Circular No. 33/2015/TT-NHNN stipulates safety ratios in the operation of microfinance organizations

 

CIRCULAR

Regulations on safety ratios in operations

by microfinance organizations

_______________________

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

Pursuant to the Law on Credit Institutions 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 regulating safety ratios in the operations of microfinance organizations.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular regulates safety ratios in the operations of microfinance organizations, including:

b) Liquidity ratio;

b) Liquidity ratio.

2. Based on the results of supervision and inspection by the State Bank of Vietnam (hereinafter referred to as the State Bank) of microfinance organizations, if necessary to ensure safety in the operations of microfinance organizations, depending on the nature and level of risk, the State Bank may require microfinance organizations to implement stricter safety ratios than those specified in this Circular.

Article 2. Applicability

This Circular applies to:

1. Microfinance organizations operating in Vietnam;

2. Organizations and individuals related to the operations of microfinance organizations.

Article 3. Explanation of Terms

1. Loan Balance including the total outstanding loans within the due period and overdue loans of microfinance organizations.

2. Undistributed profit is the undistributed portion of profit determined after the annual financial report has been audited independently and decided by the Board of Members or the owner of the microfinance organization to retain for the purpose of supplementing capital for the microfinance organization.

Chapter II

SPECIFIC PROVISIONS

Article 4. Minimum Capital Adequacy Ratio

1. Microfinance organizations must maintain a minimum capital adequacy ratio of 10% continuously.

2. The capital adequacy ratio is calculated using the following formula:

                                                             Tier 1 Capital

          Capital Adequacy Ratio     =     -----------------------------   x    100 (%)

                                                  Total Risk-Weighted Assets

Where:

- Tier 1 Capital is determined according to the provisions of Article 5 of this Circular.

- Total Risk-Weighted Assets is the total value of assets with risk weights as defined in Article 6 of this Circular.

3. Specific methods for calculating the capital adequacy ratio are detailed in Appendix No. 01 attached to this Circular.

Article 5. Capital

1. The Tier 1 Capital of microfinance organizations is determined by adding Tier 1 Capital and Tier 2 Capital and subtracting the amount deducted from Tier 1 Capital at the time of determining Tier 1 Capital.

2. Tier 1 Capital includes:

a) Registered capital;

b) Supplementary reserve fund for registered capital;

c) Business development investment fund;

d) Undistributed profit;

đ) Capital provided by organizations and individuals without repayment to microfinance organizations.

3. Tier 2 Capital includes:

a) 50% of the increase resulting from revaluation of fixed assets as prescribed by law;

b) Financial Reserve Fund;

c) General reserves, maximum equal to 1.25% of total risk-weighted assets;

d) Debts of microfinance organizations satisfying the following conditions:

(i) Initial term of at least ten years;

(ii) Not secured by assets of the microfinance organization;

(iii) The microfinance organization cannot repay before maturity;

(iv) The microfinance organization can suspend interest payments and carry forward accrued interest to the next year if paying interest leads to a loss in that year;

(v) In the event of dissolution or bankruptcy of the microfinance organization, creditors will only be paid after all other creditors have been paid;

(vi) Interest rate adjustments can only be made five years after the contract is signed and only once during the term of the debt.

4. Limitations when determining Tier 2 Capital:

a) The total value of Tier 2 Capital included in Tier 1 Capital shall not exceed 100% of the value of Tier 1 Capital;

b) The total value of debts as stipulated in point d, Clause 3, Article 39 of this Circular included in Tier 2 Capital shall not exceed 50% of the value of Tier 1 Capital;

c) Starting from the fifth year before the payment deadline, each year on the corresponding date of signing the contract, the value of the debts as stipulated in point d, Clause 3, Article 39 of this Circular included in Tier 2 Capital as stipulated in point b, Clause 4, Article 40 of this Circular shall be reduced by 20% annually.

5. Amounts deducted from Tier 1 Capital include:

a) Accumulated losses;

b) 100% of the decrease resulting from revaluation of fixed assets as prescribed by law.

Article 6. Assets "Have" with Risk

The assets "Have" of microfinance organizations shall be classified into risk categories as follows:

1. Category of assets "Have" with a risk coefficient of 0% includes:

a) Cash;

b) Deposits at the State Bank;

c) Loan balances secured entirely by deposits (voluntary deposits, mandatory savings) within the same microfinance organization;

d) Loan balances secured entirely by securities issued by the Government;

đ) Entrusted loan balances, loan balances funded by sponsored capital in accordance with regulations on entrustment and acceptance of entrustment from other credit institutions, foreign bank branches.

2. Category of assets "Have" with a risk coefficient of 20% includes:

a) Deposits at commercial banks;

b) Loan balances secured entirely by deposits at other credit institutions, foreign bank branches in Vietnam;

c) Loan balances secured entirely by securities issued by state financial organizations, other credit institutions, foreign bank branches in Vietnam.

3. Category of assets "Have" with a risk coefficient of 50% includes:

a) Loan balances secured by residential property, land use rights, residential property attached to land use rights of borrowers within the microfinance organization;

b) Loan balances guaranteed by groups of depositors and borrowers within the same microfinance organization.

4. Category of assets "Have" with a risk coefficient of 100% includes:

a) Loan balances to customers, excluding loan balances specified in Clause 1, Clause 2, and Clause 3 of this Article;

b) All other assets "Have", excluding the assets "Have" specified in Clause 1, Clause 2, Clause 3, and point a of Clause 4 of this Article.

Article 7. Internal Regulations on Liquidity Management

1. Based on the provisions of this Circular, current regulations of the State Bank, and actual operations, the Board of Members of microfinance organizations must issue internal regulations on liquidity management as stipulated in Clause 2 of this Article; review, amend, and supplement at least once a year to effectively manage the liquidity capacity of microfinance organizations.

a) Assignment of staff to monitor the ability to pay of microfinance organizations;

b) Plan to implement payments of deposits (voluntary deposits and mandatory savings) in cases where the liquidity ratio is not met;

c) Regulations on cash management, income, expenditure, daily sources of funds, and regulations on holding negotiable instruments easily convertible to cash;

c) Provisions on treasury management, income and expenditure, daily sources of funds, and provisions on holding easily convertible securities.

3. Within ten working days from the date of issuance or amendment of internal regulations on liquidity management, microfinance organizations must directly send or send by post the internal regulations on liquidity management or the amended and supplemented internal regulations mentioned above to the State Bank branch in the province or centrally-administered city without a Banking Inspection and Supervision Department, or send to the Banking Inspection and Supervision Department in the province or centrally-administered city where the main office of the microfinance organization is located.

Article 8. Ratio of Payment Capacity

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

A = B/C x 100 (%)

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 &

                             A      =  --------------------x     100 (%)

                                                     C

Where:

A: is the ratio of payment ability.

B: cash, deposits at the State Bank, commercial banks (if any).

C: total voluntary deposit balance.

4. Microfinance organizations are at risk of losing the ability to pay when the shortage of cash, balance of settlement accounts of microfinance organizations opened at the State Bank, deposits of microfinance organizations at credit institutions, branches of foreign banks exceeds 20% at the time of calculating the liquidity ratio, leading to inability to maintain the liquidity ratio stipulated in this Circular for a continuous period of 30 days.

Chapter III

REPORTING, HANDLING VIOLATIONS AND LIABILITY

OF RELATED UNITS

Article 9. Report

Microfinance organizations shall report on the implementation of the prescribed safety ratios in their operations according to the reporting and statistical system regulations of the State Bank of Vietnam.

Article 10. Handling of violations

Microfinance organizations and related individuals who violate the provisions of this Circular shall be subject to handling according to the law, depending on the nature and behavior of the violation.

Article 11. Responsibilities of Related Units

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

a) Take the lead and coordinate with relevant Departments and Bureaus to submit to the Governor of the State Bank of Vietnam for consideration and request microfinance organizations to implement specific ratios as stipulated in Clause 2, Article 1 of this Circular;

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

(i) Inspecting, supervising, and handling violations by microfinance organizations in implementing the safety ratios prescribed in this Circular within its authority;

(ii) Receiving internal regulations and documents amending and supplementing internal regulations of microfinance organizations in the area according to this Circular.

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

a) Inspect, supervise, and handle violations by microfinance organizations in implementing the safety ratios prescribed in this Circular within its authority;

b) Receive internal regulations and documents amending and supplementing internal regulations of microfinance organizations in the area according to this Circular;

c) On the basis of inspection and supervision results of microfinance organizations in the area, propose to the State Bank of Vietnam to require microfinance organizations to implement specific ratios as stipulated in Clause 2, Article 1 of this Circular;

d) Coordinate with the Banking Inspection and Supervision Bureau in managing and supervising the implementation of the provisions of this Circular by microfinance organizations in the area.

Chapter IV

IMPLEMENTING PROVISIONS

Article 12. Effective Date

This Circular takes effect from March 1, 2016, and replaces Circular No. 07/2009/TT-NHNN dated April 17, 2009, issued by the Governor of the State Bank of Vietnam on safety ratios in the operations of small-scale financial organizations.

Article 13. Implementation Organization

The Director of the Office, the Head of Banking Inspection and Supervision, Heads of units under the State Bank of Vietnam, Governors of State Bank of Vietnam branches in provinces and centrally-administered cities, Chairmen of the Board of Members, General Directors (Directors) of microfinance organizations are responsible for organizing the implementation of this Circular.