Directive No. 08/CT-NH5 on Rectifying Joint Venture Capital Contributions and Share Purchases by Commercial Banks and Vietnam Development Bank

DIRECTIVE

Regarding the rectification of joint venture capital investment and share purchase activities of Commercial Banks and Vietnam Investment and Development Bank

In recent times, joint venture capital investment and share purchase activities of Commercial Banks and Vietnam Investment and Development Bank (hereinafter referred to collectively as Commercial Banks - abbreviated as NHTM) have achieved certain results, diversifying the business operations of these Commercial Banks while contributing to enhancing the leading role of State-owned Banks (abbreviated as NHQD) in the credit organization system (abbreviated as TCTD). However, alongside these achievements, there remain some issues that need to be addressed in the joint venture capital investment and share purchase activities of Commercial Banks, including:

1\. Many cases of joint venture capital investment and share purchases exceed the 10% enterprise capital ratio stipulated in Article 28 of the Banking, Credit Cooperatives, and Financial Companies Ordinance. Some State-owned Banks' joint venture capital investments and share purchases exceed 50% of their own capital as prescribed in Clause 7 of the Regulation on Ensuring Safety in Monetary and Credit Business Operations for Credit Organizations issued together with Decision No. 107/QĐ-NH5 dated June 9, 1992 by the Governor of the State Bank of Vietnam (SBV). Some Commercial Joint Stock Banks' joint venture capital investments and share purchases exceed 20% of their charter capital and supplementary reserve fund as stipulated in Point 34.2, Clause 34 of the Regulation on Shareholders, Shares, Stocks, and Charter Capital of Joint Stock Credit Organizations issued together with Decision No. 275/QĐ-NH5 dated November 7, 1994 by the SBV Governor.

2\. Some cases of joint venture capital investment and share purchases have not fully complied with the legal procedures and documentation as required by relevant laws concerning this field; thus, leading to risks and difficulties in recovering capital in certain instances.

3\. The selection of partners for joint venture capital investment and share purchases has not been adequately performed, resulting in low investment efficiency and failing to reflect the positive nature of this new type of business activity, even posing risks and potential capital losses in some cases.

4\. In many cases, joint venture capital investment and share purchases are passive measures aimed at resolving overdue loans from borrowers, thereby not accurately reflecting the essence of such business activities.

5\. Accounting records and reporting on joint venture capital investments and share purchases have not been accurate and comprehensive, affecting the assessment of the quality and effectiveness of these activities.

6\. Appointing capable individuals to participate in the management and operation of enterprises with contributed capital has not been effectively carried out, limiting the monitoring of capital usage efficiency.

These issues also hinder the strict implementation and management oversight of joint venture capital investments and share purchases by Commercial Banks. To address these situations, the Governor of the State Bank of Vietnam requests the Chairmen of the Board of Directors, General Directors of Commercial Banks, Heads of Departments and Bureaus related, and Branch Directors of the State Bank of Vietnam in provinces and centrally-administered cities to promptly implement several rectification measures for banking activities in the field of joint venture capital investments and share purchases as follows:

I. FOR CASES WHERE JOINT VENTURE CAPITAL INVESTMENTS AND SHARE PURCHASES HAVE ALREADY BEEN MADE:

Commercial Banks must review all cases of joint venture capital investments and share purchases to classify and handle them according to the following directions:

1\. Cases where joint venture capital investments and share purchases were not conducted in accordance with regulations:

1.1\. Cases where joint venture capital investments and share purchases exceed the 10% enterprise capital ratio (excluding cases of establishing a joint venture bank with a foreign bank): Measures must be taken to transfer the joint venture capital contribution or shares to ensure compliance with the current capital contribution ratio.

1.2\. State-owned Banks whose total joint venture capital investments and share purchases exceed the limit of 50% of their own capital and reserve funds, and Commercial Joint Stock Banks whose total joint venture capital investments and share purchases exceed 20% of their charter capital and supplementary reserve fund: Measures must be taken to increase own capital or transfer joint venture capital contributions or shares to ensure compliance with the prescribed limits. Until the ratio is reduced below the prescribed level, no further investment operations may be conducted.

1.3\. Cases where State-owned Banks' joint venture capital investments and share purchases have not fully complied with legal procedures and documentation: A request for approval from the State Bank of Vietnam must be made in writing, and the relevant state financial authorities must be reported in accordance with Clause 2, Article 10 of the Management and Accounting Regulations for State-Owned Enterprises issued together with Decree No. 59/CP dated October 3, 1996 by the Government.

Cases where Commercial Joint Stock Banks' joint venture capital investments and share purchases have not fully complied with legal procedures and documentation must strictly adhere to the provisions of Articles 6, 7, 8, and 9 of the Regulation on Shareholders, Shares, Stocks, and Charter Capital of Joint Stock Credit Organizations issued together with Decision No. 275/QĐ-NH5 dated November 7, 1994 by the SBV Governor.

1.4\. Cases where accounting does not correctly reflect the nature of joint venture capital investments and share purchases: Re-accounting must be done to ensure accuracy and appropriate measures taken for resolution.

1.5\. Cases where joint venture capital investments and share purchases are deemed ineffective: Measures must be taken to transfer joint venture capital contributions or shares to recover capital.

1.6\. Cases where no shareholder representatives or management participants have been appointed for enterprises with contributed capital: Capable individuals must be selected and appointed to participate in the management of partner enterprises involved in joint venture capital investments and share purchases; comprehensive measures must be taken to strengthen supervision, management, or monitoring of these units' activities.

2\. Cases where joint venture capital investments and share purchases have been conducted in accordance with current regulations:

Strict adherence to the appointment of shareholder representatives or management participants for contributed capital and measures to enhance supervision, management, or monitoring of the activities of units with contributed capital must be implemented to improve the efficiency of the contributed capital.

3. Commercial Joint Stock Banks must strictly comply with the above measures for rectification and report the results of implementation to the State Bank of Vietnam before August 31, 1997 (commercial joint stock banks shall submit their reports to the branch of the State Bank of Vietnam in the same province or city for consolidation and reporting to the Central State Bank. State-owned commercial banks shall submit their reports to the Central State Bank: State Bank of Vietnam Inspectorate and the Department of Financial Institutions). In cases where there are difficulties or obstacles, they must report the current situation of capital contribution, joint ventures, share purchases, actions already taken for rectification, reasons why they cannot be resolved, suggestions, and proposals for the State Bank of Vietnam to study and direct further handling.

II. REGARDING CAPITAL CONTRIBUTION, JOINT VENTURE, AND SHARE PURCHASE ACTIVITIES IN THE FUTURE

All cases of capital contribution, joint venture, and share purchase by commercial banks must comply strictly with the current legal regulations. As for state-owned commercial banks, the State Bank of Vietnam does not encourage these banks to contribute capital, form joint ventures, or purchase shares in enterprises that are not credit institutions; in cases of forming joint ventures or purchasing shares in credit institutions, priority should be given to those cases implemented according to the directives of the State Bank of Vietnam. All cases of capital contribution, joint venture, and share purchase by state-owned commercial banks, in addition to complying with general legal provisions, must also obtain written approval from the State Bank of Vietnam regarding the policy, principles, conditions, and partners involved in capital contribution, joint venture, and share purchase.

III. REGARDING REGULAR REPORTS ON THE SITUATION OF USING OWN CAPITAL FOR CAPITAL CONTRIBUTION, JOINT VENTURE, AND SHARE PURCHASE

State-owned commercial banks must strictly comply with the requirement to submit regular reports on the situation of capital contribution, joint venture, and share purchase as directed by the Central State Bank.

IV. REGARDING INSPECTION AND SUPERVISION WORK FOR CAPITAL CONTRIBUTION, JOINT VENTURE, AND SHARE PURCHASE ACTIVITIES:

The Central State Bank Inspectorate and provincial and municipal branches of the State Bank of Vietnam need to strengthen inspection and supervision work on the activities of capital contribution, joint venture, and share purchase of commercial banks and handle them as follows:

1. Regarding the handling of cases of capital contribution, joint venture, and share purchase that have not been carried out in accordance with regulations:

1.1. The Central State Bank Inspectorate will check the self-rectification of capital contribution, joint venture, and share purchase activities of state-owned commercial banks as stipulated in point 1, section I of this Directive and compile a report on the self-rectification situation of the entire system of commercial banks to be reported to the leadership of the State Bank of Vietnam before September 30, 1997.

1.2. Inspectors of provincial and municipal branches of the State Bank of Vietnam under the central authority will check the self-rectification and rectification of capital contribution, joint venture, and share purchase activities of commercial banks in their respective areas (including branches of state-owned commercial banks if any) as specified in point 1.1 above; compile and report the inspection results of self-rectification of commercial banks in their respective areas to the Central State Bank Inspectorate, and send copies to the Department of Financial Institutions before September 15, 1997.

Cases with difficulties or obstacles must report specifically and propose solutions for the Central State Bank Inspectorate to consider and direct resolution.

2. Regarding regular inspections of capital contribution, joint venture, and share purchase activities of commercial banks:

Inspectors at all levels of the State Bank of Vietnam are responsible for inspecting, identifying, and handling violations in the activities of capital contribution, joint venture, and share purchase of commercial banks in accordance with current regulations.