Circular No. 32/2015/TT-NHNN stipulates the limits and ratios to ensure safety in the operations of people's credit funds

CIRCULAR

Regulations on limits and safety ratios in operations

of credit cooperatives

 Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013, of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of Banking Inspection and Supervision;

The Governor of the State Bank of Vietnam issues this Circular to regulate the limits and safety ratios in the operations of credit cooperatives.

PART I

GENERAL PROVISIONS

1. This Circular stipulates the limits and safety ratios in the operations of credit cooperatives including:

a) Capital adequacy ratio;

b) Liquidity coverage ratio;

c) Maximum proportion of short-term capital used for medium- and long-term loans;

d) Loan limits.

2. Based on the results of supervision and inspection of credit cooperatives, in cases where it is necessary to ensure safety in the operations of credit cooperatives, depending on the nature and level of risk, the State Bank of Vietnam (hereinafter referred to as the State Bank) may require credit cooperatives to maintain lower limits and stricter safety ratios than those prescribed in this Circular.

Article 2. Interpretation of Terms

In this Circular, the following terms are understood as follows:

a) Persons related to corporate customers include:

(i) Managers, members of the supervisory board, shareholders or shareholders owning 5% or more of the charter capital or voting shares of that corporation;

(ii) Spouse, father (including adoptive father, stepfather, father-in-law, father-in-law), mother (including adoptive mother, stepmother, mother-in-law, mother-in-law), child (including adopted child, son-in-law, daughter-in-law, child of a former spouse), brother, sister, or sibling (including half-brother, half-sister, brother-in-law, sister-in-law) of the manager, member of the supervisory board, shareholder or shareholder owning 5% or more of the charter capital or voting shares of that corporation;

(iii) Corporations owned by the customer with 5% or more of the charter capital or voting shares;

b) Persons related to individual customers include:

(i) Spouse, father (including adoptive father, stepfather, father-in-law, father-in-law), mother (including adoptive mother, stepmother, mother-in-law, mother-in-law), child (including adopted child, son-in-law, daughter-in-law, child of a former spouse), brother, sister, or sibling (including half-brother, half-sister, brother-in-law, sister-in-law) of the individual;

(ii) Corporations where the customer is a manager, member of the supervisory board, shareholder or shareholder owning 5% or more of the charter capital or voting shares of that corporation or spouse, father (including adoptive father, stepfather, father-in-law, father-in-law), mother (including adoptive mother, stepmother, mother-in-law, mother-in-law), child (including adopted child, son-in-law, daughter-in-law, child of a former spouse), brother, sister, or sibling (including half-brother, half-sister, brother-in-law, sister-in-law) of the customer who is a manager, member of the supervisory board, shareholder or shareholder owning 5% or more of the charter capital or voting shares of that corporation;

(iii) Households where the customer is a member of the household;

c) Persons related to household borrowers of credit cooperatives include members of the household.

3. Undistributed profits of credit cooperatives are the undistributed profits determined after the annual financial report (for credit cooperatives required to have independent audits according to the regulations of the State Bank, this is the audited annual financial report) and decided by the General Assembly of credit cooperative members to retain for the purpose of supplementing the capital of credit cooperatives.

4. Branches of the State Bank in provinces and cities refer to branches of the State Bank in provinces and centrally governed cities where the main office of credit cooperatives is located.

1. Within the maximum period of 12 (twelve) months from the date this Circular takes effect, the people's credit fund must have an information technology system as prescribed in Clause 2 of this Article.

2. The information technology system of the people's credit fund must meet the following minimum requirements:

a) Storing, accessing, and supplementing customer databases to ensure risk management in accordance with the State Bank of Vietnam's regulations and internal regulations of the people's credit fund;

b) Statistics and monitoring of capital items, assets, liabilities; calculation, management, and supervision of safety limits and ratios as stipulated in this Circular.

1. The people's credit fund must have internal regulations on managing the safety ratio of capital, liquidity management (solvency ratio, maximum proportion of short-term capital used for medium- and long-term loans), lending, and loan management in accordance with this Circular and related documents. Internal regulations and amendments to such regulations must be issued or approved by the Board of Directors of the people's credit fund.

2. The internal regulation on the minimum safety capital ratio includes the following main contents:

a) Procedures and methods for monitoring the safety capital ratio;

b) Methods for early warning of risks that may reduce the safety capital ratio;

c) Plans for handling when the safety capital ratio falls below the minimum level, including at least measures to increase the safety capital ratio; responsibilities, authorities, and cooperation among departments and individuals in implementing the handling plan.

3. The internal regulation on minimum liquidity management includes the following contents:

a) Regulations on classification, delegation, functions, and tasks of relevant individuals and departments in monitoring and implementing measures to maintain the solvency ratio and the maximum proportion of short-term capital used for medium- and long-term loans;

b) Procedures, processes, liquidity management limits, and contingency plans to ensure maintenance of the solvency ratio and the maximum proportion of short-term capital used for medium- and long-term loans as stipulated in this Circular;

c) Regulations on cash management, income and expenditure, daily capital sources.

4. The internal regulation on minimum lending activity management and loan management includes the following contents:

a) Criteria for identifying customers and related parties with a minimum content as prescribed in Clause 2, Article 2 of this Circular;

b) Loan limits applicable to customers, related parties, mechanisms, and principles of delegated authority for lending to customers and related parties;

c) Maximum loan limit in total outstanding loans for each type of customer, member customers, non-member customers, and poor household customers of the people's credit fund;

d) Monitoring procedures for loans exceeding 5% of the people's credit fund's own capital;

đ) Regulations on reporting loans to members of the Board of Directors, Supervisory Board, and General Director of the people's credit fund in accordance with the State Bank of Vietnam's regulations on people's credit funds;

5. At least once a year and when necessary, the people's credit fund must review, evaluate, amend, and supplement internal regulations to be consistent with the requirements for ensuring safety in the operation of the people's credit fund.

6. Within ten working days from the date of issuance, amendment, or supplementation of internal regulations, the people's credit fund must submit (directly or through postal service) to the Banking Inspection and Supervision Department where the people's credit fund has its headquarters, or the State Bank of Vietnam branch in the province or city without a Banking Inspection and Supervision Department, a set of documents including:

a) A report on the issuance, amendment, or supplementation of internal regulations. In case of amendment or supplementation, clearly specify the amended or supplemented contents;

b) Internal regulations in case of new issuance; amended or supplemented internal regulations in case of amendment or supplementation.

7. If the contents of the documents or internal regulations are inconsistent with the provisions of this Circular and related laws, the Banking Inspection and Supervision Department where the people's credit fund has its headquarters, or the State Bank of Vietnam branch in the province or city without a Banking Inspection and Supervision Department will require the people's credit fund to amend and supplement them accordingly.

Chapter II

SPECIFIC PROVISIONS

Section 1

RATIOS AND LIMITS FOR SAFETY GUARANTEES IN THE OPERATIONS OF PEOPLE'S CREDIT FUNDS

Article 5. Capital Safety Ratio

1. Credit unions must consistently maintain a minimum capital safety ratio of 8%.

2. The capital safety ratio is determined by the following formula:

Where:

- Own capital is determined according to the provisions of Clause 3 of this Article;

- Total risky "Assets" is the total value of "Assets" determined according to the risk level specified in Clause 4 of this Article.

a) Tier 1 Capital

Tier 1 Capital includes:

(i) Charter Capital;

(ii) Capital investment in basic construction, purchase of fixed assets;

(iii) Supplementary Capital Reserve Fund;

(iv) Business Development Investment Fund;

(v) Capital from organizations and individuals who provide non-repayable funding to credit unions;

(vi) Undistributed profits.

Tier 1 Capital must be reduced by the following amounts:

(i) Accumulated losses (if any); (ii) The amount of capital contribution to cooperative banks;

b) Tier 2 Capital is calculated at a maximum of 100% of the value of Tier 1 Capital, including:

(i) Financial Reserve Fund;

(ii) General Reserve, at a maximum of 1.25% of total risky "Assets";

c) Amount deducted from own capital: 100% of the decrease due to revaluation of assets as prescribed by law. The specific determination of own capital for calculating the minimum capital safety ratio is stipulated in Appendix 1 issued together with this Circular.

4. Assets "Assets" are classified into groups based on risk levels as follows:

(i) Cash;

(ii) Deposits with the State Bank;

(iii) Deposits with cooperative banks;

(iv) Loan balances secured entirely by cash, deposits at the credit union itself;

(v) Loan balances secured entirely by securities issued by the Government, the State Bank;

(vi) Loans made using entrusted funds in accordance with the law on entrustment in banking activities;

b) Group of assets with a risk weight of 20% includes:

(i) Settlement deposits with commercial banks, branches of foreign banks;

(ii) Loan balances secured entirely by securities issued by state financial organizations, credit institutions, branches of foreign banks;

c) Group of assets with a risk weight of 50% includes: Loan balances secured entirely by residential property, land use rights, residential property attached to land use rights of the borrower as prescribed by law;

(i) Fixed assets of credit unions;

(ii) Other "Assets" remaining on the balance sheet outside those specified in points a, b, c, d (i) of this clause and capital contributions to cooperative banks.

The specific determination of the value of risky "Assets" is stipulated in Appendix 2 issued together with this Circular.

Article 6. Liquidity Ratio

1. The liquidity ratio is determined by the following formula:

In which: Liquid "Assets", Liabilities "Owed" are determined according to the provisions of Appendix 3 issued together with this Circular.

2. At the end of the working day, credit unions must maintain a liquidity ratio for the next working day and a liquidity ratio over a period of seven (7) consecutive working days of at least 1.

1. Credit unions must maintain the maximum ratio of short-term capital used for medium- and long-term loans at 30%.

2. The ratio of short-term capital used for medium- and long-term loans shall be determined according to the following formula:

Where:

- A: the ratio of short-term capital used for medium- and long-term loans.

- B: total outstanding medium- and long-term loan debt as specified in Clause 3 of this Article.

- C: total medium- and long-term capital as specified in Clause 4 of this Article.

- D: short-term capital as specified in Clause 5 of this Article.

3. Total outstanding medium- and long-term loan debt includes outstanding loan debt with remaining terms exceeding 01 (one) year. Total outstanding medium- and long-term loan debt does not include outstanding loan debt from government agency entrusted loans, organizations (including credit institutions and foreign bank branches), and individuals.

4. Medium- and long-term capital includes:

b) The following items with remaining terms exceeding 01 (one) year, including:

(i) Term deposits and savings deposits of organizations and individuals;

(ii) Loans from credit institutions and other financial organizations.

5. Short-term capital includes:

a) Demand deposits;

b) The following items with remaining terms up to 01 (one) year:

(i) Term deposits and savings deposits of organizations and individuals;

(ii) Loans from credit institutions and other financial organizations.

1. Credit unions may not grant unsecured loans or preferential loans (preferential interest rates, loan application procedures, approval processes, collateral requirements, and debt collection measures compared to legal provisions and internal regulations on lending activities and loan management) to the following entities:

a) Members of the Board of Directors, Supervisory Board, General Director, Deputy General Director, and Chief Accountant of the credit union;

b) Auditing organizations and auditors currently auditing, and inspectors currently inspecting at the credit union;

c) Enterprises where one of the entities specified in point a of this clause owns more than 10% of the enterprise's charter capital;

d) Loan evaluators and approvers of the credit union.

2. For loans to entities specified in Clause 1 of this Article, credit unions must ensure the following requirements:

a) The total outstanding loan amount may not exceed 5% of the credit union's own capital;

b) The loan must be approved by the Board of Directors and made public within the credit union;

c) Report to the Banking Inspection and Supervision Department located at the main office of the credit union, or the State Bank branch in the province or city without a Banking Inspection and Supervision Department when such loans occur;

d) Report to the Member Assembly for loans occurring up to the data collection date for the Member Assembly meeting.

3. The total outstanding loan amount for a single corporate member may not exceed the sum of the member's contributed capital and deposit balance at the credit union at any time. The loan term for a corporate member may not exceed the remaining term of their deposits and the loan must be secured by the member's deposits at the credit union.

4. The total outstanding loan amount for a single customer may not exceed 15% of the credit union's own capital.

5. The total outstanding loan amount for customers and related parties may not exceed 25% of the credit union's own capital, with the loan amount for a single customer not exceeding the ratio specified in Clause 4 of this Article.

6. The limits specified in Clauses 4 and 5 of this Article do not apply to:

a) Loans entrusted by the Government, organizations (including credit institutions and foreign bank branches), and individuals;

b) Loans fully secured by deposits at the credit union both in terms of duration and value.

7. Own capital as specified in point a of Clause 2, Clause 4, and Clause 5 of this Article is determined according to the provisions of Clause 3 of Article 5 of this Circular.

REPORTING AND HANDLING VIOLATIONS

Article 9. Reporting

The People's Credit Fund shall report on the implementation of the provisions regarding limits and safety ratios in its operations as prescribed by the State Bank.

Article 10. Handling of violations

The People's Credit Fund and individuals related to violations of the provisions of this Circular shall be subject to legal sanctions according to the nature and degree of violation.

TRANSITIONAL PROVISIONS

Article 11. Responsibilities of the People's Credit Fund

1. At the time this Circular takes effect, if the People's Credit Fund has not ensured compliance with the limits and safety ratios prescribed in this Circular, it must develop remediation plans and proactively implement measures to comply with the regulations.

2. Within a maximum period of thirty (30) days from the date this Circular takes effect, the People's Credit Fund must directly submit or send by post office the remediation plan as stipulated in Clause 2, Article 12 and Point b, Clause 2, Article 13 of this Circular to the Banking Inspection and Supervision Department where the People's Credit Fund is headquartered, or to the State Bank Branch in the province or city where there is no Banking Inspection and Supervision Department.

In cases where the Banking Inspection and Supervision Department located at the head office of the people's credit cooperative, or the State Bank branch in provinces/cities without such a department requests modifications, supplements, or adjustments to the measures for handling, progress, deadlines for implementation, the people's credit cooperative shall be responsible for organizing and implementing according to the requirements.

3. The People's Credit Fund is responsible for supplementing the remediation measures specified in Clause 2 of this Article and the progress of implementation into the restructuring plan of the People's Credit Fund's organization and operations to be implemented synchronously as required by the Banking Inspection and Supervision Department and the State Bank Branch in the province or centrally-administered city.

Article 12. Transitional Provisions for the Maximum Ratio of Short-Term Capital Used for Medium and Long-Term Loans

1. At the time this Circular takes effect, if the People's Credit Fund does not meet the maximum ratio of short-term capital used for medium and long-term loans as prescribed in Clause 1, Article 7 of this Circular, it shall be handled as follows:

a) The People's Credit Fund shall not grant medium and long-term loans until it meets the prescribed ratio in Clause 1, Article 7 of this Circular;

b) The People's Credit Fund must develop a remediation plan and submit it to the Banking Inspection and Supervision Department where the People's Credit Fund is headquartered, or to the State Bank Branch in the province or city where there is no Banking Inspection and Supervision Department.

2. The remediation plan of the People's Credit Fund must include at least the following contents:

a) Specific ratios not met as required;

b) Measures and plans to ensure compliance with the regulations within a maximum period of twelve (12) months from the date this Circular takes effect.

Article 13. Transitional Provisions for Loan Limits

1. For loan contracts signed before the effective date of this Circular, the People's Credit Fund and customers may continue to perform according to the agreements already signed until the end of the contract term. Any amendments or supplements to these contracts can only be made if they comply with the provisions of this Circular and relevant laws.

2. At the time this Circular takes effect, if the People's Credit Fund has loans to customers exceeding the limits prescribed in Point a, Clause 2, Clauses 3, 4, and 5, Article 8 of this Circular, they shall be handled as follows:

a) The People's Credit Fund shall not grant additional loans to customers who do not meet the loan limit requirements until they comply with the loan limit requirements set out in Point a, Clause 2, Clauses 3, 4, and 5, Article 8 of this Circular;

b) The People's Credit Fund must develop a remediation plan, which must include at least the following contents:

(i) List of customers and loans exceeding limits for each customer;

(ii) Measures and plans for handling to ensure compliance, including debt recovery and capital increase.

Article 14. Post-transfer Processing

After the transition period specified in the handling plan under Article 12 of this Circular or the maximum deadline requested by the Banking Inspection and Supervision Department located at the head office of the people's credit cooperative, or the State Bank branch in provinces/cities without such a department, if the people's credit cooperative fails to rectify violations, the Banking Inspection and Supervision Department, or the State Bank branch in provinces/cities without such a department will apply necessary measures, including restructuring according to the law and revoking the business license of the people's credit cooperative, depending on the severity and nature of the risk.

Chapter IV

IMPLEMENTATION

1. The Banking Inspection and Supervision Authority is responsible for:

a) To take the lead in coordinating with departments and bureaus under the State Bank to submit to the Governor of the State Bank for decisions regarding the people's credit cooperative maintaining the prescribed safety limits and ratios as stipulated in Clause 2 of Article 1 of this Circular;

b) The Banking Inspection and Supervision Department shall be responsible for:

(i) Inspecting, supervising, and handling violations by the people's credit cooperative in the province/city where the department is located when implementing the provisions of this Circular;

(ii) Receiving internal regulations of the people's credit cooperative in the area, requesting the people's credit cooperative to amend and supplement internal regulations in accordance with Clause 6 of Article 4 of this Circular;

(iii) Reviewing the handling plan, requesting supplementary or amended handling plans from the people's credit cooperative (if the handling plan does not meet the requirements or does not ensure feasibility) as stipulated in Clause 2 of Article 12 and point b of Clause 2 of Article 13 of this Circular;

(iv) Sending internal regulations and results of the review of the transitional handling plan to the State Bank branch in the province/city for coordination in managing and supervising the implementation of the provisions of this Circular by the people's credit cooperative in the area.

2. The State Bank of Vietnam branch in the province/city directly under the central government shall be responsible for:

a) Inspecting, supervising, and handling violations by the people's credit cooperative in the province/city without a Banking Inspection and Supervision Department when implementing the provisions of this Circular;

b) Guiding the people's credit cooperatives in the area in implementing the provisions of this Circular;

c) Receiving internal regulations of the people's credit cooperative, requesting the people's credit cooperative to amend and supplement internal regulations in accordance with Clause 6 of Article 4 of this Circular;

d) Reviewing the handling plan, requesting supplementary or amended handling plans from the people's credit cooperative (if the handling plan does not meet the requirements or does not ensure feasibility) as stipulated in Clause 2 of Article 12 and point b of Clause 2 of Article 13 of this Circular;

đ) Based on the results of inspections and supervision of the people's credit cooperatives in the area, recommending the State Bank to require the people's credit cooperatives to maintain and apply the prescribed safety limits and ratios as stipulated in Clause 2 of Article 1 of this Circular;

e) Cooperating with the Banking Inspection and Supervision Department in managing and supervising the implementation of the provisions of this Circular by the people's credit cooperative in the area.

Chapter V

IMPLEMENTING PROVISIONS

Article 16. Effective Date

1. This Circular takes effect from March 1, 2016.

2. The following provisions cease to be effective:

a) Decision No. 1328/2005/QĐ-NHNN dated September 6, 2005, on the issuance of "Regulations on Safety Ratios in the Operations of People's Credit Cooperatives";

b) Clause 3 of Article 37 of Circular No. 04/2015/TT-NHNN dated March 31, 2015, on people's credit cooperatives.

Article 17. Implementation Organization

The Director of the Office, the Head of the Banking Inspection and Supervision Department, Heads of units under the State Bank, Governors of State Bank branches in centrally governed provinces/cities, Chairmen of Management Councils, General Directors of Cooperative Banks, Chairmen of Management Councils, and Directors of people's credit cooperatives are responsible for organizing the implementation of this Circular./.