Directive No. 14/CT-NH1 on Implementing Urgent Measures to Ensure the Quality of Banking Credit Activities

DIRECTIVE

REGARDING THE IMPLEMENTATION OF URGENT MEASURES TO ENSURE THE QUALITY OF BANK CREDIT ACTIVITIES

In recent years, bank credit activities have been reformed based on the principle of "borrowing to lend," with capital mobilization increasing rapidly by 25-30% each year compared to the previous year, basically meeting the capital needs of the economy. The outstanding loans to the economy continue to rise, with the credit structure shifting towards increasing the proportion of loans to non-state economic sectors and medium- to long-term loans, aiming to implement the Party and State's policy on developing a multi-sector economy under a market mechanism and the country's industrialization and modernization efforts.

However, currently, the quality and effectiveness of credit activities are generally still low. Overdue debts are showing an upward trend, with bad debts accounting for a high percentage, including many loans that may not be recoverable. Many negative incidents causing capital losses in credit activities have occurred at some credit organizations.

The poor situation in credit work mentioned above has both objective and subjective causes, among which the main subjective causes are as follows:

1. Many credit organizations have not strictly adhered to current credit regulations and procedures:

- There is no guidance document or there is guidance but it is incomplete regarding the credit business process according to the regulations and procedures of the State Bank.

- Some credit organizations provide loans to customers who do not meet the borrowing conditions stipulated in the State Bank's credit regulations. The calculation, analysis, and review of the economic efficiency of loan projects are insufficient and specific; due to pursuing profit alone, the quality of credit is overlooked. Financial allocation and loan balance assignments are full of loopholes, with cases of blank allocations leading to violations of financial management systems such as credit officers concurrently serving as accountants and treasurers during the lending and debt collection processes; the phenomenon of debt rollover occurs frequently. Insufficient information about customers, especially those borrowing from multiple banks, is gathered; there is a lack of information exchange between credit organizations when lending to the same customer, creating opportunities for fraudsters to deceive...

- Guarantees for domestic and foreign loans, guarantees for deferred payment letters of credit, and guarantees for economic contracts in many cases are not in accordance with regulations, without thorough consideration of the customer's repayment capacity, leading to forced lending to cover debts, which is a factor contributing to increased overdue debts.

2. Some credit organizations do not attach sufficient importance to the credit staff team, assigning personnel who do not meet the standards; they do not adequately focus on training and developing credit staff in terms of professional expertise and moral character. Some staff members have degenerated and changed their nature, being exploited by the wicked, resulting in embezzlement and bribery through improper lending, with inadequate timely detection, replacement, and strict disciplinary action; there is still a tendency to show leniency, hesitation, and cover-up for staff who violate rules.

3. The inspection work of the State Bank and self-inspection by credit organizations in recent times has been strengthened, but in some places it has not been thorough enough, with low effectiveness, lacking serious and decisive measures to handle violations; there are no effective solutions to reduce and prevent overdue debts.

To improve and enhance the quality of current credit activities, the Governor of the State Bank requests the heads of units at the Central Bank, the Governors of the State Bank Branches in provinces and cities, the Chairmen of the Management Boards and General Directors (Directors) of credit organizations to urgently implement the following measures:

1. Focus on directing the resolution of existing issues and violations in credit activities, considering this as the top priority and urgent task in the last months of 1996 and throughout 1997 for the entire banking sector. In the short term, from now until the end of the first quarter of 1997, the following specific tasks must be concentrated and completed:

1.1. Assess the current status of overdue debts:

Credit organizations must organize a reconciliation session with customers regarding deposits and loans to accurately assess the actual status of deposit quality and overdue debts according to each credit organization and each provincial and city area.

- Classify overdue debts: Combining the reconciliation process with the classification of overdue debts, appropriate recovery measures should be taken as follows:

+ Overdue debts under six months are considered regular overdue debts.

+ Overdue debts from six to twelve months are problematic debts requiring special attention.

+ Overdue debts over twelve months are considered difficult-to-collect debts; within difficult-to-collect debts, classify them into two types based on objective and subjective reasons for non-recovery.

+ Debts that are currently being classified according to regulations.

1.2. Organize a campaign to collect problematic overdue debts and difficult-to-collect debts.

- Based on the classified debts, credit organizations should find suitable measures for recovery with the principle of recovering the debts. Organize a campaign to collect problematic overdue debts and difficult-to-collect debts across all credit organizations. Concentrate the forces of the unit, first requiring relevant credit officers, including leaders, involved in causing overdue debts to stop managing other tasks and focus solely on debt collection. Credit organizations with large amounts of overdue debts may need to establish a Debt Collection Steering Committee for a certain period, led by the General Director or Director, to effectively direct debt collection work.

- State Bank branches need to guide and assist credit organizations in their areas, proactively combining with legal authorities to take measures against cases of debt evasion and delay, demanding the auction of collateral assets to collect debts.

2. Regarding cadre work:

- Credit institutions must conduct reviews and reorganize their credit staff teams, supervisory staff, and credit work directing staff. They must ensure sufficient numbers of credit officers and internal supervisors who have the necessary qualifications, capabilities, and moral integrity to fulfill their tasks. Specific measures for retraining and continuous training should be implemented to enhance professional expertise, management skills, and moral qualities; appropriate incentives should be provided for credit officers while also emphasizing material responsibilities for any misconduct leading to losses in credit funds. In terms of direction, the General Director (Director) of credit institutions must directly oversee credit operations.

- Strict disciplinary actions must be taken against staff members, including leaders, who lack a sense of responsibility and intentionally violate credit regulations, resulting in overdue debts, difficult-to-collect debts, and capital losses. Staff members lacking the required qualifications, capabilities, and moral integrity should be reassigned to other positions, and individuals (both within and outside the bank) with illegal acts causing capital loss should be reported to investigative agencies.

- Through party activities and mass organizations, internal struggles should be intensified to identify negative behaviors and take appropriate measures to improve the quality and effectiveness of credit operations.

3. Credit institutions must review guiding documents for credit business procedures and guarantees, and check compliance with credit regulations for affiliated units.

- Any credit institution that has not issued guidance must promptly issue documents guiding credit business procedures; if the guidance is incomplete or incorrect, it must be corrected according to the current credit regulations of the State Bank. These guiding documents for credit business procedures must be submitted to the Central State Bank (Department of Economic Research) for reporting and monitoring, and simultaneously sent to provincial and city branches of the State Bank for coordinated inspection.

- During the process of checking compliance with credit regulation systems, corrections must be made to any violations; lending must strictly follow established procedures based on complete and legal documentation, avoiding superficial formalities; economic efficiency and repayment capacity of new projects must be fully calculated before lending decisions are made; the practice of loan rollovers to artificially reduce overdue loans must be stopped.

- Review financial allocation mechanisms and loan quota systems in some credit institutions to prevent situations where quantity is pursued at the expense of quality due to quota pressure; alongside these mechanisms, strict checks on implementation must be enforced.

- During the review and inspection of compliance with credit regulation systems and guarantees, issues and points no longer suitable should be reflected to the Central State Bank, along with proposed solutions for revision; enhanced work on risk assessment, analysis, and prevention in credit operations is required. The assessment and approval processes for lending must be separated into two independent stages to ensure objectivity and honesty.

4. Continue implementing Directive No. 04/CT-NH3 dated May 17, 1996, of the Governor of the State Bank on strengthening inspection, supervision, and auditing in the banking sector. Inspections must be thorough, regular, and resolute in handling individuals and units violating credit regulations and causing capital losses.

5. Implementation measures:

- Credit institutions and provincial and city branches of the State Bank must develop specific implementation plans for this directive and report to the Governor on their plans and implementation measures by December 5, 1996.

- Directors of provincial and city State Bank branches must report to the People's Committee Chairmen on the status of overdue debts in their areas and propose measures for coordinating functional sectors to handle them.

- Chairmen of Management Boards, General Directors, and Directors of credit institutions must seriously assess their leadership responsibilities and shortcomings regarding overdue debts and difficult-to-collect debts due to subjective reasons; Directors of provincial and city State Bank branches must assess their responsibilities in performing inspection, supervision, and handling overdue debts and difficult-to-collect debts in their areas before the Governor of the State Bank.

- Credit institutions and State Bank branches must report the results of debt classification and progress in collecting overdue debts according to the system and area to the Governor of the State Bank at the end of each month.

The Chief Inspector of the State Bank is responsible for guiding, monitoring, inspecting, and summarizing the results of the implementation of this directive to report to the Governor.