Circular No. 10/TT-NH5 on the Implementation of the Regulation on Ensuring Safety in Currency Business Operations

CIRCULAR

OF THE STATE BANK OF VIETNAM

Guidelines for Implementing the Regulations on Ensuring Safety in Currency Business Operations

On June 9, 1992, the Governor of the State Bank issued Decision No. 107/QĐ-NH5 promulgating the "Regulations on Ensuring Safety in Currency Business Operations and Credit for Financial Institutions."

The Central Bank provides specific guidelines for implementation as follows:

A. OBJECTS:

The objects subject to these regulations include all state-owned commercial banks, joint-stock banks, investment and development banks, which have been granted new operating licenses or are undergoing organizational and operational adjustments to obtain new licenses (including foreign bank branches and joint venture banks operating in Vietnam).

B. SPECIFIC CONTENTS:

I. ON SAFETY, CAPITAL INCREASE AND DECREASE, REGULATORY CAPITAL, AND TRANSFER OF SHARE CAPITAL:

1. Financial institutions must maintain actual paid-in regulatory capital not less than the level of regulatory capital announced or approved by the State Bank for that fiscal year. If the State Bank does not announce a new level of regulatory capital for the fiscal year, the previously announced level shall serve as the basis.

1.1. The level of regulatory capital announced by the State Bank is the capital prescribed for each type of financial institution, according to each period or fiscal year for establishing a financial institution or compelling a financial institution already licensed to adjust.

1.2. The level of regulatory capital approved by the State Bank is the capital recorded in the operating license issued by the State Bank, or the capital approved in writing by the State Bank for the financial institution to increase or decrease. This level must be at least equal to the regulatory capital level announced by the State Bank.

1.3. Actual paid-in regulatory capital is the real value of the approved regulatory capital remaining after deducting losses without sources to offset them.

2. Regarding the increase or decrease of regulatory capital when expanding or reducing the scale, geographical area of operation, business activities, or merging or splitting:

2.1. Increase regulatory capital through:

- Transferring from reserve funds to supplement regulatory capital.

- Issuing additional shares or increasing the par value of issued shares.

2.2. Decrease regulatory capital through:

- Revaluing share par value.

- Using regulatory capital to cover prolonged losses when there are no other sources of capital.

3. On the transfer of share capital

Financial institutions are permitted to allow their shareholders to transfer share capital according to the articles of association. If the first or cumulative number of transfers of share capital up to that point exceeds 15% of the actual paid-in regulatory capital, it must be approved in writing by the State Bank.

II. ON THE MINIMUM RATIO BETWEEN OWN CAPITAL AND TOTAL ASSET VALUE AT 5%:

1. Own capital of financial institutions must be calculated based on the actual amount, including the following items, after excluding business losses and reductions in fixed asset values (if any).

1.1. Balances of the following accounts:

- Paid-in regulatory capital;

- Reserve fund for supplementary regulatory capital;

- Special reserve fund (to cover risks);

- Self-supplemented capital for construction and acquisition of fixed assets.

1.2. Undistributed profits calculated as the difference between total positive balances greater than total negative balances of the following accounts: income, expenses, and taxes, consolidated financial results, concentrated profits of subordinate banks submitted.

1.3. Additional value (from revaluation of fixed assets in the source capital account).

1.4. Other types of capital and reserves (fixed capital, retained depreciation reserve, business development funds, incentive and welfare funds, other sources of capital: gold price and foreign exchange rate differences, preserved capital).

2. Total asset value includes:

2.1. Actual on-balance sheet assets, comprising balances of the following accounts:

- Cash (Vietnamese dong and foreign currency);

- Valuable instruments (domestic and foreign currency);

- Precious metals and gems;

- Deposits with the State Bank;

- Required reserves;

- Deposits with other financial institutions and agencies (domestic and foreign, in Vietnamese dong and foreign currency);

- Short-term, medium-term, long-term, and overdue domestic and foreign loans, in Vietnamese dong and foreign currency (excluding loans for basic construction funded by state budget transfers);

- Fixed assets (remaining value);

- Business losses: the difference between total negative balances greater than total positive balances of the following accounts: income, expenses, and taxes; consolidated financial results, concentrated profits of subordinate banks submitted;

- Differences between negative balances greater than positive balances of receivables and payables;

- Differences between negative balances greater than positive balances of settlement and collection operations;

- Other on-balance sheet assets remaining.

2.2. Off-balance sheet assets, including:

- Credit guarantees (domestic and foreign, due in domestic and foreign currency);

- Value of contracts committing to lend to other financial institutions to cover their inability to pay.

3. Formula for calculating the minimum ratio between own capital and total assets.

 

 III. ON ENSURING PAYMENT CAPABILITY:

For financial institutions with headquarters and multiple branches, the headquarters and each branch must daily estimate the total amount of payments within the next three days, as stipulated in Article 4.3 of the regulations; based on this, they calculate and maintain the equivalent liquid assets as specified in Article 4.2 of the regulations.

IV. ON LIMITS FOR RAISING CAPITAL:

1. Raised capital (in Vietnamese dong and foreign currency, excluding capital raised at the request of the Government and the State Bank) includes balances of the following accounts.

- Foreign currency deposits of organizations and individuals from abroad;

- Foreign currency deposits of domestic organizations and individuals and joint ventures between Vietnam and foreign countries;

- Settlement deposits of economic organizations;

- Term deposits of economic organizations;

- Deposits of other organizations;

- Dedicated capital deposits;

- Savings deposits;

- Managed and held deposits;

- Bond issuance operations;

- National Treasury deposits;

- Deposits of the Vietnam Gold, Silver, and Gem Corporation;

- Deposits from other credit institutions (in Vietnamese dong and foreign currencies).

2. The maximum amount of capital raised by a small credit institution shall not exceed twenty times its own capital. Credit cooperatives may only raise up to ten times their own capital.

V. ON THE LIMITS OF CAPITAL USE:

1. To be accepted as a borrower by a credit institution, an entity must be a domestic enterprise (including joint ventures and wholly foreign-owned enterprises in Vietnam), having full legal status, independent economic accounting, financial autonomy, sufficient statutory capital as prescribed by the State, and holding a business license issued by the Economic Arbitration.

1.1. An organization without statutory capital, with dependent economic accounting, does not have the borrowing capacity of a credit institution (except in cases where it is authorized, it can borrow according to the authorized amount and must transfer all debts to the managing unit on the same day).

1.2. If an economic entity has multiple companies (in the form of a consortium of enterprises), and these companies have independent economic accounting, then lending to the economic entity and each company separately shall be treated as lending to separate customers and must comply with the lending limits for credit institutions as stipulated in point 3 below.

2. For private businesses, individuals, and employees engaged in family businesses in industries that have not yet been prescribed statutory capital requirements or registration with state economic arbitration, the person named as the borrower of the credit institution (small traders, small owners, individuals, employees, household farmers) is considered a customer.

3. A credit institution shall lend to a single customer not more than 10% of its own capital and to the ten largest debtors not more than 30% of the total debt of the credit institution (debt includes: short-term, medium-term, long-term, and overdue debt). The credit institution must maintain this ratio or lower at the end of each trading day (excluding debt lent at the request of the Government and the State Bank).

4. A credit institution may use the capital specified in Section B.II.1 as a source for joint ventures, partnerships, and purchasing shares.

4.1. The level of joint ventures, partnerships, and share purchases shall not exceed 10% of the capital of the company or enterprise in which the credit institution participates.

4.2. The total amount of joint ventures, partnerships, and share purchases shall not exceed 50% of the credit institution's own capital. In cases where it is possible to reach 50% or more, the credit institution must reduce its joint venture amounts or increase its own capital accordingly.

C. REGULAR REPORTING:

Monthly, branches of the State Bank in provinces and cities and the State Bank's Trading Department shall compile and submit to the Central Bank (Department of Banks and Credit Institutions) the report titled "Report on Own Capital, Raised Capital, and Asset Values of Credit Institutions" (model attached as an appendix).

Branches of the State Bank in provinces and cities may guide credit institutions to prepare simpler reports containing all necessary information to compile the comprehensive report.

During implementation, if there are difficulties or obstacles, they should be reported in writing to the Central State Bank (Department of Banks and Credit Institutions) for further study and guidance.

 

STATE BANK OF VIETNAM

Provincial Branch

Number: …/BC

 

 

SOCIALIST REPUBLIC OF VIETNAM

Independence - Freedom - Happiness

 

REPORT

OWN CAPITAL, RAISED CAPITAL AND ASSET VALUES
OF CREDIT INSTITUTIONS

Month ... Year ...

Unit: 1 million VND

Date …Month …Year …

Credit organization branch in province/city and basic credit cooperative…