there is a decision by the State or when assets are contributed to joint ventures or share capital.

4. Capital premium is the difference between the par value of shares and the actual amount received from issuance (if any).

5. Supplementary reserve funds for charter capital, business development funds, and financial risk reserves.

6. Undistributed profits.

7. Other capital belonging to credit institutions include: the value of treasury shares (if any) recorded in accordance with the law on securities and other lawful sources of capital.

Article 4. Use of Capital and Assets

Article 4. Responsibilities of credit institutions and foreign bank branches regarding management, use, and monitoring of existing assets and capital

1. Credit institutions and foreign bank branches are responsible for managing, using, and monitoring all existing assets and capital, conducting accounting in accordance with current accounting regulations; fully, accurately, and promptly reflecting the usage and changes of capital and assets during business operations; clearly defining responsibilities and forms of handling for each department and individual in cases of damage or loss of assets or capital of the bank.

2. Credit institutions and foreign bank branches may use operational capital to serve business activities in accordance with the Law on Credit Institutions, Decree No. 57/2012/NĐ-CP, and specific guidelines in this Circular under the principle of ensuring safety and developing capital.

a) Throughout the course of business operations, credit institutions and foreign bank branches must ensure maintaining investment limits for construction and acquisition of fixed assets directly serving business activities according to the principle: the remaining value of fixed assets does not exceed 50% of the charter capital and supplementary reserve fund for charter capital for credit institutions, and does not exceed 50% of the authorized capital and supplementary reserve fund for authorized capital for foreign bank branches.

b) For real estate held due to debt recovery as stipulated in Clause 3, Article 132 of the Law on Credit Institutions:

- For real estate temporarily held by credit institutions for sale or transfer to recover capital, credit institutions do not record an increase in assets and do not perform depreciation.

- For real estate acquired by credit institutions to directly serve business activities, credit institutions record an increase in assets and perform depreciation in accordance with the law and ensure investment limits for construction and acquisition of fixed assets as stipulated in Subparagraph a, Clause 2 of this Article.

c) Credit institutions and foreign bank branches implement measures to ensure capital safety as prescribed in Article 8 of Decree No. 57/2012/NĐ-CP. The establishment of reserve provisions in expenses shall be carried out by credit institutions and foreign bank branches in accordance with the following specific provisions:

- For risk provisions in banking activities: credit institutions and foreign bank branches establish and use risk provisions in accordance with the regulations of the Governor of the State Bank of Vietnam after reaching consensus with the Minister of Finance.

- For inventory write-down provisions, long-term investment loss provisions (including stock price declines), and doubtful receivables provisions (excluding risk provisions in banking activities): credit institutions and foreign bank branches establish provisions in accordance with general provisions applicable to enterprises.

d) Leasing, mortgaging, and pledging of assets.

- Credit institutions and foreign bank branches have the right to lease, mortgage, and pledge their assets in accordance with the Civil Code, the Law on Credit Institutions, and other laws to ensure effectiveness, safety, and capital development.

- For financial leasing assets, credit institutions and foreign bank branches shall comply with the laws on financial leasing activities in Vietnam.

đ) For assets leased, pledged, mortgaged, or kept in custody by credit institutions and foreign bank branches on behalf of customers, credit institutions and foreign bank branches are responsible for managing, preserving, or using them in accordance with agreements with customers and in compliance with the law.

- The transfer and liquidation of assets of credit institutions and foreign bank branches shall be carried out in accordance with the provisions of the law and the Charter of the credit institution or foreign bank branch.

- Credit institutions and foreign bank branches may transfer assets to recover funds for more effective business purposes.

- Credit institutions and foreign bank branches may liquidate assets that are obsolete, deteriorated; assets that are damaged and cannot be restored; technologically outdated assets that are not needed or used inefficiently and cannot be transferred in their original condition; assets that have been used beyond the prescribed service life and cannot continue to be used. When liquidating assets, credit institutions and foreign bank branches must establish a Liquidation Committee.

- For assets that the law requires to be sold at auction when transferring or liquidating, credit institutions and foreign bank branches must organize auctions in accordance with the provisions of the law.

- The transfer and liquidation of fixed assets of credit institutions which are limited liability companies wholly owned by the State shall be carried out in accordance with the provisions of Decree No. 57/2012/ND-CP, Article 4 of this Circular, and the provisions of the law on the transfer and liquidation of assets of limited liability companies wholly owned by the State.

Article 5. Revenue Management

1. The revenue of credit institutions and foreign bank branches includes the receipts specified in Article 15 of Decree No. 57/2012/ND-CP, specifically:

a) Revenue from business activities includes:

- Revenue from lending activities: Revenue from interest on deposits, interest from lending activities, other revenue from lending activities;

- Revenue from service activities: Revenue from payment services; revenue from treasury services; revenue from agency and trustee services; revenue from asset preservation services, safe deposit box rental, security vaults, financial advisory and brokerage services; revenue from other service fees;

- Revenue from foreign exchange and gold trading activities: Revenue from spot foreign exchange trading; revenue from gold trading; revenue from derivative financial instruments;

- Revenue from investment income;

- Revenue from exchange rate differences;

- Revenue from other business activities, including: Revenue from securities trading (excluding stocks); revenue from debt buying and selling activities; revenue from asset leasing; revenue from card and electronic banking services; revenue from other business activities.

b) Other revenues include:

- Income from the sale and liquidation of fixed assets;

- Income from loans that have been processed through risk provisions (including debts that were written off but later recovered);

- Income from debts owed to parties whose identity cannot be determined or who have lost their status as creditors, recorded as increased income;

- Penalties paid by customers for breach of contract;

- Insurance compensation received;

- Refunds or reductions of taxes already paid;

- Reversal of excess risk provisions but not recorded as reduced expenses according to laws on risk provisions;

- Revenue from other derivative financial instruments;

- Other income.

2. Principles for recognizing revenue

a) For lending activities.

- Interest income from credit provision:

Credit institutions and foreign bank branches shall record interest receivable arising during the period as income for debts classified as standard loans without specific risk provisions according to the regulations.

For interest receivable arising during the period for the remaining debts, it shall not be recorded as income. Credit institutions and foreign bank branches shall monitor such debts off-balance sheet to urge collection; upon collection, they shall record it as business activity revenue.

- Deposit interest income: the interest receivable during the period.

b) Revenue from securities trading activities (excluding stocks).

Credit institutions and foreign bank branches shall estimate revenue from expected interest income from securities trading activities (excluding stocks). In case the principal is due but not collected, credit institutions and foreign bank branches shall not estimate interest revenue for the subsequent period.

c) For investment income: dividends and profits distributed from investment activities are the interest distributed based on resolutions or decisions to distribute profits.

d) For revenue from exchange rate differences resulting from revaluation of foreign currencies and gold, it shall be recognized in accordance with accounting standards and current legal provisions.

đ) For revenue from remaining business activities: revenue is the total amount of money received from selling products, goods, and providing services during the period accepted by customers for payment after deducting trade discounts, sales reductions, and returned goods value (if there is valid documentation), regardless of whether the money has been received or not.

e) For receivables that have been recorded as revenue but remain uncollected by the due date, credit institutions and foreign bank branches shall reduce revenue if within the same accounting period or record it as expenses if outside the accounting period and monitor it off-balance sheet to urge collection. Upon collection, it shall be recorded as business activity revenue.

3. Revenues of credit institutions and foreign bank branches generated during the period must be supported by invoices or valid documentation and must be fully recorded in revenue.

Article 6. Expense Management

1. Expenses of credit institutions and foreign bank branches include the expenditures specified in Article 16 of Decree No. 57/2012/ND-CP. Some expenditures of credit institutions and foreign bank branches are implemented as follows:

a) Expenditures for business operations

- Expenditures for lending activities: interest paid on deposits, interest paid on loans, interest paid on issuance of securities, and other expenditures for lending activities.

- Expenditures for banking service business activities: expenditure for payment services; expenditure for treasury services; expenditure for agency and trustee services; expenditure for telecommunications services supporting payment activities and other expenditures.

- Expenditures for foreign exchange and gold trading activities: expenditure for spot foreign exchange trading; expenditure for gold trading; expenditure for derivative financial instruments and other derivative financial instruments.

- Expenditures for investment activities.

- Exchange rate difference expenditures as stipulated in accounting standards and current legal provisions.

- Expenditures for other business activities, including: losses from trading in permitted securities; expenditures for debt buying and selling activities; and expenditures for other business activities.

b) Tax payments and fees, including land lease-related taxes, fees, and levies (excluding corporate income tax) as prescribed by law.

c) Expenditures for assets

- Depreciation expenses for fixed assets used in business operations are carried out according to the management, usage, and depreciation system for enterprises.

In cases where fixed assets are purchased on credit: credit institutions and foreign bank branches shall record the difference between the total amount payable and the purchase price of the fixed asset paid immediately as an expense over the payment period, except when that difference is capitalized into the cost of the fixed asset (capitalized) according to accounting standards.

- Leasing of fixed assets: Leasing costs for fixed assets shall be carried out according to the lease contract. In cases where leasing fees for assets are paid in one lump sum for multiple years, the leasing fee shall be gradually allocated to business expenses over the number of years of asset usage. For expenses related to land leasing that are not deductible as leasing fees under regulations, credit institutions and foreign bank branches shall allocate them to expenses over the period of land usage.

- Maintenance costs for fixed assets.

- Repair costs for fixed assets.

- Costs for purchasing and repairing tools and equipment.

- Insurance costs for assets.

d) Employee costs as prescribed by law, including the following items:

- Wages, salaries, and other amounts with the nature of wages.

- Contributions based on salary: social insurance, health insurance, unemployment insurance, and union dues payments.

- Payments for unemployment benefits to employees as prescribed by law for enterprises.

- Costs for purchasing human accident insurance.

- Meal allowances. For state-owned credit institutions, they shall comply with the provisions of the law on meal allowances for joint-stock companies with a single member owned by the State.

- Protective gear costs for those who need to wear protective gear while working.

- Uniform costs for staff.

- Costs according to the prescribed system for female workers as stipulated by law.

- Medical costs including regular health check-up costs for employees, preventive drug purchase costs, and other medical costs within the responsibility of the enterprise as prescribed by current laws.

- Annual leave pay costs as prescribed by law.

- Other employee expenses as prescribed by law.

đ) Expenditures for management and administrative activities, including the following expenses:

- Business trip expenses.

- Costs for electricity, water, telephone, materials, printing paper, office supplies.

- Costs related to warehouse operations.

- Consulting fees, fees for hiring experts both domestically and internationally.

- Audit fees.

- Commission and agency fees must be reflected in agency and agency contracts with reasonable and valid documentation.

- Establishment of a science and technology development fund as prescribed by law. The use of the fund shall be carried out according to current regulations.

- Scientific research and technology development costs: the remaining costs after using up the science and technology development fund.

- Training and vocational instruction costs as prescribed by law.

- Reward costs for innovative improvements, increased labor productivity, cost savings: based on the principle of being commensurate with actual results; credit institutions and foreign bank branches must establish and publicly announce reward regulations and form a committee to verify innovations.

- Fire prevention and firefighting costs.

- Environmental protection costs.

- Costs for publicity, advertising, marketing, promotional activities, conferences, reception and ceremonial events, external transactions, and other costs as prescribed by the system and must have invoices or valid documentation as prescribed by the Ministry of Finance, linked to the business results of credit institutions and foreign bank branches.

- Brokerage commission costs: The payment of brokerage commissions by credit institutions and foreign bank branches must be tied to the economic efficiency brought about by brokerage activities. Credit institutions and foreign bank branches base on the guidance on brokerage commission costs issued by the Ministry of Finance, their specific conditions and characteristics to develop a uniform and publicized brokerage commission cost regulation applicable within the institution. The Board of Directors or the Board of Members or General Director (Director) approves the brokerage commission cost regulation applicable within their unit.

The beneficiaries of brokerage commissions are organizations and individuals (domestic and foreign) providing brokerage services to credit institutions and foreign bank branches. Brokerage commissions cannot be applied to agents of credit institutions and foreign bank branches, designated customers, management positions, and employees of credit institutions and foreign bank branches.

The payment of brokerage commissions must be based on contracts or confirmation letters between credit institutions, foreign bank branches, and recipients of brokerage commissions, which must include basic contents such as the name of the recipient, the nature of the payment, the amount, the method of payment, the time of implementation and termination, and the responsibilities of each party.

For brokerage costs for leasing assets (including seized and pledged assets): the maximum brokerage cost for leasing assets by credit institutions and foreign bank branches shall not exceed 5% of the total revenue from leasing activities facilitated by brokerage in a year.

For brokerage costs for selling collateral and pledged assets: the maximum brokerage commission for selling collateral and pledged assets by credit institutions and foreign bank branches shall not exceed 1% of the actual value received from the sale of assets through brokerage.

- Security costs; costs for defense and security work.

e) Risk reserve, asset preservation, and deposit insurance costs;

- Provisioning costs in the operation of credit institutions and foreign bank branches as prescribed in point c, Clause 2, Article 4 of this Circular.

- Expenses for participating in organizations for asset preservation and deposit insurance as prescribed by law;

g) Other expenses;

- Membership fees for domestic and international industry associations in which credit institutions and foreign bank branches participate at the rates set by these associations.

- Costs for Party and mass organization work at credit institutions and foreign bank branches (the portion of costs outside the budget of the Party and mass organizations funded from specified sources).

- Costs for revenues already recorded but actually not received and not reduced from revenue records.

- Expenses for debts that were previously untraceable and recorded as income but later identified as creditors.

- Costs for the sale and liquidation of assets (if any), including the residual value of fixed assets sold or transferred.

- Costs for service fees for debt recovery provided by organizations permitted to perform debt recovery services under the law; costs for recovering written-off debts, bad debt recovery costs.

- Penalties for administrative violations; penalties and compensation for breach of economic contracts within the responsibility of credit institutions and foreign bank branches.

- Costs for handling remaining asset losses after compensating with sources as prescribed in Article 11 of Decree No. 57/2012/NĐ-CP.

- Social work costs including financial support for healthcare, education, disaster relief, financial support for building houses of affection for the poor, and other costs as prescribed by law.

- Litigation fees and enforcement fees.

- Other expenses;

2. Principles for recognizing expenses

a) The expenses of credit institutions and foreign bank branches are actual expenses incurred during the period related to business operations.

b) Expenses recorded as business expenses of credit institutions and foreign bank branches must comply with the principle of matching revenue and expenses and have valid invoices and legal supporting documents as prescribed by law.

c) For state-owned credit institutions, only deductible expenses when determining corporate income tax may be recorded as expenses.

3. Credit institutions and foreign bank branches shall not include the following items in their expenses:

a) Administrative fines imposed on individuals for violations of traffic laws, business registration regulations, accounting and statistical systems, tax laws, and other administrative violations;

b) Expenses unrelated to the business operations of credit institutions and foreign bank branches;

d) Expenses covered by other sources;

d) Expenses that have been recorded but not actually paid;

đ) Expenses covered by other funding sources;

e) Other unreasonable or invalid expenses.

Article 7. Accounting Currency

The determination of the currency for accounting purposes shall be carried out in accordance with Article 18 of Decree No. 57/2012/NĐ-CP.

Credit institutions and foreign bank branches that engage in economic activities denominated in foreign currencies must convert them into Vietnamese Dong in accordance with the provisions of the law.

Article 8. Accounting, Audit, Reporting, and Financial Disclosure System

1. Credit institutions and foreign bank branches shall implement the accounting system as prescribed by law, record original vouchers fully, update accounting books, and accurately, timely, truthfully, and objectively reflect all economic and financial activities.

2. The fiscal year of credit institutions and foreign bank branches begins on January 1 and ends on December 31 of each calendar year.

3. Credit institutions and foreign bank branches shall settle accounts financially, prepare and submit financial reports to the State Bank of Vietnam and the Ministry of Finance in accordance with this Circular.

The Chairman of the Board of Directors or the Chairman of the Board of Members or the General Director (Director) of credit institutions and foreign bank branches shall be responsible for the accuracy and truthfulness of these reports.

4. Contents of Financial Reports

a) Financial plan report includes:

- Capital sources and usage plan;

- Income, expense, business results, and budget contribution index plan;

- Labor force and salary plan.

b) Financial report includes:

- Annual financial reporting system, interim financial reporting, and accounting reports of credit institutions and foreign bank branches as prescribed by the State Bank of Vietnam regarding the financial reporting system for credit institutions.

- Other reports, including: Capital source and usage situation report; capital contribution and share purchase at member units report; budget obligation fulfillment report; remuneration situation report for the Board of Directors or Board of Members or General Director (Director), supervisory board members, and staff; comprehensive index report (as attached to this Circular).

c) Year-end financial audit report.

d) Special reports: As required by management authorities.

5. Deadline for submission of reports.

a) The annual financial plan report must be submitted no later than November 15 of the year preceding the planning year.

b) Annual financial report:

- The deadline for submitting the annual financial report is no later than 180 days for foreign credit institutions and 90 days for other credit institutions from the end of the fiscal year.

- Credit institutions and foreign bank branches must submit the audited annual financial report along with the independent auditor's conclusion (audit report) immediately after the audit is completed.

c) Interim financial report

The deadline for submitting the interim financial report is no later than the first day of the next quarter.

If the last day for submitting the financial report is a public holiday, a national holiday, or a weekend, the latest submission date will be the next working day after that date.

6. Recipient of reports.

a) Commercial banks wholly owned by the State and joint-stock commercial banks where the State owns more than 50% of the charter capital shall be responsible for submitting to the State Bank of Vietnam and the Ministry of Finance the reports stipulated in Clause 4 of this Article.

b) Credit institutions (excluding those specified in Sub-clause a of Clause 6 of this Article) and foreign bank branches shall be responsible for submitting to the State Bank of Vietnam and the Ministry of Finance the reports stipulated in Sub-clauses b, c, and d of Clause 4 of this Article.

Article 9. Financial Inspection and Handling of Financial Violations

1. Forms of financial inspection.

Financial inspections shall be carried out in the following forms:

a) Regular or surprise financial inspections.

b) Financial inspections on specific topics as required by financial management work.

2. Authorities conducting financial inspections.

a) The State Bank of Vietnam:

- Conducting comprehensive inspections, supervision of the operations of credit institutions and foreign bank branches including their financial activities.

- Notifying the Ministry of Finance of violations and difficulties related to the implementation of financial management systems of credit institutions and foreign bank branches discovered during inspections, supervision for the Ministry of Finance to coordinate in handling and improving policies.

b) The Ministry of Finance:

- Conducting financial inspections in accordance with laws on financial inspections.

- Inspecting issues related to financial management work and compliance with financial systems of credit institutions and foreign bank branches to serve the improvement of financial management mechanisms for these institutions.

- Notifying the State Bank of Vietnam of the results of inspections for coordination in handling.

3. Handling of financial violations.

Credit institutions and foreign bank branches violating financial regulations and state financial reporting systems will be subject to penalties as prescribed by law.

Article 10. Responsibilities of Regulatory Authorities

1. The Ministry of Finance and the State Bank of Vietnam shall perform their responsibilities as stipulated in Articles 34 and 35 of Decree No. 57/2012/NĐ-CP.

2. Quarterly and annually, the State Bank of Vietnam shall notify the Ministry of Finance of the financial situation of credit institutions and foreign bank branches according to Clause 1 of Article 35 of Decree No. 57/2012/NĐ-CP, specifically based on the following indicators (categorized by type of activity):

a) Number of credit institutions and foreign bank branches.

b) Total charter capital, equity, assets, total debt, total capital raised, non-performing loan ratio, and other safety ratios in the operations of credit institutions and foreign bank branches.

c) Total profit (loss) and number of credit institutions and foreign bank branches operating at a profit (incurring losses).

d) Amounts paid to the state budget by credit institutions and foreign bank branches (classified by types of taxes and fees).

đ) Financial system violations of credit institutions and foreign bank branches discovered during inspections and supervision.

e) Financial status and operational efficiency of state-owned credit institutions holding more than 50% of charter capital.

g) Other relevant indicators and contents.

Chapter III
IMPLEMENTATION

Article 11. Implementation Provisions

1. This Circular takes effect from February 25, 2013, and applies from the 2013 fiscal year.

2. This Circular replaces Circular No. 12/2006/TT-BTC dated February 21, 2006, issued by the Ministry of Finance guiding the implementation of Decree No. 146/2005/NĐ-CP dated November 23, 2005, of the Government on financial systems for credit institutions.

3. In the course of implementation, if there are difficulties, please reflect them to the Ministry of Finance for research, consideration, and resolution./.