Directive No. 07/CT-NH5 on issues that need to be rectified in the organization and operation of joint-stock credit institutions

DIRECTIVE

On some issues that need to be addressed in

the organization and operation of joint-stock credit institutions 

Recently, many joint-stock credit institutions have implemented regulations stipulated in the Banking Ordinance and the operational and business procedures of the Governor of the State Bank, thereby achieving certain results: Joint-stock credit institutions have quickly adapted to market mechanisms; diversified services, expanded credit investment, increased loans to the economy; the staff team has been strengthened both in quantity and quality; own capital and legally raised capital have grown rapidly... These achievements have contributed to ensuring safety and stability in the overall operations of the banking system, while also contributing to implementing monetary policy nationwide.

However, alongside these positive aspects, joint-stock credit institutions still have shortcomings that need to be promptly corrected as follows:

- Loan volume has increased rapidly, but a portion of credit quality has not been guaranteed: Overdue and difficult-to-collect debts still account for a high proportion of total outstanding loans; they have not strictly followed the loan procedures, loan guarantee procedures, deferred payment letter of credit guarantee procedures, causing many risks to the bank's operations.

- The management tools of the State Bank have not been strictly adhered to: Loans exceeding the prescribed interest rate ceiling; violating credit limits when lending; failing to fully comply with reserve requirements, safety ratio controls, and foreign exchange management regulations...

- Violations of the Accounting and Statistics Ordinance: Recording and accounting entries on the accounting system in many units have not ensured accuracy, timeliness, truthfulness, and completeness; internal inspection and control systems have not been strict and regular... penalties have not been severe and timely.

To continue to promote strengths and address weaknesses to further consolidate joint-stock credit institutions, contributing to ensuring healthy development and safe operations for the entire banking system, the Governor of the State Bank instructs and requires joint-stock credit institutions to develop plans and measures to strictly implement the following urgent issues:

1. When granting loans, joint-stock credit institutions must pay attention to credit quality and ensure the safety of credit capital, viewing this as a key goal both in the short term and long term to ensure the existence, development, and trustworthiness of each bank; they must review overdue debts and old arrears, take specific measures to recover them and limit the occurrence of new overdue debts; they must strictly follow loan procedures, loan guarantee procedures, deferred payment letter of credit guarantee procedures, collateral procedures... rigorously assess loan proposals and ensure legal documentation when considering loans, regularly conduct pre-loan, during-loan, and post-loan inspections to ensure the safety and effectiveness of credit capital.

2. Joint-stock credit institutions must strictly adhere to regulations on interest rates, credit limits, and reserve requirements. Arbitrary use of interest rates exceeding the prescribed ceiling is strictly prohibited, ensuring the difference between lending and deposit interest rates, and no additional service fees may be charged that would increase lending rates beyond the permitted ceiling.

3. Joint-stock credit institutions must strictly comply with regulations on safety ratios, provisions for risk reserves, and limits on capital raising as stipulated in the Banking Ordinance, Credit Cooperative Ordinance, and Financial Corporation Ordinance.

4. Joint-stock credit institutions must strictly comply with foreign exchange management regulations. Foreign currency loans can only be granted for projects requiring the import of machinery, equipment, and raw materials for foreign payments. It is forbidden to borrow foreign currency to convert into domestic currency for lending domestically to take advantage of the higher domestic interest rate compared to the foreign interest rate...

5. Joint-stock credit institutions must strictly comply with the State's Accounting and Statistics Ordinance. Incorrect accounting entries must be stopped and corrected immediately; internal and external ledger entries must be truthful, complete, accurate, and timely. Expenditures must be frugal, and non-operational expenses must be strictly managed to comply with legal regulations. Particularly, for units that have not yet resolved past losses or currently have high overdue debt ratios, plans should prioritize allocating a portion of net profits to replenish their reserve funds. Joint-stock credit institutions that have not increased capital as required are not allowed to distribute dividends.

6. Plans must be made to increase share capital to meet or exceed the prescribed levels, focusing on resolving issues related to the number of shareholders, the 10% state-owned enterprise contribution ratio, ownership limits, and stock issuance according to specified models. State Bank branches must thoroughly check the sources of capital contributions when credit institutions increase their charter capital, firmly eliminating illegal sources of capital and identifying founding shareholders.

Joint-stock credit institutions that have not revised their charters according to the Governor's decision must urgently revise them and ensure completion within the prescribed timeframe.

7. Joint-stock credit institutions must properly hold annual general meetings (or extraordinary meetings if necessary) to elect Board of Directors and Supervisory Board members in accordance with stipulated conditions and standards. For joint-stock credit institutions where the Board of Directors and Supervisory Board terms have expired or are understaffed, immediate elections or supplementary elections must be held without delay. Members who fail to fulfill their duties during their term must be replaced.

Internal audit and control procedures must be established, good staff must be added to the internal audit department, and internal audit activities must become regular and genuine in each unit to ensure safe and effective operations.

The Board of Directors and the Executive Board shall be responsible for selecting staff members who possess adequate competence and moral integrity, and for training to enhance their professional expertise, knowledge, and legal awareness.

8. The Directors of the State Bank branches in provinces and cities must strengthen comprehensive supervision over all aspects of operations of joint-stock credit organizations within their jurisdiction; the State Bank Inspectorate must closely adhere to urgent tasks outlined in this directive to inspect and verify compliance. Violations and issues related to the organization and activities of joint-stock credit organizations within their jurisdiction must be dealt with resolutely within the scope of their authority.

Starting from August 1996, the Directors of State Bank branches in provinces and cities must compile monthly reports on the implementation of this directive, propose measures to address existing issues and violations beyond their handling capacity, and submit these to the Governor for appropriate guidance.

9. Functional Departments of the State Bank Central Office need to collaborate with relevant Ministries and Sectors to study and adjust regulations related to joint-stock credit organizations to align with practical operational realities; they should also cooperate with State Bank branches in provinces and cities to evaluate and rank joint-stock credit organizations, promptly address emerging issues, and implement mandatory annual audits for joint-stock credit organizations.

Joint-stock credit organizations, State Bank branches in provinces and cities, and functional Departments at the State Bank Central Office are required to take measures to strictly enforce this directive, aiming to rectify the organization and activities of joint-stock credit organizations in accordance with Decision No. 223/QD-NH5 dated November 23, 1993 on the minimum charter capital for joint-stock credit organizations; Decision No. 166/QD-NH5 dated August 10, 1994 on the organization and operation of the Board of Directors and supervisory personnel; and Decision No. 275/QD-NH5 dated November 7, 1994 on shareholders, shares, and charter capital. Any difficulties encountered during implementation should be reported immediately to the State Bank Central Office (Governor's Office) for resolution.