Circular No. 30/TC-CĐTC guiding the regime for preserving and developing capital for state-owned commercial banks and investment and development banks.

CIRCULAR

OF THE MINISTRY OF FINANCE

Guidelines on the preservation and development of capital for state-owned commercial banks and investment and development banks
Implementing Directive No. 138/CT dated April 25, 1991 of the Chairman of the Council of Ministers (now Prime Minister) regarding the expansion of the scope of authority to use, responsibility for preserving and developing production and business capital for basic state-owned economic units;

Implementing Decision No. 332-HĐBT dated October 23, 1991 of the Council of Ministers (now Government) on the preservation and development of business capital for state-owned enterprises.

After exchanging opinions with the State Bank of Vietnam, based on the nature and characteristics of the operations of state-owned commercial banks and investment and development banks (hereinafter referred to as state-owned banks), the Ministry of Finance provides guidelines on the preservation and development of capital for state-owned banks as follows:

1. The scope and responsibility for preserving and developing business capital of state-owned banks shall be implemented in accordance with the provisions of Circulars No. 31/TC-CN dated May 27, 1991 and No. 82 TC/CN dated December 31, 1991 of the Ministry of Finance guiding the preservation and development of business capital for state-owned enterprises.

II- SUPPORT MEASURES FOR STATE-OWNED AGRICULTURAL FARMS AND FORESTRY COMPANIES IN THE FIELD OF SCIENCE AND TECHNOLOGY

2. The implementation of the system for preserving and developing fixed state capital assigned to state-owned banks for use shall be carried out in accordance with the guidance provided in Circular No. 82-TC/CN dated December 31, 1991 of the Ministry of Finance. As for operational capital (which does not include fixed capital), state-owned banks shall implement the preservation and development system according to the guidance provided in this Circular.

3. Annually, along with the financial settlement review and approval process, the Ministry of Finance and the State Bank of Vietnam will inspect the implementation of the capital preservation and development system by state-owned banks, determine the amount of capital that must be preserved as of December 31 of the reporting year, and assign the responsibility for preserving capital for the following year.

II - SYSTEM FOR PRESERVATION AND DEVELOPMENT OF OPERATIONAL CAPITAL

1. The operational capital that state-owned banks must preserve and develop includes various types of capital formed from the following sources:

2. Collectives and individuals who have been awarded during the mid-term review of five years of Border Guard Day (March 3, 1994) up to now, if they do not have new outstanding and excellent achievements, will not be considered for further awards.

a) Capital from the state budget and capital with origins from the state budget (collectively referred to as state budget capital), including:

Registered capital granted.

Other capital grants.

b) Self-supplemented capital of state-owned banks, including:

Technical operation development fund.

Supplementary registered capital reserve fund.

Risk prevention reserve fund.

c) State capital transferred to state-owned banks for lending according to designated targets and interest rates (referred to as designated state capital for lending).

2. The state capital assigned to state-owned banks for preservation shall follow the principle:

a) For state budget capital and self-supplemented capital: state-owned banks must preserve it according to the market price index.

b) For designated state capital for lending, state-owned banks must preserve it according to the difference between the designated interest rate and the activity cost rate (including fees, taxes, and interest) as designed by the State Bank.

3. The source for preserving capital of state-owned banks is the annual preservation capital reserve fund which is added to the original capital already assigned to determine the amount of capital that must be preserved in the next year.

B - METHODS FOR DETERMINING THE PRESERVATION CAPITAL RESERVE FUND FOR OPERATIONAL CAPITAL

1. On a monthly basis, state-owned banks base their temporary allocation of preservation capital reserves for each type of capital on the amount of capital that must be preserved at the beginning of the year and the legitimate changes in this amount up to the end of the month as follows:

a) For state budget capital and self-supplemented capital:

By the end of the month, before preparing the monthly financial report, state-owned banks record business expenses to form the preservation capital reserve fund using a different calculation method.

Monthly preservation capital reserve fund

At the end of the year, before the final settlement, state-owned banks base their determination of the preservation capital reserve fund required for the reporting year on the average market price index for the year announced by the General Statistics Office and the amount of state capital that must be preserved during the reporting year.

Preservation capital reserve fund required for the reporting year

The preservation capital reserve fund required determined above serves as the basis for adjusting the preservation capital reserve fund formed during the year (the monthly preservation capital reserve fund already allocated).

If the existing preservation capital reserve fund is greater than the required preservation capital reserve fund, the state-owned bank must reduce expenses for the excess portion. Conversely, if the existing preservation capital reserve fund is less than the required preservation capital reserve fund, the state-owned bank must allocate additional expenses to achieve the required preservation capital reserve fund.

b) For state capital transferred to state-owned banks for lending according to designated interest rates:

Monthly, on the last day of the month, state-owned banks base their temporary allocation of preservation capital reserves on the amount of state capital transferred by the end of the month and the difference between the designated lending interest rate and the activity cost rate:

Monthly temporary preservation capital reserve fund

In principle, the preservation capital reserve funds allocated throughout the year will be considered as the preservation capital reserve fund for the state capital assigned in the reporting year. However, due to the nature of designated lending, there may be situations where the preservation of capital by state-owned banks leads to a financial loss for the year. In such cases, state-owned banks report to the Ministry of Finance and the State Bank of Vietnam in the annual settlement to request a temporary deferral of part of the capital preservation to the following year.

If the designated lending interest rate equals or is lower than the activity cost rate, state-owned banks are exempted from allocating preservation capital reserves.

In the case where the interest rate on designated loans is equal to or lower than the benchmark fee for banking operations, state-owned banks are exempted from setting aside capital reserves.

c) For state-owned banks engaged in foreign currency and gold trading activities, exchange rate differences and price differences will arise during their annual operations.

By December 31 each year, the following shall be processed:

If the exchange rate difference and price difference is positive: The state-owned bank shall record an increase in income.

If the exchange rate difference and price difference is negative: The state-owned bank shall allocate a portion to expenses.

In principle, in the annual settlement of state-owned banks, there should be no remaining exchange rate differences and price differences.

2. The reserve fund for operational capital extracted in the year shall be recorded separately according to the guidelines of the state-owned bank, including:

Preservation of capital from cost sources based on inflation adjustment

Preservation of capital from designated loan interest.

The handling of capital preservation shall only be carried out after the Ministry of Finance and the State Bank of Vietnam approve the annual settlement.

C. RESPONSIBILITY FOR PRESERVING OPERATIONAL CAPITAL

1. Along with reviewing the annual financial settlement, the Ministry of Finance and the State Bank of Vietnam shall determine the responsibility of state-owned banks for preserving capital as follows:

If operational capital is not preserved due to insufficient extraction of the reserve fund, the state-owned bank must supplement from the sources specified in Part B of this Circular.

In cases where operational capital is not preserved due to difficulties faced by the state-owned bank in generating capital preservation sources because the financial results of the year show no profit, first, the reserve fund extracted in the year must be utilized to preserve the state budget capital provided, if it is insufficient. If the supplementary capital source is still insufficient, the state-owned bank has the responsibility to make up the shortfall in the following year, while also analyzing the causes and formulating a plan to address the shortfall in the capital preservation fund, reporting to the Ministry of Finance and the State Bank of Vietnam in the annual financial settlement, which will be reviewed and approved by these agencies.

2. The operational capital reserve fund of state-owned banks, once recognized, shall be transferred once for each type of capital to be preserved:

The reserve fund for state budget capital and self-supplemented capital shall be transferred into state budget capital and self-supplemented capital according to the proportion of each type of capital allocated at the beginning of the year.

The reserve fund for designated loans at fixed interest rates shall be recorded as additional capital transferred for designated lending.

3. In addition to the responsibility for preserving capital, state-owned banks have the responsibility to develop capital based on gradually increasing annually the ratio of technical and business development funds extracted from retained profits.

III- IMPLEMENTATION PROVISIONS

1. The capital preservation and development regime stipulated in this Circular applies to state-owned banks from January 1, 1993, and also covers the review of the 1992 annual settlement and capital preservation.

2. The State Bank of Vietnam shall provide specific guidance on recording capital preservation for state-owned banks.

During the implementation process, if any issues arise, they should be promptly reported to the Ministry of Finance for study and supplementation./.