Directive No. 08/1998/CT-NHNN14 on improving credit quality to contribute to economic growth and ensure safety and efficiency for the banking system

DIRECTIVE

OF THE GOVERNOR OF THE STATE BANK OF VIETNAM
NUMBER 08/1998-CT-NHNN14 OF OCTOBER 3, 1998 ON
IMPROVING THE QUALITY OF CREDIT, CONTRIBUTING TO ECONOMIC GROWTH
AND ENSURING SAFETY AND EFFECTIVENESS FOR THE BANKING SYSTEM
BANK

In order to improve the quality of credit, ensure safe and effective operations for the banking system, contribute to promoting economic growth, and reduce overdue debts; the Governor of the State Bank of Vietnam requests the General Directors (Directors) of commercial banks and investment and development banks to implement the following contents:

1. Banks shall conduct a classification and assessment of the actual status of outstanding loans and overdue loans up to June 30, 1998 according to the content and method of credit classification applied under Decision No. 299/QĐ-NH5 dated November 13, 1996 of the Governor of the State Bank of Vietnam on the issuance of the regulation on loan classification of credit organizations. On this basis, each bank must develop a plan to recover and handle overdue loans, striving to reduce overdue loans below 5% in 1999.

a) For normal overdue loans: Banks shall apply regular debt collection measures.

b) For difficult-to-collect overdue loans: Based on current regulations, the following measures should be implemented:

- For loans overdue before June 30, 1998, if the enterprise (borrower) is truly facing difficulties, banks are permitted to recover the principal first and then the interest later. In cases where the borrower has paid off the principal but not the interest, the promissory note will still be kept at the bank and gradually recovered according to the agreement of both parties.

- For loans overdue for more than 12 months, if the borrower can only pay the principal and interest at the standard rate, the General Directors (Directors) of commercial banks and investment and development banks shall consider and decide not to collect overdue interest (collect interest at the standard rate) for each specific case.

- For overdue loans that the bank has seized or received in lieu of assets with complete documentation and legal ownership rights, the sale, auction, or valuation procedures shall be carried out to recover the debt. If immediate disposal is not possible due to lack of market or slow consumption, the banks shall have plans for using and disposing of seized or received-in-lieu-of-assets and report these plans to the State Bank of Vietnam. The reduction of debt accounting shall be implemented when the bank has ownership of the asset (if it is land, then the right to use the land). The Accounting-Finance Department shall be responsible for guiding the accounting procedures for reducing outstanding loans for commercial banks.

- For assets managed by banks that do not yet have sufficient procedures to reduce debt accounting, active work with relevant authorities to process the debt according to the above content shall be conducted.

- For assets related to pending legal cases, banks may base their accounting and tracking of debt on loan and related documents until a final decision from competent state agencies becomes legally binding.

- For cases where the financial situation of enterprises is normal but there is intentional delay in repayment, reports shall be made to the Ministry in charge (for enterprises under ministries and sectors), People's Committees of provinces and cities (for local enterprises), and notifications sent to People's Committees of districts, counties, towns, wards, communes, and townships (for private enterprises, limited liability companies, and individual households) to urge and support enterprises in repaying debts or use coercive measures to compel repayment; if the debtor fails to repay after the extended period, the banks may file lawsuits with economic courts or people's courts (in areas without economic courts) and are permitted to publish the lawsuit if deemed necessary.

c) For loans affected by natural disasters, storms, floods, and droughts, they shall be handled according to existing documents and regulations.

d) For overdue loans of banks caused by enterprises failing to implement production and business plans leading to losses, in addition to the extension and deferral of loans as stipulated in Directive No. 09/CT-NH1 dated August 27, 1997 of the Governor of the State Bank of Vietnam on handling specific issues regarding credit conditions and procedures, banks may consider adjusting the loan term to match the project's repayment capacity (adjusted according to changes) and bear responsibility under the law. The amount of reclassified overdue loans shall not exceed 15% of the total outstanding loans of the entire banking system. Procedures, documents, and accounting records shall be applied according to current regulations.

e) For newly generated overdue loans from July 1, 1998: Banks shall classify the loans and implement debt recovery measures as mentioned above.

In handling overdue loans according to the provisions in Part 1, banks must pay attention to not exceeding the statute of limitations for filing a lawsuit (six months) which could result in loss of capital.

2. For new loans issued after this directive, banks must enhance autonomy and self-responsibility, specifically:

a) For loans at standard interest rates: Banks shall be responsible for assessing the effectiveness and repayment capacity of projects. After assessment, if the loan application does not meet legal requirements, lacks market feasibility, uses outdated technology, fails to meet financial requirements, and cannot repay the debt, the bank has the right to reject the loan and inform the borrowing unit while reporting to the People's Committee of the province or city (for local enterprises), the Ministry or sector in charge (for enterprises under ministries or sectors), and the local People's Committee (for private enterprises, joint-stock companies, limited liability companies, and individual households), clearly stating the reasons for rejection. Banks shall compile and report to the State Bank of Vietnam (Credit Department) every 15 days (on the 1st and 16th of each month) all cases of rejected loans for consolidation and reporting to the Prime Minister.

b) For preferential interest rate loans according to the State plan: banks assigned the task of lending must proceed as with regular interest rate loans. After appraisal, if it is determined that the project is not feasible or the investment does not yield benefits and does not ensure the safety of credit capital, then lending shall not be granted, and at the same time, the results of the appraisal must be notified to the project owner, clearly stating the reasons for refusal; and immediately report to the Ministry of Planning and Investment, the State Bank of Vietnam, the relevant ministry, or the People's Committee of the province/city (if it is a local enterprise) to compile a report to the Prime Minister.

For ongoing projects being lent to, due to objective reasons leading to inefficiency and the enterprise has not taken measures to remedy the situation, banks are permitted to temporarily suspend lending. The suspension of lending must notify the enterprise of the specific reasons and duration, while simultaneously reporting to the Ministry of Planning and Investment, the State Bank of Vietnam, the relevant ministry, or the People's Committee of the province/city (if it is a local enterprise) for comments and can only continue lending upon receipt of a directive from the Governor of the State Bank of Vietnam. In cases where the cause is subjective on the part of the customer, banks must terminate lending and apply measures to recover the loan ahead of schedule.

c) For loans decided by the Prime Minister, banks must strictly comply with current laws and regulations, and in case of difficulties arising, report to the Governor of the State Bank of Vietnam for consideration and resolution.

3. Banks should intensify the mobilization and concentration of investment capital for effective projects, implementing state economic goals and important programs, avoiding scattered and inefficient investments, focusing on developing agriculture, forestry, fisheries, producing exportable goods, and rural economic development... effectively implementing government-designated programs: providing loans to mitigate the aftermath of Typhoon No. 5, droughts, loans to poor households and students...

4. Banks should improve and reorganize their credit staff teams towards selecting and arranging competent and honest staff with a passion for the industry and credit work. Suitable staff should be arranged, and those who are unable to handle the job should be reassigned to other positions, and if there are shortcomings, they should be dealt with according to the level of violation as stipulated by law. To enhance the capabilities of staff, the Banking Academy will organize regular specialized training courses on skills in project evaluation, appraisal, and lending. The training content must be appropriate for the trainees and suitable for different scales of project appraisals.

The Organizational Cadre Training Department of the State Bank of Vietnam, together with the Vietnam Foreign Trade Bank and the Vietnam Investment and Development Bank, will conduct surveys and develop a pilot project proposal on standardizing credit staff and conducting vocational training, testing, and evaluating the professional capabilities of various types of credit staff as a basis for proper staffing and job assignment. Within the framework of this project, credit staff will be divided into main groups: credit officers responsible for large, medium, and small-scale project loans, government-designated projects, household production loans, and collateral loans. Simultaneously, the Organizational Cadre Training Department will study and propose appropriate salary systems for each type of credit staff based on their work and responsibilities. The pilot project will begin on October 1, 1998, and a preliminary review will be conducted before March 31, 1999. Based on these results, it will be implemented for other banks.

Credit staff must fully comply with the current regulations on short-term, medium-term, and long-term credit rules issued by the Governor of the State Bank of Vietnam and specific operational guidelines issued by the Chairman of the Board of Directors, General Director (Director) of commercial banks, and the Investment and Development Bank.

5. Strengthen inspection, supervision, and regular control over credit activities. This inspection is the responsibility of internal control within each credit organization. Each bank should increase both the quantity and quality of its internal control staff.

The State Bank of Vietnam's Inspection Department will concentrate experienced credit inspectors at branch offices and the Central Bank, forming six inspection teams to assess credit quality in Can Tho, Dong Nai, Binh Dinh, Dak Lak, Ha Tay, and Lang Son provinces (covering all state-owned commercial banks, Investment and Development Bank, and joint-stock commercial banks in the area). Implementation will run from October 1, 1998, to March 31, 1999.

6. Heads of Departments and Bureaus under the State Bank of Vietnam, Governors of provincial branch offices of the State Bank, Chairmen of the Board of Directors, General Directors (Directors) of commercial banks, and the Investment and Development Bank are responsible for guiding and strictly implementing this Directive.

During implementation, if any difficulties arise, units must report to the State Bank of Vietnam for consideration and resolution.