Decree No. 146/2005/ND-CP on Financial Regime for Credit Organizations

DECREE OF THE GOVERNMENT

Regarding the financial regime for credit organizations

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

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. 20/2004/QH11 dated June 15, 2004;

Pursuant to the Enterprise Law No. 13/1999/QH10 dated June 12, 1999;

Pursuant to the State-Owned Enterprise Law No. 14/2003/QH11 dated November 26, 2003;

At the proposal of the Minister of Finance,

DECREE:

PART I
GENERAL PROVISIONS

Article 1. Scope of application

This Decree stipulates the financial regime for credit organizations established, organized, and operating in accordance with the Law on Credit Organizations 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Organizations No. 20/2004/QH11 dated June 15, 2004.

Article 2. Financial management principles

1. Credit organizations shall be autonomous in finance, bear responsibility for their business operations, and fulfill their obligations and commitments as prescribed by law.

2. Credit organizations must conduct financial transparency.

Article 3. The Chairman of the Board of Directors and the General Director (or Director) of a credit organization shall be responsible under the law and before state management agencies for compliance with the financial, accounting, and auditing regimes of credit organizations.

Article 4. The Ministry of Finance shall perform the state management function over the finances of credit organizations, provide guidance and inspect the implementation of the financial regime for credit organizations in accordance with the provisions of the law.

Chapter II
MANAGEMENT AND USE OF CAPITAL AND ASSETS

Article 5. The working capital of credit organizations includes:

1. Shareholders' equity:

a) Registered capital;

b) Amounts arising from revaluation of assets and exchange rate differences as prescribed by law;

c) Capital surplus;

d) Supplementary capital reserve funds, business development investment funds, and financial contingency reserves;

đ) Retained earnings.

2. Raised capital:

a) Deposits raised from organizations and individuals;

b) Loans from domestic and foreign credit organizations;

c) Loans from the State Bank;

d) Issuance of securities.

3. Other capital as prescribed by law.

Article 6. During the course of operation, credit organizations must ensure that the actual paid-in registered capital does not fall below the statutory level set by the Government for each type of credit organization. When there is a change in the registered capital, the credit organization must publicly announce the new amount of registered capital.

Article 7. Use of capital and assets

1. Credit organizations may use working capital for business activities as prescribed by the Law on Credit Organizations, ensuring safety and capital growth. Credit organizations may only use up to 50% of their Tier 1 capital (as guided by the State Bank) for investments in fixed assets and must comply fully with state regulations on investment and construction management.

2. Credit organizations have the right to adjust their capital and asset structure to serve the development of business activities.

3. The transfer of capital and assets between branches or independent subsidiaries of credit organizations shall be carried out in accordance with the provisions of the Board of Directors.

Article 8. Contribution of capital, purchase of shares

1. Credit organizations may use registered capital and reserve funds to contribute capital or purchase shares of enterprises and other credit organizations in accordance with the law.

2. The Board of Directors of a credit organization decides or delegates the General Director (or Director) of the credit organization to decide on contributions of capital or purchases of shares of enterprises and other credit organizations in accordance with the law.

3. Credit organizations may contribute capital through joint ventures using the value of land use rights in accordance with the law on land.

4. Credit organizations may not purchase shares or contribute capital to other enterprises where the managers, directors, or major shareholders of such enterprises are spouses, parents, children, or full siblings of members of the Board of Directors, Supervisory Board, Management Board, or Chief Accountant of the credit organization.

Article 9. Ensuring capital safety

Credit organizations shall be responsible for implementing the following provisions to ensure the safety of operational capital:

1. Managing and using capital and assets in accordance with the law.

2. Maintaining the prescribed safety ratios as stipulated by law.

3. Purchasing insurance for assets as prescribed by law.

4. Participating in deposit insurance schemes or deposit preservation organizations to protect the legitimate rights and interests of depositors and contribute to maintaining the stability of credit organizations.

5. Allocating to business expenses the following provisions:

a) Provisions for risks in the operations of credit organizations. The level of establishment and use of provisions to address risks in banking operations shall be regulated by the Governor of the State Bank after consultation with the Minister of Finance;

b) Provisions for inventory write-downs;

c) Provisions for long-term investment losses (including stock price declines);

d) Provisions for doubtful receivables;

đ) Provisions for severance pay.

6. Other measures for capital preservation as prescribed by law.

Article 10. Inventory taking and asset revaluation

1. Inventory of Assets:

Credit organizations shall conduct asset inventory when closing the books to prepare annual financial reports; upon implementing decisions to divide, separate, merge, consolidate, or change ownership; after natural disasters or enemy attacks; or due to any other reasons causing asset fluctuations in credit organizations; or as prescribed by competent state authorities. For excess or missing assets, the causes and responsibilities of those involved must be clearly identified, and material compensation levels must be determined according to the law.

2. Asset revaluation:

a) Credit organizations shall carry out asset revaluation in the following cases:

- As decided by competent state authorities;

- Implementing changes in ownership or diversifying ownership forms;

- Using assets for external investments or recovering assets when joint ventures cease operations.

b) The procedures for revaluing assets and accounting treatment for increases or decreases in asset values resulting from revaluation as provided in point a, Clause 2 of this Article shall be implemented in accordance with the law for each specific case.

Article 11. Depreciation of fixed assets

Credit organizations shall implement depreciation of fixed assets in accordance with the law as applicable to businesses. Credit organizations may use the amount of depreciation of fixed assets for reinvestment in replacement and modernization of fixed assets and for other business needs as prescribed by the law.

Article 12. Handling asset losses

When suffering asset losses, credit organizations must determine the cause, responsibility, and handle them as follows:

1. If the loss is due to subjective reasons, the person causing the loss shall compensate for it. The Board of Directors or General Director (or Director) of the credit institution decides on the amount of compensation in accordance with the provisions of the law and is responsible for their decision.

2. If the asset has been insured, it shall be handled according to the insurance contract.

3. Utilize the provision established in expenses to offset in accordance with the provisions of the law.

4. The value of the loss after being offset by the compensation money from individuals, organizations, insurance organizations, and using the provision established in expenses, if insufficient, shall be offset by the financial reserve fund of the credit institution. In case the financial reserve fund is not sufficient to offset the shortage, the shortfall shall be recorded as other expenses in the period.

Article 13. Leasing, mortgaging, pledging assets

Credit institutions are allowed to lease, mortgage, and pledge assets under their control in accordance with the Civil Code and other effective legal regulations ensuring safety and development of capital.

Article 14. Selling off assets

1. Credit institutions are permitted to sell off assets to recover funds for more efficient business purposes.

2. The sale of assets by state-owned credit institutions shall be carried out in accordance with the laws governing the sale of assets by state enterprises.

3. The difference between the proceeds from selling off assets and the remaining value of the sold assets and the costs of selling off assets shall be recorded in the operating results of the credit institution.

Article 15. Liquidating assets

1. Credit institutions may liquidate substandard, deteriorated, irreparable damaged assets; obsolete technical assets that are not needed or used inefficiently and cannot be sold in their original condition.

The authority to decide on the liquidation of assets by state-owned credit institutions shall be carried out in accordance with the laws governing the liquidation of assets by state enterprises.

2. When liquidating assets, the credit institution must establish a Liquidation Committee. For assets that the law requires to be auctioned, when liquidating, the credit institution must organize an auction in accordance with the law.

3. 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 operating results of the credit institution.

Chapter III
REVENUE, EXPENSES AND OPERATING RESULTS

Article 16. Revenue

1. Revenue from the business operations of credit institutions is the amount of money received during the period, including:

a) Business revenue includes: revenue from lending activities, interest income from deposits, service fees, foreign exchange and gold trading revenue, interest income from investment and share purchases, revenue from debt buying and selling activities, revenue from exchange rate differences, and other business revenues;

b) Other revenues include: revenues from the sale and liquidation of fixed assets, revenues from risk provisions, management fees for independent subsidiaries, fines from customers violating contracts, and other revenues.

2. The Ministry of Finance shall stipulate the conditions and timing for determining revenue.

Article 17. Cost

Expenses of credit institutions are reasonable expenditures incurred during the period, including:

1. Business operation expenses:

a) Interest expense on deposits; interest expense on loans; foreign exchange and gold trading expenses; banking service expenses; expenses for stock and bond trading; expenses for debt buying and selling activities; expenses for investment and share purchases; expenses from exchange rate differences; other business expenses;

b) Depreciation expenses on fixed assets. The level of depreciation is determined in accordance with the general regulations for businesses;

c) Rental and leasing expenses for assets;

d) Wages, salaries, and wage-like expenses as prescribed;

đ) Social insurance, health insurance, and trade union expenses;

e) Outsourcing service expenses: expenses for repairing fixed assets, transportation, electricity, water, telephone, materials, printing paper, office supplies, labor tools, fire prevention and extinguishing, consulting, auditing, property insurance premiums, personal accident insurance premiums, travel expenses, allowances for leave travel, commissions, brokerage, agency fees, and other services;

g) Other expenses:

- Labor protection expenses.

- Uniform expenses.

- Severance pay for employees in accordance with the prescribed system.

- Expenses for female workers in accordance with the prescribed system.

- Meal allowance for staff of credit institutions.

- Expenses for membership fees of industry associations that credit institutions participate in.

- Expenses for party and mass organization work at credit institutions (expenses outside the budget of the party and mass organizations funded from designated sources).

- Expenses for establishing reserves and participating in deposit guarantee organizations or paying deposit insurance premiums as provided for in Article 9 of this Decree.

- Scientific research and technological innovation expenses; improvement initiative expenses; training expenses for improving skills and management capabilities; educational support expenses (if applicable); medical expenses for credit institution employees in accordance with the prescribed system.

- Initiative and productivity improvement award expenses, cost-saving award expenses in accordance with the principle of suitability with actual results achieved.

- Security expenses for protecting the institution.

- Environmental protection expenses.

- Reception, ceremonial, propaganda, advertising, marketing, promotional, transaction, external relations, meeting expenses.

- Fees for business licenses, land use taxes, land rent, real estate taxes, and other taxes, fees, and levies.

2. Other expenses of credit institutions include:

a) Expenses for selling off and liquidating assets (including the remaining value of the assets and selling and liquidation costs);

b) Expenses for recovering written-off debts and costs for recovering overdue difficult-to-collect debts;

c) Penalties for breach of economic contracts;

d) Expenses for handling residual asset losses after offsetting with sources as provided for in Clause 4, Article 12 of this Decree;

đ) Expenses for revenues that have been recorded but actually not received;

e) Other reasonable and legitimate expenses.

Article 18. Credit institutions shall not record the following items as business operation expenses:

1. Fines for legal violations caused by individuals not in the name of the credit institution.

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

3. Expenses covered by other sources of funding.

4. Other unreasonable expenses.

Article 19.

1. Economic activities must be recorded in accounting books and final reports in Vietnamese currency.

2. In cases where economic activities occur in foreign currencies, they must be converted into Vietnamese currency according to the regulations of the Ministry of Finance.

Article 20. Credit institutions shall record revenues and expenses in accordance with prescribed regulations, bear legal responsibility for the accuracy of revenues and expenses, and comply with regulations on invoice and accounting document systems.

Chapter IV

PROFIT AND ESTABLISHMENT OF FUNDS

Article 21. Realized profit

The realized profit in a year is the result of the credit institution's business operations, including operational activity profits and other activity profits. The profit of a credit institution is the difference determined between total revenue receivable and total reasonable and legitimate expense payments.

Article 22. Profit distribution for credit institutions with 100% state capital:

After covering previous years' losses according to the Enterprise Income Tax Law and paying enterprise income tax as required by law, the profit of credit institutions shall be distributed as follows:

1. Establishing a supplementary charter capital reserve fund at 5%, with the maximum level of this fund not exceeding the charter capital of credit institutions.

2. Distributing dividends to shareholders according to the provisions of the contract (if applicable).

3. Covering losses from previous years that have exceeded the period allowed for deduction from pre-tax income.

4. The remaining profit after deducting the amounts specified in Clause 1, 2, and 3 of this Article shall be distributed as follows:

a) Establishing a financial reserve fund at 10%; the maximum level of this fund shall not exceed 25% of the charter capital of credit institutions;

b) Business development investment fund at 50%;

c) The remaining profit shall be distributed as follows:

- Establishing a management board bonus fund according to the general regulations for state-owned enterprises.

- Establishing two reward and welfare funds. The maximum contribution rate shall not exceed three months' salary.

- The remaining profit after establishing the two reward and welfare funds shall be added to the business development investment fund.

Article 23Profit distribution for other credit institutions:

After covering previous years' losses according to the Enterprise Income Tax Law and paying enterprise income tax as required by law, the profit of credit institutions shall be distributed as follows:

1. Establishing a supplementary charter capital reserve fund, distributing dividends to shareholders according to the provisions of the contract (if applicable), and covering losses from previous years that have exceeded the period allowed for deduction from pre-tax income.

2. Allocating 10% to the financial reserve fund; the maximum balance of this fund shall not exceed 25% of the charter capital of credit institutions.

The distribution of the remaining profit shall be decided by the credit institution itself.

Article 24. Principles for using funds:

1. The supplementary charter capital reserve fund is used to increase the charter capital.

2. The business development investment fund is used to invest in expanding the scale of business operations and modernizing technology and equipment, working conditions of credit institutions.

Based on investment needs and the capacity of the fund, the Board of Directors of the credit institution decides on the form and methods of investment according to the principles of efficiency, safety, and capital growth.

3. The financial reserve fund is used to cover the remaining losses and damages to assets occurring during business operations after compensation has been provided by organizations or individuals causing the loss, insurance organizations, and the use of reserves established in expenses.

4. The management board bonus fund is used to award the Board of Directors and General Director (or Director) of the credit institution. The bonus level is determined by the representative of the owner based on the effectiveness of the credit institution's business operations, upon the proposal of the Chairman of the Board of Directors of the credit institution.

5. The reward fund is used for:

a) Year-end or regular bonuses for employees of the credit institution. The bonus level is decided by the Board of Directors of the credit institution based on the proposal of the General Director (or Director) and the trade union of the credit institution, based on labor productivity and work achievements of each employee;

b) Special bonuses for individuals or groups within the credit institution who have innovative ideas improving techniques or procedures that bring about business benefits. The bonus level is decided by the Board of Directors of the credit institution;

c) Bonuses for individuals or units outside the credit institution that have successfully fulfilled contractual conditions and contributed effectively to the credit institution's business operations. The bonus level is decided by the Board of Directors of the credit institution.

6. The welfare fund is used for:

a) Investing in building or repairing welfare facilities of the credit institution, contributing capital to build common welfare facilities in the industry or with other units according to agreed contracts;

b) Spending on sports, cultural, and public welfare activities for the staff of the credit institution;

c) Providing regular and emergency assistance to staff, including retired and disabled staff of the credit institution;

d) Spending on other welfare activities;

The Board of Directors, General Director (or Director) of the credit institution shall cooperate with the Trade Union Executive Committee of the credit institution to manage and use this fund.

Chapter V

ACCOUNTING SYSTEM, STATISTICS, AND AUDIT

Article 25. Accounting and Statistics

1. Credit institutions shall implement accounting and statistical systems in accordance with the law, maintain complete original vouchers, update accounting records, and accurately, timely, truthfully, and objectively reflect all financial activities.

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

Article 26. Financial Reports

At the end of the accounting period (quarterly or annually), credit institutions must prepare, present, and submit financial reports and statistical reports as required by law. The Board of Directors and General Director (or Director) of the credit institution are responsible for the accuracy and truthfulness of these reports.

Article 27. Audit

1. Credit institutions must establish internal audit to audit their own financial reports.

2. The audit of financial statements of credit organizations shall be conducted in accordance with the current accounting laws. The results of the audit of the financial statements of credit organizations must be submitted to the state financial authority and the State Bank of Vietnam.

Article 28. Disclosure of Financial Statements

Within 120 days from the end of the fiscal year, credit organizations must disclose their financial statements in accordance with the provisions of the law.

Article 29. Financial Regulations

Based on guiding documents regarding the financial system, credit organizations establish their own financial regulations to be approved by the Board of Directors for implementation. For state-owned credit organizations, the financial regulations must be approved by the Ministry of Finance.

Chapter VI

RESPONSIBILITIES OF THE BOARD OF DIRECTORS,

GENERAL MANAGER, DIRECTOR OF CREDIT ORGANIZATIONS

Article 30. Responsibilities of the Board of Directors of credit organizations

1. The Board of Directors performs the management function of credit organizations within its scope of authority and is responsible for organizing the implementation, inspecting, and supervising the financial activities of credit organizations.

2. Accept capital, land, natural resources, and other resources assigned by the State and shareholders for the use of credit organizations.

3. Decide or authorize the General Manager (or Director) of credit organizations to decide on investment projects, capital contributions, and the purchase of shares with economic organizations both domestically and internationally in accordance with the law.

4. Approve plans for raising capital, using, preserving, developing capital, and plans for utilizing post-tax profits presented by the General Manager (or Director) of credit organizations and bear responsibility for such decisions.

5. Approve annual financial reports of credit organizations and publicly disclose financial reports in accordance with the law; approve annual financial reports of independent subsidiary companies under credit organizations; approve long-term financial plans and annual financial plans presented by the General Manager (or Director) of credit organizations; appoint representatives for the organization's capital invested in other enterprises.

6. Inspect and supervise the General Manager (or Director) of credit organizations and the Director of independent subsidiary companies in the use, preservation, development of capital, and organization of business operations according to plans and schemes approved by the Board of Directors of credit organizations; fulfill obligations to the state budget.

7. Bear responsibility for checking the accuracy and honesty of business result reports of credit organizations and the distribution and use of post-tax profits in accordance with regulations.

8. Fulfill other responsibilities as prescribed by law.

Article 31. Responsibilities of the General Manager (or Director) of credit organizations

1. Represent the legal entity of credit organizations, manage the operations of credit organizations, and be accountable to the Board of Directors, the Governor of the State Bank of Vietnam, the law, and the state financial authority for managing the operations of credit organizations.

2. Jointly with the Chairman of the Board of Directors, accept capital, land, natural resources, and other resources assigned by the State and shareholders.

3. Be responsible for managing the use of capital in business operations according to plans for using, preserving, and developing capital approved by the Board of Directors; implement profit distribution plans after paying state budget revenues.

4. Be responsible for raising and using funds for business activities; bear material responsibility for losses caused by subjective fault to credit organizations.

5. Establish appropriate cost standards in line with the operating conditions of credit organizations.

6. Prepare and submit financial reports to the Board of Directors for approval. Bear responsibility for the accuracy and honesty of financial reports, statistical data, final accounts figures, and other financial information.

7. Develop annual financial plans consistent with business plans, to be approved by the Board of Directors and submitted to the state financial authority in accordance with the regulations of the Ministry of Finance.

8. Decide on investment projects, capital contributions, and the purchase of shares with economic organizations both domestically and internationally within the authorization of the credit organization's Board of Directors.

9. Fulfill other responsibilities as prescribed by law.

Chapter VII

FINANCIAL PLANNING AND AUDITING

Article 32. Financial Plans

1. Credit organizations prepare annual financial plans in accordance with the guidelines of the Ministry of Finance and submit them to the state financial authority and the State Bank of Vietnam. The financial plans of credit organizations include:

a) Capital-raising and utilization plans of credit organizations;

b) Income, expense, business result, and state budget revenue contribution plans of credit organizations;

c) Labor and salary plans of credit organizations.

2. The above plans of credit organizations must be approved by the Board of Directors of credit organizations and simultaneously submitted to the state financial authority and the State Bank of Vietnam before November 15 of the year preceding the plan year.

Article 33. The Ministry of Finance conducts audits and inspections of the compliance with financial systems by credit organizations.

Chapter VIII

IMPLEMENTING PROVISIONS

Article 34. This Decree takes effect 15 days after its publication in the Official Gazette. This Decree replaces Government Decree No. 166/1999/NĐ-CP dated November 19, 1999.-Decree of the Government dated November 19, 1999.

Article 35. The Ministry of Finance, in coordination with the State Bank of Vietnam, will guide the implementation of this Decree.

Ministers, heads of ministerial-level agencies, heads of government-affiliated agencies, Chairpersons of provincial and municipal People's Committees directly under the Central Government are responsible for implementing this Decree./.