Circular No. 20/2018/TT-BTC guiding certain provisions on financial regulations for people's credit funds

CIRCULAR

GUIDELINES ON CERTAIN PROVISIONS REGARDING THE FINANCIAL REGIME FOR RURAL CREDIT UNIONS

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Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law Amending and Supplementing Certain Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Law on Cooperatives dated November 20, 2012;

Pursuant to Decree No. 93/2017/NĐ-CP dated August 7, 2017 of the Government on the financial regime for credit institutions, foreign bank branches, and financial supervision, assessing the effectiveness of state capital investment in credit institutions wholly owned by the State and credit institutions with state capital;

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

At the proposal of the Director of the Department of Banking Finance;

The Minister of Finance issues this Circular guiding certain provisions regarding the financial regime for rural credit unions.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular guides certain provisions regarding the financial regime for rural credit unions operating in Vietnam as stipulated in Decree No. 93/2017/NĐ-CP dated August 7, 2017 of the Government on the financial regime for credit institutions, foreign bank branches, and financial supervision, assessing the effectiveness of state capital investment in credit institutions wholly owned by the State and credit institutions with state capital (hereinafter referred to as Decree No. 93/2017/NĐ-CP).

Article 2. Applicability

1. Rural credit unions shall be established, organized, and operate in accordance with the Law on Credit Institutions dated June 16, 2010, the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions dated November 20, 2017, and other amending, supplementing, and replacing legal documents (if any) (hereinafter referred to as the Law on Credit Institutions).

2. Relevant agencies, organizations, and individuals.

Chapter II

SPECIFIC PROVISIONS

Article 3. Shareholders' Equity of Rural Credit Unions

1. Charter capital is the total capital contributed by members and recorded in the charter of the rural credit union, accounted for in Vietnamese dong.

2. Revaluation surplus or deficit is the difference between the book value of assets and their revalued amount according to the decision of the State or other cases of asset revaluation as prescribed by law.

3. The funds include:

a) Supplementary capital reserve fund; 

b) Development investment fund; 

c) Financial reserve fund. 

4. Accumulated undistributed profit; accumulated unprocessed loss. 

5. Other capital belonging to the rural credit union. 

Article 4. Management and Utilization of Capital and Assets

1. Rural credit unions have the responsibility to manage and utilize capital and assets in accordance with Chapter II of Decree No. 93/2017/NĐ-CP, relevant laws, and specific guidelines set forth in this Circular.

2. To account strictly in accordance with the current accounting system; fully, accurately, and promptly reflect the situation of capital and asset usage and changes during business operations; clearly define responsibilities and forms of handling for each department and individual in cases of damage or loss of assets or capital of the rural credit union.

3. Rural credit unions may purchase or invest in fixed assets directly serving business activities under the principle that the remaining value of fixed assets does not exceed 50% of the charter capital and supplementary capital reserve fund recorded in the books of the rural credit union.

4. For leased, pledged, mortgaged, or entrusted assets of customers, rural credit unions have the responsibility to manage, store, or use them in accordance with agreements with customers and relevant legal regulations.

5. Regarding real estate held due to debt recovery as stipulated in Clause 3, Article 132 of the Law on Credit Institutions:

a) For real estate temporarily held by rural credit unions for sale or transfer to recover capital within three years, rural credit unions shall not record an increase in assets and shall not depreciate.

b) For real estate purchased by rural credit unions to directly serve business activities, rural credit unions shall record an increase in assets and implement depreciation in accordance with legal regulations and ensure limits on construction investment and acquisition of fixed assets as stipulated in Clause 3 of this Article.

Article 5. Revenue

The revenues of rural credit unions must be determined in accordance with Vietnamese accounting standards and relevant legal regulations, supported by valid invoices or receipts, and fully recorded in revenue. Revenue from the business activities of rural credit unions includes the following items:

1. Income from interest and similar income:

a) Interest income from deposits; 

b) Interest income from loans; 

c) Interest income from debt trading activities; 

d) Other income from credit activities. 

2. Income from service activities: 

a) Income from payment services including: Income from money transfer services, collection, and payment services for members; 

b) Income from treasury services; 

c) Income from agency services in certain areas related to banking activities and asset management as prescribed by the State Bank of Vietnam; 

d) Income from insurance brokerage services;

đ) Income from providing financial advisory services to members;

e) Other income from service activities as prescribed by law.

3. Income from capital contributions to the Vietnam Joint Stock Commercial Bank for Agriculture and Rural Development: Interest income from capital contributions to the Vietnam Joint Stock Commercial Bank for Agriculture and Rural Development.

4. Income from other activities:

a) Income from debts resolved through risk provisions (including debts that have been written off but are now recovered);

b) Income from debt buying and selling operations;

c) Income from property transfers and liquidations;

d) Income from reversal of provisions;

f) Income from other activities:

- Income from leasing assets excluding income from leasing real estate temporarily held due to debt recovery as stipulated in Clause 3, Article 132 of the Law on Credit Institutions for debt recovery purposes;

- Other income from other activities as prescribed by law.

5. Other income:

a) Income from debts owed by unknown creditors or lost owners as prescribed by law;

b) Penalties and compensation payments from customers for breach of contract are recorded as income;

c) Insurance compensation income is recorded as income after offsetting losses covered by insurance;

d) Other income as prescribed by law.

Article 6. Principles of Revenue Recognition

The principles for recognizing revenue for rural credit unions are stipulated in Article 16 of Decree No. 93/2017/ND-CP as follows:

1. Determination of revenue for corporate income tax purposes shall be carried out in accordance with the Law on Corporate Income Tax and guiding documents.

2. For interest income and similar income:

a) Interest income from lending activities: Rural credit unions are responsible for evaluating the ability to collect debts and classifying debts in accordance with the legal regulations of the State Bank of Vietnam to serve as the basis for recording interest receivable and shall account for it as follows:

- Rural credit unions shall record interest receivable arising in the period into income for debts classified as standard loans without specific risk provisions as prescribed by the State Bank of Vietnam.

- Interest receivable from debts maintained in the standard category due to State policies and interest receivable arising in the period from other debts shall not be recorded as income; rural credit unions shall monitor these debts off-balance sheet; when collected, they shall be recorded as income.

b) Interest income from deposits: is the receivable interest for the period.

3. For interest income from capital contributions to the Vietnam Joint Stock Commercial Bank for Agriculture and Rural Development: is the interest distributed based on resolutions or decisions of the Board of Directors of the Vietnam Joint Stock Commercial Bank for Agriculture and Rural Development.

4. For other business activities' revenue: the revenue is the total amount of money from supplying goods and services generated during the period that customers have accepted for payment, regardless of whether the money has been collected or not.

5. For receivables that should be recorded as income but are assessed as uncollectible or remain unpaid beyond the due date, the people's credit fund shall record a reduction in revenue if it is within the same accounting period or record it as expenses if it is outside the accounting period and monitor it off-balance-sheet to urge collection. When collected, it shall be recorded as income.

Article 7. Expenses

1. Interest expenses and similar expenses:

a) Payment of deposit interest: Payment of interest on deposits from members, organizations, and individuals;

b) Interest expense on borrowed funds includes interest paid on working capital loans, loans from other financial institutions, other financial organizations, and interest paid on Vietnam Rural Credit Bank loans; c) Other expenses for lending activities.

2. Service activity expenses:

a) Payment service expenses: Expenses for providing money transfer services, handling collection and disbursement services for members; transportation costs; vault operations expenses;

b) Treasury service expenses;

c) Payment for telecommunications services;

d) Entrusted and agency business operation expenses;

đ) Payment for consulting services;

e) Commission expenses:

- The people's credit fund may pay brokerage commissions for all permitted brokerage activities.

- Brokerage commissions paid to third parties (as intermediaries) shall not apply to agents of the people's credit fund; management positions, employees of the people's credit fund, and related persons according to the Law on Credit Organizations and any amending, supplementing, or replacing regulations (if applicable).

- The payment of brokerage commissions must be based on a contract or confirmation between the people's credit fund and the party receiving the commission, which must include basic contents such as: name of the commission recipient; nature of the expenditure; amount; method of payment; time of commencement and completion; responsibilities of each party.

- For brokerage fees for leasing assets (including seized assets and debt-settlement assets): the maximum brokerage fee for leasing each asset by the people's credit fund shall not exceed 5% of the total amount received from leasing such assets through brokerage in a year.

- For brokerage fees for selling collateralized or pledged assets: the brokerage commission for selling each collateralized or pledged asset by the people's credit fund shall not exceed 1% of the actual value received from selling such assets through brokerage.

- The Board of Directors or General Director of the credit cooperative shall issue regulations on the payment of brokerage commissions to apply uniformly and publicly.

3. Capital contribution expenses: Costs incurred when contributing capital to the Vietnam Rural Credit Bank.

4. Other business activity expenses as prescribed by law:

a) Payment for debt buying and selling operations;

b) Other business activity expenses.

5. Tax payment expenses, fees, and charges.

6. Employee expenses as prescribed by law, including:

a) Wages, remuneration, bonuses, and other wage-like payments for staff working at credit cooperatives:

- Salary and allowances for dedicated board members and supervisory board members. The level of expenditure is determined by the board of directors of the people's credit fund based on the resolution of the member assembly.

- Salary and allowances for staff of the people's credit fund based on labor contracts or collective labor agreements.

b) Social insurance contributions: Contributions to social insurance, health insurance, unemployment insurance, and trade union fees;

c) Work attire expenses for staff (if applicable);

d) Occupational safety and health expenses: Only allowed for those who need protective equipment while working;

đ) Unemployment benefits for workers according to labor laws;

e) Purchase of personal accident insurance;

g) Meal expenses;

h) Medical expenses including regular medical check-up expenses for workers, purchase of preventive medicines, and other medical expenses within the responsibility of the enterprise as prescribed by current laws;

i) Other expenses for workers as prescribed by law:

- Annual leave expenses, additional expenses for female workers as prescribed by labor laws;

- Other expenses as prescribed by law.

7. Management and public service expenses including the following expenses:

a) Stationery and printing material expenses;

b) Travel expenses;

c) Training and professional development expenses as prescribed by law;

d) Research and application of science and technology expenses including:

- Establishment of a scientific and technological development fund as prescribed by law. The use of the fund is carried out according to current laws;

- Expenses for the shortfall in cases where the balance of the scientific and technological development fund is insufficient to cover research and application of science and technology expenses in the year.

đ) Incentive awards for innovation, increased productivity, and cost-saving measures, in accordance with actual effectiveness; the people's credit fund must establish and publicly announce award regulations and form a committee to verify innovations;

e) Postage and telephone expenses;

g) Publication expenses, publicity, advertising, marketing, and promotional expenses;

h) Book and newspaper purchase expenses;

i) Expenses for association activities;

k) Electricity, water, and office sanitation expenses;

l) Conference, reception, ceremonial, and foreign exchange transaction expenses;

m) Consulting and auditing expenses; expenses for hiring domestic and foreign experts;

n) Fire prevention and firefighting expenses;

o) Environmental protection expenses. If the expenses in the year are large and have effects over multiple years, they can be allocated to subsequent years;

p) Other management and public service expenses:

- Expenses for developing and applying new products and services provided by the Vietnam Rural Credit Bank;

- Security expenses; expenses for civilian defense, national defense, and security work;

- Other expenses as prescribed by law.

8. Asset expenses:

a) Depreciation expenses for fixed assets used in business operations, implemented according to the management, usage, and depreciation rules for fixed assets of enterprises;

b) Maintenance and repair expenses for assets;

c) Purchase and repair expenses for tools and equipment;

d) Asset insurance expenses;

đ) Fixed asset rental expenses: Rental expenses are carried out according to the lease agreement. In cases where rental payments are made in advance for multiple years, the rental expense is gradually allocated to operating expenses over the years of use.

e) Management and operation service rental expenses: Implemented according to the lease agreement;

g) Other expenses related to assets.

9. Provision expenses

a) Provision expenses include:

- Risk provision expenses in operations as stipulated in Article 131 of the Law on Credit Organizations;

- Risk provision expenses for special bonds issued by the Vietnam Asset Management Corporation under Point a, Clause 2, Article 21 of Decree No. 53/2013/ND-CP dated May 18, 2013 of the Government on the establishment, organization, and operation of the Vietnam Asset Management Corporation and Clause 12, Article 1 of Decree No. 34/2015/ND-CP dated March 31, 2015 of the Government amending and supplementing certain articles of Decree No. 53/2013/ND-CP; guidelines of the State Bank of Vietnam and any amending or supplementing legal documents (if applicable);

- Provision expenses for inventory write-downs, doubtful debts, and other provisions (if any) according to general regulations applicable to enterprises.

b) The portion of expenses for setting up risk provisions deductible when determining corporate income tax shall be implemented in accordance with the legal provisions on corporate income tax;

10. Expenses for deposit preservation and deposit insurance:

a) Deposit insurance expenses: expenses for paying deposit insurance premiums as prescribed by the law on deposit insurance;

b) Deposit preservation expenses: expenses for contributing to the Fund for Ensuring the Safety of the System of People's Credit Funds;

11. Other expenses:

a) Fees paid to industry associations that the people's credit fund participates in, at the rates set by these associations;

b) Expenses for party and association work at the people's credit fund (the portion of expenses outside the funding of the party and association organizations funded from designated sources);

c) Expenses for the sale, liquidation of assets, and residual values of liquidated or sold fixed assets (if any);

d) Expenses for recovering written-off debts, including costs for purchasing and selling debts and paying service fees for debt recovery services provided by authorized organizations according to the law;

đ) Expenses for processing remaining asset losses: The people's credit fund records the remaining loss value after compensating individuals, groups, organizations, and insurance companies; using provisions established in expenses; utilizing the financial reserve fund of the people's credit fund;

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

g) Social work expenses according to tax laws.

h) Expenses for administrative penalty payments, except for amounts that individuals must pay according to the provisions of the law;

i) Other expenses:

- Expenses for debts owed to identified creditors that were previously recorded as income but later identified;

- Expenses for paying fines and compensation due to economic contract violations within the responsibility of the people's credit fund;

- Expenses for supplementary execution fees under the responsibility of the people's credit fund;

- Other expenses as prescribed by law.

Article 8. Principles for Recording Expenses

1. The determination of expenses for corporate income tax purposes shall be carried out in accordance with the provisions of the Law on Corporate Income Tax and guiding documents;

2. Expenses of the people's credit fund are actual expenses incurred related to its business activities; they must comply with the principle of matching revenue and expenses; and must be supported by valid invoices and receipts as prescribed by law. The people's credit fund shall not record expenses from other long-term sources of funding. The determination and recording of expenses shall be consistent with Vietnamese accounting standards and relevant legal provisions.

Article 9. Distribution of Profits and Management and Use of Reserves

The people's credit fund shall implement profit distribution, management, and use of reserves in accordance with Articles 22 and 24 of Decree No. 93/2017/NĐ-CP.

Article 10. Financial reporting system

1. At the end of each accounting period, the People's Credit Cooperative must prepare and submit financial reports in accordance with the provisions of the law.

2. The Board of Directors or the Chairman of the Board of Directors or the Director of the people's credit fund shall be responsible for the accuracy and honesty of these reports.

3. Financial reports

a) Content, forms, and reporting periods shall be carried out in accordance with the financial reporting regulations for credit organizations.

b) Annual audit report on financial statements shall be conducted in accordance with the State Bank of Vietnam's regulations on independent auditing for People's Credit Cooperatives.

4. Deadline for submission of reports

a) Annual financial report: no later than 90 days from the end of the fiscal year.

For people's credit funds required to undergo independent audits as stipulated by the State Bank of Vietnam: submit annual financial reports accompanied by the conclusions of independent audit organizations (audit reports) immediately upon completion of the audit.

b) Interim financial report: no later than the first day of the third month of the following quarter.

5. Recipient of reports

The State Bank of Vietnam branch where the People's Credit Cooperative is located.

Chapter III

IMPLEMENTATION

Article 11. Responsibilities of supervisory agencies and People's Credit Cooperatives

1. The Ministry of Finance and the State Bank of Vietnam shall carry out their responsibilities as prescribed in Articles 37 and 38 of Decree No. 93/2017/NĐ-CP regarding people's credit funds.

a) Number of People's Credit Cooperatives (including the number of loss-making cooperatives, non-loss-making cooperatives, and profit-making cooperatives);

b) Total profit; total loss;

c) Financial violations of People's Credit Cooperatives discovered during inspections and supervision (if any).

3. Responsibilities of People's Credit Cooperatives

Implement the financial regime as prescribed by the Law on Credit Organizations; Decree No. 93/2017/NĐ-CP; specific guidance provided in this Circular; and other regulatory legal documents concerning financial management.

Article 12. Effective Date

1. This Circular takes effect from March 29, 2018.

2. This Circular replaces Circular No. 94/2013/TT-BTC dated July 8, 2013, issued by the Ministry of Finance, guiding the implementation of the financial regime for people's credit funds.

3. In the course of implementation, if there are difficulties or obstacles, please reflect them to the Ministry of Finance for consideration and resolution./.