Circular No. 128/2021/TT-BTC guiding certain provisions of the Government's Decree No. 46/2021/NĐ-CP dated March 31, 2021 on financial management systems and performance evaluation for the Vietnam Development Bank

CIRCULAR

GUIDELINES FOR CERTAIN PROVISIONS OF THE GOVERNMENT DECREE NO. 46/2021/NĐ-CP OF MARCH 31, 2021 ON THE FINANCIAL MANAGEMENT REGIME AND ASSESSMENT OF EFFICIENCY OF OPERATIONS FOR THE VIETNAM DEVELOPMENT BANK

On the basis of Law on State Budget June 25, 2015;

On the basis of Law on Public Investment September 13, 2019;

Decree No. 87/2017/NĐ-CP July 26, 2017 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Decree No. 46/2021/NĐ-CP March 31, 2021 Government Decree on the financial management regime and assessment of efficiency of operations for the Vietnam Development Bank;

At the proposal of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance issues this Circular to provide guidelines for certain provisions of Government Decree No. 46/2021/NĐ-CP March 31, 2021 Government Decree on the financial management regime and assessment of efficiency of operations for the Vietnam Development Bank.

Article 1. Scope of Regulation

This Circular provides guidelines for certain contents regarding the financial management regime, assessment of efficiency of operations, and evaluation of classification of managers of the Vietnam Development Bank (hereinafter referred to as the Vietnam Development Bank) as stipulated in Government Decree No. 46/2021/NĐ-CP dated March 31, 2021 (hereinafter referred to as Decree No. 46/2021/NĐ-CP).

Article 2. Applicability

1. The Vietnam Development Bank.

2. The agency representing the state capital at the Vietnam Development Bank.

3. Relevant organizations and individuals.

Article 3. Raised Capital and Core Capital of the Vietnam Development Bank

1. The Vietnam Development Bank raises various sources of capital in accordance with Clause 2, Article 6 of Decree No. 46/2021/NĐ-CP and ensures the following principles:

a) Ensuring limits and ratios to ensure safety in the operation of the Vietnam Development Bank as guided by the State Bank of Vietnam;

b) In cases where the Vietnam Development Bank issues government-guaranteed bonds to raise capital, it must ensure compliance with the guaranteed issuance limit for bonds for the Vietnam Development Bank decided by the Prime Minister, and the interest rate on issuance shall be implemented within the framework set by the Ministry of Finance;

c) In cases where the Vietnam Development Bank raises capital through domestic credit institutions' loans and deposits from other domestic organizations: The Vietnam Development Bank shall comply with the relevant laws, and the deposit interest rate shall not exceed the highest deposit interest rate of the same term or equivalent term (in case of different terms) announced on the official website or interest rate announcement document of four banks including: Vietnam Agriculture and Rural Development Bank, Vietnam Joint Stock Commercial Investment and Development Bank, Vietnam Joint Stock Commercial Foreign Trade Bank, and Vietnam Joint Stock Commercial Industrial and Commercial Bank;

d) In cases where the Vietnam Development Bank borrows from the State Bank of Vietnam, the borrowing interest rate shall be implemented according to the regulations of the State Bank of Vietnam;

đ) The raising of other sources of capital shall be carried out in accordance with the law, and the Vietnam Development Bank shall bear responsibility for its decisions.

2. The core capital of the Vietnam Development Bank shall be determined in accordance with Article 7 and Clause 1, Article 40 of Decree No. 46/2021/NĐ-CP, based on the quarterly standalone financial report to determine the credit limit for the next quarter.

Article 4. Principles of Capital and Asset Management

1. The Vietnam Development Bank has the responsibility to monitor all existing capital and assets, implement full, accurate, truthful, and timely accounting and reflection of the situation of capital and asset usage and changes during the course of operations in accordance with current accounting and statistical regulations; clearly define the responsibilities of each department and individual for cases of asset damage or loss; comply with the regulations on ensuring operational capital safety and asset management under Decree No. 46/2021/NĐ-CP.

2. The Vietnam Development Bank may use capital to carry out activities specified in Clause 1, Article 8 of Decree No. 46/2021/NĐ-CP. Specifically, for the activity of buying, selling, discounting, and rediscounting negotiable instruments, the Vietnam Development Bank can only conduct these activities with negotiable instruments including: Government Bonds; Government-Guaranteed Bonds; Local Government Bonds; Central Bank Bills in accordance with the law.

Article 5. Provision for Risk Reserves

1. The Development Bank shall establish risk reserve provisions for credit risks and other reserves in accordance with Articles 16, 17, and 18 of Decree No. 46/2021/NĐ-CP and the provisions set forth in Clause 2 of this Article.

2. Principles and Procedures for Establishing Risk Reserve Provisions

a) For risk reserve provisions related to investment credit, export credit, mandatory guaranteed loans, the Development Bank shall annually establish such provisions at 0.75% of the total outstanding balance of these activities, including cases where the Development Bank's income and expenditure difference is negative.

b) For risk reserve provisions related to other loan credits, the Development Bank shall establish such provisions in accordance with Clause 2 of Article 16 of Decree No. 46/2021/NĐ-CP.

c) In the case where the income and expenditure difference of the Development Bank in the fiscal year after establishing risk reserve provisions according to points a and b is positive:

- Based on the need to use risk reserve provisions to handle non-performing loans in the following year, the Board of Directors of the Development Bank shall decide on the additional amount of risk reserve provisions for investment credit, export credit, and mandatory guaranteed loans.

- After fully establishing risk reserve provisions for investment credit, export credit, and mandatory guaranteed loans according to the required provision levels stipulated in Clause 2 of Article 15 of Decree No. 46/2021/NĐ-CP and without accumulated losses, the Development Bank shall establish other risk reserve provisions in accordance with Article 18 of Decree No. 46/2021/NĐ-CP.

3. Cost of Capital Raising for Calculating Risk Reserve Provisions for Other Loans

a) For loans made by the Development Bank tied to specific capital raising sources, the cost of capital raising is determined by the interest and fees paid by the Development Bank for that capital raising.

b) For the remaining outstanding balances of other loans funded from the Development Bank’s general capital raising pool, the cost of capital raising is determined based on the average interest rate of capital raising as follows:

Where: The average interest rate on capital raising is determined in accordance with Clause 2 of Article 6 of this Circular.

4. The Development Bank shall manage and monitor the risk reserve fund for investment credit, export credit, and mandatory guaranteed loans and the risk reserve fund for other loans in accordance with Article 17 of Decree No. 46/2021/NĐ-CP.

5. Timing for Recording Risk Reserve Provisions

By the twentieth day of the first month of the subsequent quarter, the Development Bank shall record the temporary risk reserve provisions of the previous quarter in accordance with Article 16 of Decree No. 46/2021/NĐ-CP.

For the last quarter of the accounting year, the Development Bank shall determine the risk reserve provisions required for the accounting year in accordance with Article 16 of Decree No. 46/2021/NĐ-CP and record the accounting entries at the year-end settlement time.

Article 6. Determination of Interest Subsidy Amounts

1. Formula for Determining the Interest Subsidy Amount

The amount of interest subsidy provided to the Development Bank is determined by the total amount of interest rate differential subsidy for implementing state credit investment and export credit tasks, fulfilling the guarantee obligations for small and medium-sized enterprises borrowing from commercial banks under signed guarantee contracts in accordance with the law (referred to as interest rate differential subsidy) and the post-investment support subsidy for post-investment support contracts arising before the effective date of Government Decree No. 32/2017/NĐ-CP dated March 31, 2017 on state investment credit (referred to as post-investment support subsidy), specifically as follows:

2. Formula for Determining the Interest Rate Differential Subsidy Amount:

Where:

a) Total Capital Raising Costs Eligible for Subsidy:

The total capital raising costs eligible for subsidy include the total interest on capital raising and issuance costs of securities (excluding interest) actually paid by the Development Bank to raise funds for: lending projects eligible for interest rate differential subsidy; reserve cash balances eligible for subsidy. The total capital raising costs eligible for subsidy are determined specifically as follows:

Where:

- The subsidized capital source is the capital used by the Development Bank to lend to projects eligible for subsidy and reserve cash balances eligible for subsidy:

Where:

+ The average outstanding balance of loans to projects eligible for subsidy as prescribed by law, excluding loans to ineligible borrowers or for improper purposes.

+ The reserve cash balance eligible for subsidy is determined by the average actual cash balance, deposits at the State Bank, and deposits at other financial institutions of the Development Bank but not exceeding 5.3% of the average outstanding balance of loans to projects eligible for subsidy.

- Non-interest-bearing capital includes: the Development Bank's charter capital; revaluation gains and exchange rate differences; supplementary capital reserve funds and development investment funds; undistributed profits from previous quarters and years; state budget construction investment capital and other assets owned by the Development Bank. When determining non-interest-bearing capital, the Development Bank calculates the average after excluding:

+ The residual value of fixed assets (determined by the original cost of fixed assets minus accumulated depreciation) and unfinished construction costs but not exceeding 25% of the Development Bank's charter capital and supplementary capital reserve funds.

+ The actual contributed charter capital of Vietnam Infrastructure Development and Financial Investment Corporation and other organizations (if any) as prescribed by law.

- Average Capital Raising Interest Rate

Where:

+ The total actual payment for capital raising is the total interest on capital raising and issuance costs of securities (excluding interest) actually paid by the Development Bank (excluding the costs of raising funds from foreign financial and credit organizations and foreign government loan repayment funds for programs and projects not eligible for interest rate differential subsidy).

||| The mobilized capital source is determined according to the provisions of Clause 2, Article 6 of Decree No. 46/2021/NĐ-CP, excluding sources of loans from financial organizations and credit institutions abroad and the capital borrowed to refinance foreign loans of the Government for programs and projects not subsidized with interest rate differential.

||| b) Total income from the use of capital, including:

||| - Interest income from lending is determined by the total actual interest received from projects that are subsidized (including both on-time and overdue interest);

||| - The amount of interest income from deposits derived from the remaining capital that is subsidized is determined as follows:

Where:

||| 3. The method of determining the average figures mentioned in Clause 2 of this Article is as follows:

||| 4. The time of accounting for interest rate differential subsidies of the Development Bank

||| a) Not later than the 20th day of the first month of the following quarter, the Development Bank shall account for the provisional interest rate differential subsidy of the previous quarter according to the provisions of Clauses 1, 2, and 3 of this Article;

||| b) Specifically, for the last quarter of the accounting year, the Development Bank shall determine the interest rate differential subsidy for the accounting year according to the provisions of Clauses 1, 2, and 3 of this Article and shall account for it at the year-end settlement time.

||| 5. Formula for determining the post-investment support amount:

||| The level of post-investment support is determined according to the legal provisions applicable during each period for post-investment support contracts arising before the effective date of Decree No. 32/2017/NĐ-CP dated March 31, 2017 of the Government on state investment credit.

||| Article 7. Content of the Financial Plan of the Development Bank

||| The annual financial plan of the Development Bank is implemented according to the provisions of Article 29 of Decree No. 46/2021/NĐ-CP, including:

||| 1. Capital source and utilization plan according to Appendix I issued together with this Circular;

||| 2. Interest rate and management fee subsidy plan according to Appendix II issued together with this Circular;

||| 3. Income, expense, and financial result plan according to Appendix III issued together with this Circular;

||| 4. Investment construction, procurement, upgrade, and modernization asset plan according to Appendix IV issued together with this Circular;

||| 5. Labor and salary plan according to Appendix V issued together with this Circular;

||| 6. Post-investment support grant plan according to Appendix VI issued together with this Circular;

||| Article 8. Method of Determining Annual Performance Evaluation Indicators of the Development Bank

||| The criteria for evaluating the annual performance of the Development Bank according to Clause 1, Article 32 of Decree No. 46/2021/NĐ-CP are determined as follows:

||| 1. Criterion 1: State investment credit is determined based on the calculation data of the implementation of indicators in the state investment credit plan assigned annually by the Prime Minister and the debt repayment plan for principal and interest of state investment credit assigned annually by the Ministry of Finance to the Development Bank.

||| 2. Criterion 2: Non-performing loan ratio is the ratio between the balance of non-performing loans of the Development Bank's risky debts and the total balance of the Development Bank's risky debts. The determination of the non-performing loan balance is carried out according to the regulations of the State Bank of Vietnam on classifying assets and off-balance sheet commitments of the Development Bank.

||| 3. Criterion 3: Financial results are the difference between income and expenses incurred in the evaluation year, determined according to the audited individual financial statements of the Development Bank.

||| 4. Criterion 4: Compliance with laws on investment, management, and use of state capital at the Development Bank for transactions occurring in the evaluation year. The administrative fine amount recorded in the administrative penalty decision for violations discovered during the fiscal year being evaluated serves as the basis for classification assessment, excluding the amount required to be paid to implement remedial measures.

||| 5. Criterion 5: Compliance with reporting systems as stipulated in Article 31 of Decree No. 46/2021/NĐ-CP.

Article 9. Methods for evaluating the effectiveness of operations of the Development Bank

1. Criterion 1: State investment credit

a) The Development Bank is classified as Class A when it achieves at least 90% of the annual state investment credit plan assigned by the Prime Minister and the annual plan for collecting principal and interest assigned by the Ministry of Finance;

b) The Development Bank is classified as Class B when it achieves from 80% to less than 90% of the annual state investment credit plan assigned by the Prime Minister and the annual plan for collecting principal and interest on investment credit assigned by the Ministry of Finance;

c) The Development Bank is classified as Class C when it achieves less than 80% of the annual state investment credit plan assigned by the Prime Minister and the annual plan for collecting principal and interest on investment credit assigned by the Ministry of Finance.

2. Criterion 2: Non-performing loan ratio

a) The Development Bank is classified as Class A when the non-performing loan ratio is equal to or lower than the assigned plan;

b) The Development Bank is classified as Class B when the non-performing loan ratio is higher but does not exceed 110% of the assigned plan;

c) The Development Bank is classified as Class C when the non-performing loan ratio exceeds 110% of the assigned plan.

3. Criterion 3: Financial results

a) The Development Bank is classified as Class A when it achieves the assigned plan or higher;

b) The Development Bank is classified as Class B when it achieves less than the assigned plan but at least 90% of the assigned plan;

c) The Development Bank is classified as Class C when it achieves less than 90% of the assigned plan.

4. Criterion 4: The situation regarding compliance with laws on investment, management, and use of state capital at the Development Bank for business transactions occurring during the evaluation year.

a) The Development Bank is classified as Class A when it is not penalized administratively by competent authorities during the evaluation year; in cases where administrative penalties are imposed, the following must be ensured:

a1) For violations in the monetary and banking sector:

- Not being penalized administratively by competent authorities for acts such as fraud, deceit, forgery; anonymous, impersonation; destruction, damage to Vietnamese currency; illegal business activities; providing false information; stealing information; data theft as prescribed by the Government's regulations on administrative penalties in the monetary and banking sectors;

- For other violations that are penalized administratively by competent authorities, the amount of fine payable for each violation must be within the lower half of the penalty range;

a2) For violations in the tax and invoice sector: Not being penalized administratively by competent authorities for acts of tax evasion in the tax and invoice sectors as prescribed by the Government;

a3) For other violations: Being penalized administratively by competent authorities, the amount of fine payable for each violation must be within the lower half of the penalty range;

a4) The number of branches (including headquarters) penalized does not exceed ten percent of the total number of branches of the Development Bank.

b) The Development Bank is classified as Class C if it violates any of the following situations:

b1) Being penalized administratively by competent authorities through fines during the evaluation year for acts including:

- Violations in the monetary and banking sector such as fraud, deceit, forgery; anonymous, impersonation; destruction, damage to Vietnamese currency; illegal business activities; providing false information; stealing information; data theft as prescribed by the Government's regulations on administrative penalties in the monetary and banking sectors;

- Tax evasion acts as prescribed by the law on administrative penalties for taxes and invoices;

- Other violations where the amount of fine payable for each violation is at the maximum level of the penalty range;

- Being subject to compulsory enforcement of administrative penalty decisions due to non-compliance;

b2) The number of branches (including headquarters) penalized exceeds twenty percent of the total number of branches of the Development Bank;

b3) Management personnel of the Development Bank commit criminal offenses during the performance of their duties to the extent that they are prosecuted criminally by competent authorities during the evaluation year;

c) The Development Bank is classified as Class B if it does not fall under the above-mentioned Class A and Class C classifications.

5. Criterion 5: Compliance with reporting systems as stipulated in Article 31 of Decree No. 46/2021/NĐ-CP dated March 31, 2021:

a) The Development Bank is classified as Class A when it is not reminded in writing by competent authorities or is reminded in writing no more than twice about failing to comply with the reporting system as stipulated in Article 31 of Decree No. 46/2021/NĐ-CP, either not in accordance with regulations or not within deadlines for each type of report during the evaluation year;

b) The Development Bank is classified as Class C when it fails to submit reports or is reminded in writing more than three times by competent authorities about failing to comply with the reporting system as stipulated in Article 31 of Decree No. 46/2021/NĐ-CP, either not in accordance with regulations or not within deadlines for each type of report during the evaluation year;

c) The Development Bank is classified as Class B if it does not fall under the above-mentioned Class A and Class C classifications.

6. When calculating evaluation criteria for operational effectiveness, if factors affecting the assessment results according to Clause 3 of Article 32 of Decree No. 46/2021/NĐ-CP have an impact, the Development Bank will calculate and quantify to adjust the assessment results.

Article 10. Summary of Classification Results for Development Banks

1. A Development Bank shall be classified as Class A if it does not meet the criteria for Class C classification, provided that Criteria 1 and Criterion 2 are both classified as Class A according to the provisions of Article 9 of this Circular.

2. A Development Bank shall be classified as Class C if either Criterion 1 or Criterion 2 is classified as Class C, or if Criterion 1 and Criterion 2 are both classified as Class B and the remaining criteria are classified as Class C according to the provisions of Article 9 of this Circular.

3. In all other cases, a Development Bank shall be classified as Class B.

4. Annually, based on the effectiveness evaluation criteria set forth in this Circular and the targets assigned by the Ministry of Finance, the Development Bank shall report on its operational effectiveness and classification to the Ministry of Finance for review and approval of the classification of the Development Bank. The deadline for submitting the report is no later than sixty (60) days from the date of the financial statement audit results.

5. The Ministry of Finance shall review and provide comments on the classification results of the Development Bank within thirty (30) working days from the date of receipt of the Development Bank's full report.

Article 11. Evaluation and Classification of Management Personnel at Development Banks

The annual quality assessment and classification of management personnel at Development Banks, including those holding positions such as Chairman of the Board of Directors, Board Members, General Director, Deputy General Director, Chief Accountant, and members of the Supervisory Board, shall be conducted in accordance with the provisions of Chapter III of Decree No. 159/2020/NĐ-CP dated December 31, 2020, issued by the Government on the management of individuals holding positions and state capital representatives in enterprises, and any subsequent amendments or supplements thereto.

Article 12. Reporting System

1. The Development Bank shall be responsible for preparing and submitting reports (including financial statements, business operation reports, and operational status reports) in accordance with the provisions of Article 31 of Decree No. 46/2021/NĐ-CP.

2. Data closing period:

a) For quarterly reports: From the first day of the reporting quarter to the last day of the reporting quarter;

b) For mid-year reports: From January 1st of the reporting year to June 30th of the reporting year;

c) For annual reports: From January 1st of the reporting year to December 31st of the reporting year.

3. Deadline for submitting reports:

a) Quarterly reports: No later than thirty (30) days from the end of the fiscal quarter;

b) Mid-year reports: No later than sixty (60) days from the end of the six-month period of the fiscal year;

c) For annual reports:

- For unaudited annual financial statements and annual business operation reports: No later than ninety (90) days from the end of the fiscal year;

- For audited annual financial statements: No later than thirty (30) days from the date of the financial statement audit results;

- For annual reports on operational effectiveness and classification of Development Banks: To be carried out in accordance with the deadlines stipulated in Clause 4 of Article 10 of this Circular.

d) If the last day of the report submission deadline falls on a public holiday or weekend, the submission deadline will be the next working day following that date.

4. Methods of submitting reports:

The Development Bank shall submit the reports specified in Clause 1 of this Article through one of the following methods:

a) Directly in paper form;

b) Through postal service in paper form;

c) Sending via specialized information reporting software system in electronic form (if available);

d) Other methods as prescribed by law.

5. Report forms:

a) Financial Statements/Finalized Financial Reports as stipulated in Clause 2 of Article 31 of Decree No. 46/2021/NĐ-CP: To be implemented in accordance with the accounting regulations of the Development Bank;

b) Non-performing loan classification report as per Appendix VII attached to this Circular;

c) Loan loss provision report as per Appendix VIII attached to this Circular;

d) Semi-annual/yearly operational status report of the Development Bank as per Appendix IX attached to this Circular;

đ) Annual report on operational effectiveness and classification of the Development Bank as per Appendix X attached to this Circular.

6. Within thirty (30) working days from receiving the financial statements and semi-annual operational status reports, and within forty (40) working days from receiving the annual financial statements and annual operational status reports of the Development Bank as stipulated in point c and point d of Clause 5 of Article 31 of Decree No. 46/2021/NĐ-CP, the Ministry of Finance shall compile a report to the Prime Minister on the operational status of the Development Bank after soliciting opinions from the Ministry of Planning and Investment and the State Bank of Vietnam.

Article 13. Transitional Provisions

The Development Bank shall reverse the balance of the Unemployment Assistance Reserve Fund that was transferred to other income in 2021 from the effective date of this Circular.

Article 14. Implementation organization and effectiveness

1. This Circular shall take effect from the date of signature.

2. Circular No. 111/2007/TT-BTC dated September 12, 2007, Circular No. 67/2016/TT-BTC dated April 29, 2016, and Circular No. 26/2020/TT-BTC dated April 14, 2020 of the Ministry of Finance shall cease to be effective from the date this Circular takes effect.

3. The Board of Directors, General Director of the Development Bank, and related organizations and individuals are responsible for implementing the provisions of this Circular.

4. In the course of implementation, if there are difficulties or obstacles, it is requested that relevant agencies and units report to the Ministry of Finance for study and resolution./.