Circular No. 42/2016/TT-NHNN on ranking people's credit funds

CIRCULAR

Regulations on ranking people's credit funds

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 ranking of people's credit funds.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular regulates the process of ranking people's credit funds.

Article 2. Applicability

1. This Circular applies to the following entities:

a) People's Credit Funds;

b) Organizations and individuals related to the ranking of people's credit funds.

2. This Circular does not apply to:

a) People's credit funds under special control;

b) People's credit funds implementing procedures and formalities for revoking their establishment and operation licenses according to the law;

c) People's credit funds with less than 24 months of operational time from the date of commencement of operations.

Article 3. Method of ranking people's credit funds

1. The ranking of people's credit funds shall be based on the criteria stipulated in Article 5 of this Circular.

Article 4. Documents, information, and data for ranking

1. Documents and information for ranking people's credit funds include:

a) Statistical reports in accordance with the reporting system for people's credit funds;

b) Independent audit reports, management letters; self-inspection and evaluation reports on internal control systems; internal audit reports and audit files (if they are required to undergo independent audits);

c) Internal regulations, procedures, and charters of people's credit funds;

d) Accounting account balances; Annual financial statements (for people's credit funds required to undergo independent audits, the financial statements must be audited in accordance with the law);

e) Minutes of meetings between the Banking Inspection and Supervision Agency and people's credit funds and explanations provided by people's credit funds at the request of the Banking Inspection and Supervision Agency;

g) Minutes of inspection results by relevant agencies including the Tax Authority, the Deposit Insurance Corporation of Vietnam, and the Cooperative Bank.

2. Data and information used for assessment and scoring:

a) Data used to score the Capital criterion (excluding the Maintain Capital Adequacy Ratio criterion), Asset Quality, and Business Operation Results shall be determined as of December 31 of the ranking year;

b) The Maintain Capital Adequacy Ratio, Management, Governance, Control, and Liquidity criteria shall be scored based on the results of monitoring at various reporting periods throughout the fiscal year.

Article 5. Ranking criteria and points for each criterion

The total points for ranking criteria is 100 points, allocated as follows:

Chapter II

SPECIFIC PROVISIONS

Section 1

SCORING FOR RANKING CRITERIA

Article 6. Scoring for the Capital Criterion

The Capital criterion has a maximum of 10 points and a minimum of 0 points, and includes three sub-criteria scored as follows:

1. Equity-to-Required Capital Ratio:

a) 500% or more earns 3 points;

b) 400% to less than 500% earns 2 points;

c) 300% to less than 400% earns 1 point;

d) Less than 300% earns 0 points.

2. Capital Adequacy Ratio:

a) 10% or more earns 5 points;

b) 9% to less than 10% earns 3 points;

c) 8% to less than 9% earns 1 point;

d) Less than 8% earns 0 points.

3. Maintaining Capital Adequacy Ratio:

Compliance with the State Bank's minimum capital adequacy ratio requirement continuously throughout the year earns 2 points. Each violation of the capital adequacy ratio (at any time during the year) deducts 1 point, up to a maximum deduction of 2 points.

Article 7. Scoring Criteria for Asset Quality

The Asset Quality criterion has a maximum score of 30 points, a minimum score of 0 points, and includes three component criteria scored as follows:

1. Non-performing loan ratio to total outstanding loans:

a) Equal to 0% scores 14 points;

b) From above 0% to 1% scores 12 points;

c) From above 1% to 2% scores 10 points;

d) From above 2% to 3% scores 8 points;

đ) From above 3% to 4% scores 4 points;

e) From 4% and above scores 0 points.

2. Potential loss loan ratio to total outstanding loans:

a) Equal to 0% scores 10 points;

b) From above 0% to less than 0.5% scores 9 points;

c) From 0.5% to less than 1% scores 7 points;

d) From 1% to less than 1.5% scores 5 points;

đ) From 1.5% to less than 2% scores 3 points;

e) From 2% and above scores 0 points.

3. Loans requiring attention ratio to total outstanding loans:

a) Equal to 0% scores 6 points;

b) From above 0% to less than 1% scores 5 points;

c) From 1% to less than 2% scores 4 points;

d) From 2% to less than 3% scores 3 points;

đ) From 3% to less than 4% scores 2 points;

e) From 4% and above scores 0 points.

Article 8. Scoring Criteria for Management, Governance, Control Capacity

The Management, Governance, Control Capacity criterion has a maximum score of 30 points, a minimum score of 0 points, and includes four component criteria scored as follows:

1. Compliance with the Law on Credit Institutions and the State Bank's regulations on conditions and standards for Board of Directors members, Supervisory Board members or dedicated supervisors, and General Managers scores 3 points. Each non-compliant entity among Board of Directors members, Supervisory Board members or dedicated supervisors, and General Managers deducts 1 point, up to a maximum deduction of 3 points.

2. Compliance with the Law on Credit Institutions and the State Bank's regulations on capital contributions from members, transfers, refunds of capital contributions, and conditions regarding members and operating areas scores 2 points. Each violation deducts 1 point, up to a maximum deduction of 2 points.

3. Compliance with the Law on Credit Institutions and the State Bank's regulations on operations scores 23 points. In case of violations by credit unions, deductions are made as follows:

a) Failure to issue complete internal regulations, procedures, and charter activities of credit unions; contents of internal regulations, procedures, and charters not conforming to legal provisions. Each incomplete or non-conforming regulation, procedure, or charter deducts 1 point, up to a maximum deduction of 2 points;

b) Failure to comply with internal regulations, procedures, and charters. Each violation (at any time during the year) deducts 1 point, up to a maximum deduction of 2 points;

c) Failure to comply with regulations concerning: credit issuance, lending limits; loan classification, risk reserve provisioning and usage; treasury management, payments, accounting bookkeeping, account opening and usage; accounting entries; financial income and expenditure; profit settlement and distribution; capital raising and service fees; entrusted agency activities; asset acquisition, investment, management, and usage; asset safety work, cash vaults; participation in the System-wide Credit Union Safety Guarantee Fund, deposit insurance; anti-money laundering; credit information; implementation of state management authority requirements and recommendations; license management and usage. Each violation (at any time during the year) deducts 1 point, up to a maximum deduction of 13 points;

d) Lending to customers for profit-seeking or asset appropriation purposes. Each violation deducts 6 points, up to a maximum deduction of 6 points.

4. Compliance with reporting systems scores a maximum of 2 points. In case of violations by credit unions, deductions are made as follows:

b) Incorrect information or data in reports from two instances and above deducts 1 point.

Article 9. Scoring Criteria for Business Operation Results

The Business Operation Results criterion has a maximum score of 10 points and a minimum score of 0 points, and includes three component criteria scored as follows:

1. Profit margin/revenue ratio:

a) 4 points for 10% or more;

b) 3 points for 5% to less than 10%;

c) 2 points for 1% to less than 5%;

d) 0 points for less than 1%.

2. Profit margin/average total assets ratio:

a) 4 points for 2% or more;

b) 3 points for 1.5% to less than 2%;

c) 2 points for 1% to less than 1.5%;

d) 0 points for less than 1%.

3. Net profit/equity ratio:

a) 2 points for 10% or more;

b) 1 point for 8% to less than 10%;

c) 0 points for less than 8%.

Article 10. Scoring Criteria for Payment Capacity

The Payment Capacity criterion has a maximum score of 20 points and a minimum score of 0 points, and includes three component criteria with scores as follows:

1. Next-day payment capacity ratio:

a) 8 points if the ratio is always greater than or equal to 1;

b) 4 points if there is one instance where the ratio is less than 1;

c) 1 point if there are two instances where the ratio is less than 1;

d) 0 points if there are three or more instances where the ratio is less than 1.

2. Payment capacity ratio over a period of seven consecutive working days:

a) 8 points if the ratio is always greater than or equal to 1;

b) 4 points if there is one instance where the ratio is less than 1;

c) 1 point if there are two instances where the ratio is less than 1;

d) 0 points if there are three or more instances where the ratio is less than 1.

3. Maximum short-term capital usage ratio for medium- and long-term loans:

a) 4 points if the ratio is always less than or equal to 30%;

b) 2 points if there is one instance where the ratio exceeds 30%;

c) 1 point if there are two instances where the ratio exceeds 30%;

d) 0 points if there are three or more instances where the ratio exceeds 30%.

Article 11. Total Score Calculation

The total ranking score of the people's credit fund is the sum of the scores achieved under the criteria specified in Articles 6, 7, 8, 9, and Article 10 of this Circular.

Section 2

RANKING, ANNOUNCEMENT AND MANAGEMENT OF RANKING RESULTS

Article 12. Ranking

1. People's credit funds are ranked as follows: Class A (Excellent) with a total ranking score of 80 points or more; Class B (Good) with a total ranking score from 70 points to less than 80 points; Class C (Average) with a total ranking score from 60 points to less than 70 points; Class D (Weak) with a total ranking score below 60 points.

2. In cases where one or more component criteria of any criterion have a score of "0", the ranking will be reduced by one level.

1. Before April 30 each year, the State Bank branch and the Banking Inspection and Supervision Department complete the ranking of people's credit funds for the previous year.

2. Within five working days from the date of the ranking results, the State Bank branch and the Banking Inspection and Supervision Department report to the Governor of the State Bank the ranking results of people's credit funds in their jurisdiction (through the Banking Inspection and Supervision Agency) according to Form 01 and Form 02 issued together with this Circular.

3. Before June 15 each year, the Banking Inspection and Supervision Agency leads the review and submits to the Governor of the State Bank for approval the ranking results of people's credit funds to be sent to the State Bank branches and the Banking Inspection and Supervision Departments for implementation of supervision as prescribed.

1. Within five days from the date of receipt of the approved ranking results from the Governor of the State Bank, the State Bank branch and the Banking Inspection and Supervision Department announce the ranking results to each people's credit fund in their jurisdiction.

2. People's credit funds must manage the ranking results confidentially and may not provide their ranking results to organizations or individuals outside the people's credit funds.

IMPLEMENTING PROVISIONS

Article 15. Effective Date

1. This Circular takes effect from May 1, 2017.

2. The ranking of people's credit funds in 2016 continues to be implemented according to the provisions of Decision No. 14/2007/QD-NHNN dated April 9, 2007, of the Governor of the State Bank promulgating the Regulation on Classification of People's Credit Funds.

3. Decision No. 14/2007/QD-NHNN dated April 9, 2007, of the Governor of the State Bank promulgating the Regulation on Classification of People's Credit Funds ceases to be effective from the date this Circular takes effect.

Article 16. Implementation Organization

The Director of the State Bank Office, the Director of the Banking Inspection and Supervision Agency, the Heads of relevant units under the State Bank, the Directors of State Bank branches, the Chairmen of the Management Boards, and the Directors of people's credit funds are responsible for implementing this Circular.