Circular No. 12/2006/TT-BTC guiding the implementation of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regulations for credit organizations.

CIRCULAR

Guidelines for implementing Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regulations for credit organizations.

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Implementing Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regulations for credit organizations, the Ministry of Finance provides guidance on the following matters.

PART I

 GENERAL PROVISIONS

1. The subject to which this Circular applies are credit organizations established, organized, and operating in accordance with the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions No. 20/2004/QH11 dated June 15, 2004.  This Circular does not apply to People's Credit Funds and the Social Policy Bank.

2. Financial activities of credit institutions shall be carried out in accordance with the provisions of the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions No. 20/2004/QH11 dated June 15, 2004, Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regulations for credit institutions, specific guidance provided in this Circular, and other legal documents governing financial management.

3. The Chairman of the Board of Directors, General Director (or Director) of credit institutions shall be responsible under the law and before state management agencies for the implementation of the financial regime of credit institutions.  I. MANAGEMENT OF CAPITAL AND ASSETS

1. Charter capital is the amount of capital recorded in the charter of credit institutions.

PART II

 SPECIFIC PROVISIONS

2. Actual charter capital as stipulated in Article 6 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government is the charter capital reflected in the accounting books of credit institutions.

3. Capital surplus is the difference between the par value of shares and their actual issue price (if any).

Exchange rate differences arising from the conversion of financial statements of independent foreign establishments, exchange rate differences arising during the construction process of newly established establishments shall be accumulated in the equity of credit institutions according to accounting standards.

5. Credit institutions are responsible for monitoring all existing assets and capital, conducting accounting in accordance with current accounting regulations; fully, accurately, and promptly reflecting the situation of capital and asset usage and changes during business operations, clearly defining responsibilities of each department and individual for cases of damage or loss of assets.

4. 6. Credit institutions may use operational capital to serve business activities in accordance with the provisions of the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions No. 20/2004/QH11 dated June 15, 2004, based on the principle of ensuring safety and development of capital.

Credit institutions may purchase and invest in fixed assets of their own according to the principle that the remaining value of fixed assets does not exceed 50% of the first-tier core capital as guided by the State Bank and must comply with all state regulations on investment and construction management.

7. When suffering losses on assets, credit institutions must determine the cause, responsibility, and handle as follows:  - If due to subjective reasons, the person causing the loss must compensate. The Board of Directors or General Director (or Director) of the credit institution decides the level of compensation according to the law and is responsible for their decision. - If the asset has been insured, it will be handled according to the insurance contract.

- Using reserve funds established in expenses to offset losses according to the law.

- The loss value after compensating with personal, collective, insurance organization compensation, and using reserve funds established in expenses, if insufficient, will be offset by the financial reserve fund of the credit institution. In case the financial reserve fund is insufficient, the shortfall will be recorded as other expenses in the period.

8. Leasing, mortgaging, pledging, selling, liquidating assets:

8.1. Leasing, mortgaging, pledging assets.

- Credit institutions have the right to lease, mortgage, or pledge their assets according to the Civil Code and other laws to ensure effectiveness, safety, and capital development.  - For financial leasing assets, credit institutions shall implement according to the government's regulations on financial leasing activities in Vietnam.

8.2. Selling assets.

- Credit institutions may sell assets to recover capital for more effective business purposes.

- The sale of assets by state-owned credit institutions shall be carried out in accordance with the law applicable to state-owned enterprises.

- The difference between the proceeds from selling assets and the remaining value of the sold assets and the costs of selling assets shall be recorded in the report on business results of the credit institution.

8.3. Liquidating assets.

- Credit institutions may liquidate obsolete, deteriorated, irreparable damaged, technologically outdated, or inefficiently used assets. The authority to decide on the liquidation of assets by state-owned credit institutions shall be carried out in accordance with the law applicable to state-owned enterprises.

- When liquidating assets, credit institutions must establish a liquidation committee. For assets required by law to be auctioned, credit institutions must organize auctions according to the law when liquidating.

- The difference between the proceeds from liquidating assets and the remaining value of the liquidated assets and the costs of liquidating assets shall be recorded in the report on business results of the credit institution.

9. For assets leased, pledged, mortgaged, or held in custody by customers, credit institutions are responsible for managing, preserving, or using them in accordance with agreements with customers and in compliance with the law.

10. Credit institutions shall implement measures to ensure capital safety as stipulated in Article 9 of Decree No. 146/2005/NĐ-CP of the Government. The establishment of reserve funds in expenses shall be implemented according to the following specific provisions:

- When liquidating assets, credit institutions must establish a Liquidation Committee. For assets that the law requires to be sold at auction, when liquidating, credit institutions must organize auctions in accordance with the provisions of the law.

- The difference between the amount received from the liquidation of assets and the remaining value of the liquidated assets and the liquidation costs shall be recorded on the credit institution's business results report.

9. For assets that credit institutions lease, accept as collateral, mortgage, or hold in custody for customers, credit institutions are responsible for managing, preserving, or using them according to agreements with customers in compliance with the law.

10. Credit institutions implement measures to ensure capital safety as stipulated in Article 9 of Decree No. 146/2005/NĐ-CP of the Government. The establishment of reserve provisions in expenses shall be carried out in accordance with the following specific regulations:

10.1. For credit risk provisions in banking activities, credit institutions shall establish and utilize provisions in accordance with the regulations of the Governor of the State Bank of Vietnam.

10.2. For inventory write-down provisions, long-term investment loss provisions (including securities write-downs), doubtful receivables provisions (excluding credit risk provisions in banking activities): credit institutions shall establish provisions according to the general regulations applicable to enterprises.

10.3. For unemployment benefit provisions: credit institutions shall establish a fund for unemployment benefit provisions in accordance with the Labor Code and the guidelines of the Ministry of Finance on the establishment, management, utilization, and accounting of the Unemployment Benefit Reserve Fund at enterprises.

II. MANAGEMENT OF REVENUE AND EXPENSES

1. Revenue Management:

1.1. The revenue of credit institutions includes the income items specified in Article 16 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government, including:

a. Income from business operations comprising:

- Income from lending activities.

- Interest income from deposits.

- Service fees.

- Income from foreign exchange and gold trading.

- Dividend and interest income from equity investments.

- Income from the sale of stocks, bonds, and other securities.

- Income from debt purchase and sale activities.

- Exchange rate differential income.

- Other business income.

b. Other income comprising:

- Income from the sale and liquidation of fixed assets.

- Income from risk provisions applied to resolved capital.

- Administrative expenses for independent subsidiary companies.

- Penalties from customers for breach of contract.

- Other income.

1.2. Conditions and timing for recognizing revenue:

a/For lending activities: credit institutions shall record accrued interest income that is expected to be collected within the period for loans deemed recoverable both principal and interest on time without specific risk provisions as required.

For accrued interest income recorded as revenue but not collected by the due date (principal and interest), credit institutions shall record it as operating expenseand track it off-balance sheet to urge collection. When collected, it shall be recorded as operating revenue. For accrued interest income from remaining loans not recorded as revenue, credit institutions shall track it off-balance sheet to urge collection. When collected, it shall be recorded as operating revenue.

b/For interest income from deposits, bond investments, bills of exchange... it is the accrued interest income within the period.

c/For dividends, profits distributed from equity investments, they shall be recorded when there is a resolution or decision to distribute.d/For exchange rate differential income, credit institutions shall recognize it in accordance with accounting standards.

e/For other operational income: revenue is the total amount received from selling products, goods, and services during the period accepted for payment by customers after deducting trade discounts, sales reductions, and returned goods value (if valid documentation exists), regardless of whether payment has been received.1.3. Revenue items generated by credit institutions during the period must have valid invoices or supporting documents and must be fully recorded in revenue.

2. Expense Management: Expenses of credit institutions are the amounts incurred during the period for business operations and other activities as stipulated in Article 17 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government, some expense items of credit institutions are managed as follows:

2.1. Business operation expenses:

a) Interest expenses on deposits and borrowings.

b) Foreign exchange and gold trading expenses.

c) Banking service business expenses.

d) Expenses for stock, bond, and other security trading activities.

đ) Expenses for debt purchase and sale activities.

e) Expenses for equity investments and share purchases.

g) Exchange rate differential expenses in accordance with accounting standards.

h) Rental expenses for assets.

Depreciation expenses for fixed assets used in business operations shall be carried out in accordance with the current management, usage, and depreciation rules for fixed assets.

In case of purchasing fixed assets on installment: credit institutions shall record the difference between the total amount payable and the immediate purchase price of the fixed asset as an expense over the payment period, except where this difference is capitalized into the cost of the fixed asset (capitalization) in accordance with accounting standards.

Wages, salaries, and wage-like expenses as prescribed.

i) m) Expenses for revenue items that were actually not collected.

k) n) Outsourced service expenses:

l) - These include expenses for repairing fixed assets, transportation, electricity, water, telephone, office supplies, fire prevention and extinguishing, consulting, auditing,

insurance premiums for assets, insurance premiums for personal accidents,

travel allowances, holiday transportation subsidies as prescribed,

commission, agency, trust, and other service fees.  - All such expenses must have valid invoices or supporting documents as prescribed by the Ministry of Finance. Repair expenses for fixed assets shall be recorded as expenses in the year based on actual expenditures. For repair expenses of special fixed assets according to cycles, they shall be pre-recorded as expenses based on budget estimates, with the recording time being the end of the fiscal year. When repairs are carried out, if the actual expenditure exceeds the pre-recorded amount, the difference shall be recorded as an expense; if less, it shall reduce the expense. - Fixed asset rental expenses for operations shall be carried out according to lease contracts. In cases where rent is paid in one lump sum for multiple years, the rent shall be gradually allocated to operating expenses over the number of years the asset is used.

For expenses related to land leasing, credit institutions shall allocate them to expenses over the period of land use as prescribed.

- - Leasing expenses for organizations permitted to provide debt collection services as prescribed by law.

- Commission and agency expenses must be reflected in agency and trust contracts and can only be recorded as expenses based on actual amounts with valid supporting documents. - Brokerage commission expenses: For expenses related to land rental, which are not deductible from the rent payment as prescribed, credit institutions shall allocate them to expenses over the period of land rental use.

- Expenses for leasing organizations permitted to provide debt collection services in accordance with the law.

- Agency commission and entrusted fees must be reflected in agency and entrustment contracts and can only be accounted for as expenses based on the amount due, supported by valid documentation.

- Brokerage commissions:

The payment of brokerage commissions by credit institutions must be linked to the economic efficiency generated by such brokerage activities. Credit institutions shall base on the guidance documents on brokerage commission expenses issued by the Ministry of Finance, their specific conditions and characteristics to establish a regulation on the payment of brokerage commissions to be uniformly and publicly applied within the institution. The Board of Directors of the credit institution shall approve such regulations for application within the unit.

Based on the approved regulations, the General Director (or Director) of the credit institution shall decide on the payment of brokerage commissions for each brokerage activity arising from business operations.

The recipients of brokerage commission payments are organizations and individuals (both domestic and foreign) that provide brokerage services to credit institutions.

Brokerage commissions shall not be applicable to agents of credit institutions, designated customers, management positions, or employees of credit institutions.

The payment of brokerage commissions must be based on contracts or confirmation letters between the credit institution and the recipient of the commission, which must include the following basic contents: name of the commission recipient; details of the payment; amount of the payment; method of payment; time of implementation and completion; responsibilities of both parties.

For brokerage expenses related to leasing assets (including seized assets and debt-for-asset swaps): the maximum amount of brokerage expenses for leasing assets by credit institutions shall not exceed 5% of the total revenue from leasing assets through brokerage activities in a year.

For brokerage expenses related to selling mortgaged or pledged assets: the level of brokerage commissions for selling mortgaged or pledged assets by credit institutions shall not exceed 1% of the actual value received from the sale of such assets through brokerage, and the brokerage expense for selling a single asset shall not exceed 100 million VND.

Expenses for tax and fee payments, land rental fees related to business and service activities (excluding corporate income tax) as prescribed by law.

Other expenses

- Meal expenses during shifts for employees as stipulated by the credit institution in accordance with business efficiency, but the monthly expenditure per employee must not exceed the minimum wage set by the State for civil servants.

- Costs for labor protection equipment for those who need it while working and uniforms for staff working in credit institutions according to the prescribed regulations.

- Severance pay for employees as prescribed by regulations.

- Costs for female workers as prescribed by regulations.

- Payment of membership fees to domestic industry associations in which the credit institution participates at the rate specified by the Association and approved by the Ministry of Finance. For participation in foreign industry associations, the credit institution may account for the membership fees prescribed by foreign industry associations as expenses.

- Costs for Party and mass organization activities at the credit institution (costs outside the budget of the Party and mass organizations funded from the prescribed sources).

- Provisions for reserves in the operation of credit institutions as stipulated in Point 10, Section I, Chapter II of this Circular.

- Costs for participating in Deposit Insurance Organizations as prescribed by law.

- Awards for innovative ideas, increased productivity, and cost-saving measures: in accordance with the principle of being commensurate with the actual benefits achieved. The Board of Directors of the credit institution must establish and publicly announce award regulations within the institution.

- Research and development costs: credit institutions may account for research and development expenditures that bring practical benefits to their business operations, including research aimed at improving technology to enhance business efficiency. Research topics and cost estimates for each project must be approved by the Board of Directors and they must bear responsibility for the effectiveness of these projects.

- Training and educational support costs as prescribed by law.

- Medical expenses including expenditures for employees as currently regulated by the State, beyond the scope of social insurance and employee contributions.

- Expenditure for protecting the organization.

- Costs related to treasury and vault operations.

- Environmental protection costs. If the annual expenditure is significant and has long-term effects, it can be allocated over subsequent years.

Reception, celebration, publicity, advertising, marketing, promotional, external transaction, conference, and other expenses as prescribed by regulations and must be supported by invoices or receipts as required by the Ministry of Finance, linked to the business results of the credit institution. The maximum expenditure level is subject to the legal provisions on corporate income tax.

- Costs for other business activities.

2.2. Other operating expenses:

a. Expenses for selling off and liquidating assets.

b. Remaining value of fixed assets when liquidated or sold off.

c. Expenses for recovering written-off debts and overdue difficult-to-collect debts.

Credit institutions may allocate expenses to legal entities that have contributed to the recovery of written-off debts and overdue difficult-to-collect debts for the credit institution based on their efforts and the effectiveness of their contributions.

Credit institutions shall establish regulations on the allocation of expenses for the recovery of written-off debts and overdue difficult-to-collect debts, submit them to the Board of Directors for approval, and publicly announce these regulations. The General Director (or Director) of the credit institution shall be responsible for these expenses.

The amount of expenses allocated to legal entities contributing to the recovery of written-off debts and overdue difficult-to-collect debts in a year by the credit institution shall not exceed 5% of the recovered debt. The maximum recovery expense for a single debt shall not exceed 150 million VND.

d. Penalties paid due to violations of economic contracts.

e. Losses processed after compensation from sources as stipulated in Point 7, Section I, Chapter II of this Circular.

g. Other reasonable and legitimate expenses.

2.3. Credit institutions shall not include the following items in their expenses:

- Penalties for legal violations caused by individuals acting in their personal capacity and not in the name of the credit institution, such as violations of traffic laws, tax laws, environmental laws, labor laws, reporting and statistical financial accounting systems, and other laws.

- Expenses not related to the credit institution's business activities, expenses without valid supporting documents.

- Expenses covered by other sources of funds.

- Other unreasonable expenses. 

3. Credit institutions that engage in economic activities denominated in foreign currency must convert them into Vietnamese Dong according to the guidelines issued by the Ministry of Finance.

III. DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF FUNDS

The distribution of profits, establishment of funds, and purposes for using these funds by credit institutions shall be carried out in accordance with Articles 21, 22, 23, and 24 of Decree No. 146/2005/NĐ-CP dated November 23, 2005, of the Government.

IV. ACCOUNTING SYSTEMS, STATISTICS, AUDITING, FINANCIAL REPORTING, AND PUBLIC DISCLOSURE OF FINANCIAL INFORMATION:

1. Credit institutions shall implement accounting systems as prescribed by law, record all original vouchers fully, update accounting ledgers, and accurately, timely, truthfully, and objectively reflect all economic and financial activities.

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

3. Credit institutions shall settle their financial accounts and comply fully with regulations on financial reporting, prepare, present, and submit to the Ministry of Finance in accordance with this Circular.

3.1. Content of Financial Reports.

a. Financial Plan Report: credit institutions shall prepare annual financial plans including:

- Capital source plan and capital utilization plan.

- Income and expense plan, business results, and state budget revenue targets.

- Labor force and salary plan.

b. Financial Report: credit institutions shall be responsible for preparing and submitting complete financial reports (including electronic versions):

- Level III account balance sheet of the credit institution, including off-balance-sheet accounts.

- Balance sheet of the credit institution.

- Notes to the financial report, including certain contents (as attached forms):

+ Changes in fixed assets.

+ Report on assets evaluated based on risk levels as prescribed by law.

+ Business results and implementation of state budget revenues.

+ Implementation of labor and salary by the credit institution.

+ Overdue debt situation, non-performing debt recoverable, unrecoverable debt; collateral property situation; largest customer lending situation; investment capital at member units; contribution and share purchase situation.

+ Capital source and utilization situation.

- Independent audit report.

3.2. The Chairman of the Board of Directors and General Director (or Director) of the credit institution shall be responsible for the accuracy and truthfulness of these reports.

3.3. Deadline for Submission of Reports.

a. Deadline for submission of financial plans:

Financial plans prepared by credit institutions must be reviewed and approved by the Board of Directors of the credit institution and submitted to the Ministry of Finance before November 15 of the preceding year. Additionally, state-owned credit institutions must prepare unit price wage plans and state budget revenue plans in accordance with the State Budget Law and other relevant laws.

b. Deadline for submission of financial reports and audit results:

- Quarterly reports must be submitted no later than 45 days after the end of the quarter.

- Annual reports must be submitted no later than 90 days after the end of the fiscal year.

- The independent auditor's audit report on the credit institution's financial statements must be submitted to the Ministry of Finance no later than 120 days after the end of the fiscal year.

3.4. Recipient of Reports.

Credit institutions shall submit financial plans and financial reports to the Ministry of Finance.

4. Public Disclosure of Financial Information for Credit Institutions: credit institutions shall implement public disclosure of financial information in accordance with accounting laws.

5. Auditing Work:

Credit institutions must organize internal audits of their financial reports in compliance with the Law on Credit Institutions.

At least 30 days before the end of the fiscal year, credit institutions must select an independent auditor in accordance with the State Bank of Vietnam and auditing laws to audit their operations. The audit results of the credit institution's financial statements must be submitted to the Ministry of Finance.

V. FINANCIAL INSPECTION AND HANDLING OF VIOLATIONS AGAINST CREDIT INSTITUTIONS:

1. Financial inspections shall be conducted in the following forms:

- Regular or surprise financial inspections.

- - Inspections on specific topics as required by financial management.

2. Handling Violations:

- Credit institutions violating the state's financial regime will be penalized according to the law.

- In cases where credit institutions fail to comply with or fully comply with the financial reporting system stipulated in Point 3, Section IV, Chapter II of this Circular, they will be penalized according to the accounting law.

CHAPTER III

 IMPLEMENTATION

1. This Circular takes effect 15 days from the date of publication in the Official Gazette. This Circular replaces Circular No. 92/2000/TT-BTC dated September 14, 2000, of the Ministry of Finance.

2. Any difficulties encountered during implementation should be reported to the Ministry of Finance for study, consideration, and resolution./.