Decision No. 1328/2005/QD-NHNN promulgating the "Regulations on safety ratios in the operations of grassroots credit cooperatives"

DECISION OF THE GOVERNOR OF THE STATE BANK OF VIETNAM

Issuing "Regulations on Safety Ratios in the Operation of Grassroots Credit Cooperatives"

in the operations of grassroots people's credit funds

GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on the State Bank of Vietnam No. 10/2003/QH11 dated June 17, 2003;

Pursuant to the Law on Credit Organizations No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Organizations No. 20/2003/QH11 dated June 15, 2004;

Pursuant to Decree No. 52/2003/NĐ-CP dated September 15, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Pursuant to Decree No. 48/2001/NĐ-CP dated August 13, 2001 of the Government on the organization and operation of Credit Cooperatives and Decree No. 69/2005/NĐ-CP dated May 26, 2005 of the Government amending and supplementing certain provisions of Decree No. 48/2001/NĐ-CP dated August 13, 2001 of the Government on the organization and operation of Credit Cooperatives;

At the proposal of the Director of the Department of Cooperative Credit Organizations,

DECISION:

Article 1. These Regulations on Safety Ratios in the Operation of Grassroots Credit Cooperatives are hereby issued together with this Decision.

Article 2. This Decision takes effect fifteen days from the date of publication in the Official Gazette.

Article 3. The Head of the Office, the Director of the Department of Cooperative Credit Organizations, the Heads of relevant units under the State Bank, the Directors of the State Bank Branches in provinces and centrally-administered cities, the Chairmen of the Management Boards, and the Directors of grassroots credit cooperatives shall be responsible for implementing this Decision./.

REGULATIONS

On safety ratios in the operation

of grassroots credit cooperatives

(Issued together with Decision No. 1328/2005/QĐ-NHNN dated September 6, 2005

of the Governor of the State Bank)

PART I

GENERAL PROVISIONS

Article 1.

1. Grassroots credit cooperatives (hereinafter referred to as credit cooperatives) must maintain the following safety ratios:

a) Minimum capital adequacy ratio.

b) Credit limit for customers.

c) Liquidity ratio.

d) Maximum proportion of short-term funds used for medium- and long-term loans.

d) Capital contribution limit.

2. Based on the results of inspections and examinations by the State Bank Inspectorate regarding the operational situation of credit cooperatives, the State Bank may require credit cooperatives to maintain higher safety ratios than those prescribed in Articles 5 and 8 of these Regulations.

Article 2. In these regulations, the following terms are understood as follows:

1. Total Assets "Risk-Weighted" is the total value of "Assets" of credit cooperatives calculated according to the risk levels specified in Article 6 of these Regulations.

2. Accounts Receivable are on-balance-sheet assets formed from deposits, loans, advances, investments, and other banking operations.

3. Borrower's Real Estate is the residence of a borrowing customer currently in use or rented out but agreed by the tenant to be used as collateral during the rental period.

4. A Customer is a legal entity, individual, household, cooperative group, partnership company, private enterprise, and other entities as prescribed by law that are members of credit cooperatives, depositors at credit cooperatives, poor households residing within the operating area of credit cooperatives, and have credit relationships with credit cooperatives.

5. Related Customer Group includes two or more customers having credit relationships with credit cooperatives and related to each other in any of the following cases:

a) An individual customer holding at least 25% of the charter capital of a legal entity which is a customer of the credit cooperative.

b) An individual customer being a member of a household (as defined by the Civil Code) which is a customer of the credit cooperative or in which there are other individuals also being customers of the credit cooperative (except where members of the same household participate in transactions with the credit cooperative as independent subjects bearing responsibility with their own assets).

c) An individual customer being a member of a cooperative group (as defined by the Civil Code) which is a customer of the credit cooperative.

d) An individual customer being a general partner of a partnership company which is a customer of the credit cooperative.

đ) An individual customer being the owner of a private enterprise which is a customer of the credit cooperative.

e) An individual customer holding a position as a member of the management, operation, and control body of a legal entity which is a customer of the credit cooperative.

g) A legal entity customer holding at least 50% of the charter capital of another legal entity which is a customer of the credit cooperative.

h) A legal entity customer being a customer of the credit cooperative whose representative holds a position as a member of the management, operation, and control body of another legal entity which is also a customer of the credit cooperative.

6. Total Loan Outstanding includes standard loans, loans requiring close attention, substandard loans, doubtful loans, and loans with potential losses of credit cooperatives.

Chapter II

SPECIFIC PROVISIONS

Section 1

OWN CAPITAL

Article 3.

1. The own capital of credit cooperatives includes:

a) Tier 1 Capital:

- Charter capital

- Non-repayable capital contributions from organizations and individuals to credit cooperatives.

- Investment in construction and fixed asset purchases (excluding the increase in value of fixed assets due to revaluation as prescribed by law)

- Supplementary reserve fund for charter capital.

- Financial reserve fund.

- Development investment fund.

- Undistributed profits (if any).

Tier 1 capital is used as the basis for determining the limit on purchasing and investing in fixed assets by credit cooperatives.

b) Tier 2 Capital:

- 50% of the increase in value of fixed assets due to revaluation as prescribed by law.

- General provision, maximum equal to 1.25% of total risk-weighted assets.

2. Limitations when determining Tier 2 capital:

The total value of Tier 2 capital cannot exceed 100% of the value of Tier 1 capital.

Article 4. Items to be deducted from own capital:

1. The entire decrease in value of fixed assets due to revaluation as prescribed by law.

2. The total capital of credit cooperatives invested in the Central Credit Cooperative.

3. Business losses, including accumulated losses.

Section 2

MINIMUM CAPITAL ADEQUACY RATIO

Article 5.

1. Credit cooperatives must maintain a minimum capital adequacy ratio of 8% between own capital and total risk-weighted assets.

2. The method for calculating the minimum capital adequacy ratio is specified in Appendix A of these Regulations.

Article 6. "Assets" are classified into risk categories as follows:

1. Category of "Assets" with a risk weight of 0% includes:

a) Cash.

b) Gold (if any).

c) Deposits at the Central Credit Cooperative to maintain the liquidity reserve of the credit cooperative system (if any).

d) Deposits at the State Bank.

đ) Loans made with entrusted investment funds under entrusted contracts where the Credit Union only receives commission fees and does not bear risks.

e) Loans secured by deposit certificates issued by the Credit Union itself.

g) Receivables from the Government of Vietnam including government bonds and treasury bills.

h) Loans secured by securities issued by the Government and the State Bank of Vietnam.

2. The asset category "Assets" with a risk weight of 20% includes:

a) Deposits at other credit institutions (excluding deposits at the Central People's Credit Union to maintain liquidity reserves for the system of People's Credit Unions).

b) Loans to other credit institutions (if any).

3. The asset category "Assets" with a risk weight of 50% includes:

a) Loans secured by real estate owned by the borrower.

b) The residual value of fixed assets of the Credit Union.

4. The asset category "Assets" with a risk weight of 100% includes:

a) Loans secured by assets other than real estate owned by the borrower.

b) Unsecured loans to the borrower.

c) Other receivables except those specified in Clauses 1, 2, and 3 of this Article (excluding the capital contributed by the Credit Union to the Central People's Credit Union).

Section 3

CREDIT LIMITS FOR CUSTOMERS

Article 7.

1. Based on this Regulation, current regulations of the State Bank, and actual operations, the Credit Union must establish and issue internal documents to define and classify a customer, a related group of customers, credit limits applicable to a customer, a related group of customers, including the following contents:

a) Criteria for identifying a customer, a related group of customers as stipulated in Clauses 4 and 5 of Article 2 of this Regulation.

b) Credit extensions applicable to a customer, a related group of customers, decision-making authority for granting loans to a customer, a related group of customers.

c) Limits, maximum loan ratios in total outstanding loans for each type of member and non-member customers (customers borrowing with guarantees by deposit certificates issued by the Credit Union, poor households residing within the operational area of the Credit Union).

d) Methods for monitoring loans exceeding 5% of the Credit Union's own capital.

2. The Credit Union must submit the internal regulation mentioned in Clause 1 of this Article to the State Bank Branch in the province or city for reporting and management purposes.

3. At least once every six months or in special cases when necessary, the Board of Directors of the Credit Union must review and evaluate the internal regulations stipulated in Clause 1 of this Article and the implementation of these regulations to develop appropriate solutions to adjust, supplement, or amend them to ensure safety in the operation of the Credit Union.

Article 8. The Credit Union's lending limits to customers are as follows:

1. The total outstanding loans of the Credit Union to a single customer shall not exceed 15% of the Credit Union's own capital.

2. The total outstanding loans to poor households that are not members shall not exceed 10% of the total outstanding loans of the Credit Union.

3. The total outstanding loans of the Credit Union to a related group of customers as stipulated in Points b and đ of Clause 5 of Article 2 of this Regulation shall not exceed 20% of the Credit Union's own capital, with the loan amount to a single customer not exceeding the ratio specified in Clause 1 of this Article.

4. The total outstanding loans of the Credit Union to a related group of customers as stipulated in Points a, c, d, e, g, and h of Clause 5 of Article 2 of this Regulation shall not exceed 30% of the Credit Union's own capital, with the loan amount to a single customer not exceeding the ratio specified in Clause 1 of this Article.

Article 9. The limits prescribed in Article 8 of this Regulation shall not apply to the following cases:

1. Loans from entrusted funds of the Government and other organizations.

2. Loans to other credit institutions operating in Vietnam with a term of less than one year (if any).

3. Loans secured by deposit certificates issued by the Credit Union itself.

Section 4

LIQUIDITY RATIO

Article 10.

1. The Credit Union must base its internal regulations on this Regulation, other laws, and actual operations to establish and issue internal documents to manage liquidity and ensure safety in the operation of the Credit Union, mainly including the following contents:

a) Assigning staff to monitor the Credit Union's ability to meet payment obligations.

b) Proposing forecasts and plans (including contingency plans) to ensure the Credit Union's ability to meet payment obligations in case of temporary liquidity shortages, as well as in case of potential insolvency.

c) Regulations on cash management, income and expenditure, daily sources of funds, and holding securities easily convertible to cash.

2. The Credit Union must submit the internal regulations mentioned in Clause 1 of this Article to the State Bank Branch in the province or city for reporting and management purposes.

Article 11.

1. By the end of each working day, the Credit Union must maintain a minimum ratio of 1 between immediately liquid assets and immediate liabilities of the next working day.

2. The Credit Union must ensure a minimum liquidity ratio of 1 between total immediately liquid assets and total immediate liabilities over the next seven working days.

Article 12.

1. Immediately liquid assets include:

a) Cash.

b) Gold (if any).

c) Deposits at the State Bank.

d) The larger difference between the demand deposits of the Credit Union at other credit institutions and the demand deposits of those credit institutions at the Credit Union.

đ) Demand deposits at other credit institutions due for repayment (principal and interest) within the periods specified in Clauses 1 and 2 of Article 11 of this Regulation.

e) 80% of loans secured by assets due for repayment (principal and interest) within the periods specified in Clauses 1 and 2 of Article 11 of this Regulation.

g) Seventy-five percent of unsecured loans due for repayment (principal and interest) within the corresponding period specified in Clauses 1 and 2 of Article 11 of this Regulation.

h) Types of government securities and bonds:

- One hundred percent of the book value for government securities and bonds with remaining terms of less than one year;

- Ninety-five percent of the book value for government securities and bonds with remaining terms of more than one year;

i) Seventy percent of other debts due for collection.

2. Assets "Debt" to be paid include:

a) The larger difference between deposits made by other credit institutions at the Credit Union and deposits made by the Credit Union at such credit institution due for repayment (principal and interest) within the corresponding period specified in Clauses 1 and 2 of Article 11 of this Regulation.

b) Fifteen percent of demand deposits of organizations (excluding deposits of other credit institutions) and individuals.

c) All other assets "Debt" due for repayment (principal and interest) within the corresponding period specified in Clauses 1 and 2 of Article 11 of this Regulation.

3. The Credit Union shall base on the provisions of Clauses 1 and 2 of this Article to comply with the regulations on liquidity ratios stipulated in Article 11 and implement the preparation of a table analyzing immediately payable assets "Have" and debt assets "Debt" to be paid according to Appendix B of this Regulation.

Section 5

MAXIMUM RATIO OF SHORT-TERM FUNDS USED FOR MEDIUM-TERM AND LONG-TERM LOANS; CAPITAL CONTRIBUTION LIMITS

MEDIUM-TERM AND LONG-TERM; LIMITS ON CAPITAL CONTRIBUTIONS

Article 13.

1. The maximum ratio of short-term funds of the Credit Union used for medium-term and long-term loans is twenty percent.

2. Short-term funds of the Credit Union used for medium-term and long-term loans include:

a) Demand deposits and time deposits under twelve months of organizations (including other credit institutions) and individuals.

b) Demand savings deposits and time savings deposits under twelve months of individuals.

Article 14. The Credit Union may use charter capital and additional reserve fund for capital contribution to the Central People's Credit Union. The amount of capital contribution to establish membership status in the Central People's Credit Union is ten million Vietnamese dong (VND 10,000,000) and can contribute above VND 10,000,000 but not exceeding twenty percent (twenty percent) of the charter capital and additional reserve fund of the Credit Union and ten percent (ten percent) of the charter capital of the Central People's Credit Union at the time of capital contribution and transfer.

Chapter 6

REPORTING, HANDLING VIOLATIONS

Article 15. The Credit Union reports on the implementation of safety ratio regulations as prescribed in current regulations of the Governor of the State Bank of Vietnam regarding statistical reporting systems applicable to units under the State Bank of Vietnam and credit institutions.

Article 16. For violations of the provisions of this Regulation by the Credit Union, depending on the nature and degree of violation, they will be handled according to the law on administrative penalties in the field of currency and banking activities.

Chapter III

IMPLEMENTING PROVISIONS

Article 17. Amendments and supplements to the Articles and Clauses of this Regulation shall be decided by the Governor of the State Bank of Vietnam./.