Circular No. 54-TC/TCNH guides the financial management regime for People's Credit Funds in the pilot phase at both regional and grassroots levels.

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
NUMBER: 54-TC/TCNH	HA NOI, SEPTEMBER 14, 1996

 

CIRCULAR

GUIDELINES ON THE FINANCIAL MANAGEMENT REGIME FOR PEOPLE'S CREDIT FUNDS IN THE TRIAL PERIOD ISSUED BY THE MINISTRY OF FINANCE UNDER DECREE NO. 54 TC/TCNH ON SEPTEMBER 14, 1996

BASED ON THE DECISION NO. 390/TTg OF JULY 27, 1993 OF THE PRIME MINISTER ON THE IMPLEMENTATION OF THE TRIAL PROJECT TO ESTABLISH PEOPLE'S CREDIT FUNDS.
AFTER CONSULTING WITH THE STATE BANK AND THE CENTRAL TRIAL PROJECT COMMITTEE FOR THE ESTABLISHMENT OF PEOPLE'S CREDIT FUNDS, THE MINISTRY OF FINANCE GUIDES THE FINANCIAL MANAGEMENT REGIME FOR PEOPLE'S CREDIT FUNDS IN THE TRIAL PERIOD AS FOLLOWS:

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

1\. PEOPLE'S CREDIT FUNDS AT THE REGIONAL LEVEL AND AT THE COMMUNE LEVEL (HEREINAFTER REFERRED TO AS CREDIT FUNDS) ARE TYPES OF COOPERATIVE ECONOMIC ORGANIZATIONS ENGAGED IN THE MONEY MARKET, CREDIT, AND BANKING SERVICES BUSINESS, TRIED AND OPERATED ACCORDING TO THE PROJECT APPROVED BY THE GOVERNMENT.

2\. CREDIT FUNDS HAVE LEGAL PERSONALITY, INDEPENDENT ECONOMIC ACCOUNTING, AUTONOMOUS FINANCIAL MANAGEMENT, IMPLEMENTING THE PRESERVATION AND DEVELOPMENT OF CAPITAL, SELF-COVERING RISKS, AND BEING RESPONSIBLE FOR THE RESULTS OF BUSINESS AND ACTIVITIES BEFORE THE LAW.

3\. CREDIT FUNDS SHALL CONDUCT ACCOUNTING WORK AND FINANCIAL MANAGEMENT ACCORDING TO THE STATUTE ON ACCOUNTING AND STATISTICS, THE GENERAL FINANCIAL REGIME OF THE STATE, AND THE CONTENTS GUIDED IN THIS CIRCULAR. CREDIT FUNDS SHALL IMPLEMENT THE PRINCIPLE OF FINANCIAL TRANSPARENCY TOWARDS THE MEMBERS OF THE FUND.

4\. CREDIT FUNDS ARE SUBJECT TO FINANCIAL MANAGEMENT BY THE FINANCIAL AUTHORITY. THE FISCAL YEAR OF THE FUND IS CALCULATED FROM JANUARY 1 TO DECEMBER 31 OF EACH YEAR.

II\. CONTENTS OF FINANCIAL MANAGEMENT

1\. REGARDING THE SOURCES OF CAPITAL FOR CREDIT FUNDS:

a\. SHARE CAPITAL INCLUDES:

- SHARES ESTABLISHED BY THE MEMBERS CONTRIBUTING ACCORDING TO THE FUND'S CHARTER.

- REGULAR SHARES ISSUED ANNUALLY BY THE FUND.

b\. FUNDS RAISED BY THE FUND: CREDIT FUNDS MAY RAISE THE FOLLOWING SOURCES OF FUNDS:

- DEPOSITS FROM MEMBERS.

- DEPOSITS FROM ORGANIZATIONS AND INDIVIDUALS.

c\. LOANS OF REGIONAL CREDIT FUNDS, NATIONAL CREDIT FUNDS, AND OTHER FINANCIAL AND CREDIT ORGANIZATIONS.

2\. REGIME FOR THE USE AND PRESERVATION OF CAPITAL OF CREDIT FUNDS:

a\. SHARE CAPITAL OF CREDIT FUNDS SHALL BE USED FOR THE FOLLOWING PURPOSES:

- MAINLY FOR LOANS.

- BUILDING AND PURCHASING FIXED ASSETS TO SERVE THE FUND'S ACTIVITIES.

- CONTRIBUTING SHARE CAPITAL INTO REGIONAL CREDIT FUNDS (FOR COMMUNE LEVEL CREDIT FUNDS), NATIONAL CREDIT FUNDS (FOR REGIONAL LEVEL CREDIT FUNDS).

THE AMOUNT OF SHARE CAPITAL USED FOR THESE PURPOSES IS DECIDED BY THE BOARD OF MANAGEMENT OF THE FUND, BUT THE AMOUNT USED FOR THE TWO PURPOSES ABOVE SHALL NOT EXCEED 50% OF THE ACTUAL SHARE CAPITAL. CREDIT FUNDS MUST MAINTAIN THE ACTUAL SHARE CAPITAL REFLECTED IN THE ACCOUNTING BOOKS AT A LEVEL NOT LOWER THAN THE LEGAL REQUIREMENTS SET BY THE STATE BANK.

b\. FUNDS RAISED AND LOANS OF CREDIT FUNDS SHALL MAINLY BE USED FOR LOANS TO ORGANIZATIONS AND INDIVIDUALS WHO ARE MEMBERS OF THE FUND.

THE AMOUNT OF LOANS, TERMS, AND INTEREST RATES FOR LOANS MUST COMPLY WITH THE REGIMES SET BY THE STATE BANK.

c\. CREDIT FUNDS ARE RESPONSIBLE FOR MANAGING AND USING CAPITAL IN ACCORDANCE WITH THE REGULATIONS: CORRECTLY TARGETED, PURPOSEFUL, EFFECTIVE, FULL AND TIMELY RECOVERY (INCLUDING BOTH PRINCIPAL AND INTEREST), CAPITAL PRESERVATION, AND THE FUND MUST PURCHASE DEPOSIT INSURANCE TO ENSURE FULL AND TIMELY PAYMENT TO DEPOSITORS.

RISKS AND LOSSES OF CAPITAL IN OPERATIONS ARE COVERED BY THE RISK BUFFER FUND (THIS FUND IS FORMED BY DEDUCTING FROM EXPENSES ACCORDING TO THE GUIDANCE IN THIS DOCUMENT).

3\. REGIME FOR INCOME AND EXPENSES OF CREDIT FUNDS:

3.1\. INCOME ITEMS:

a\. INCOME FROM BUSINESS INCLUDES:

- INTEREST RECEIVED FROM LOANS INCLUDING SHORT-, MEDIUM-, AND LONG-TERM LOAN INTEREST.

- INTEREST RECEIVED FROM DEPOSITS INCLUDING INTEREST FROM DEMAND DEPOSITS AND TERM DEPOSITS.

- INTEREST RECEIVED FROM JOINT INVESTMENT IN SHARES.

- INCOME FROM GOLD, SILVER, AND PRECIOUS STONE TRADING.

- INCOME FROM FOREIGN EXCHANGE TRADING.

- INCOME FROM BANKING SERVICES.

- OTHER INCOME FROM BUSINESS ACTIVITIES.

b\. OTHER INCOME: INCLUDING OTHER INCOME OF CREDIT FUNDS NOT RELATED TO BUSINESS SUCH AS SURPLUS FUNDS, SURPLUS ASSETS, ETC.

3.2\. EXPENSE ITEMS:

a\. BUSINESS EXPENSES

- INTEREST PAID ON DEPOSITS. - INTEREST PAID ON LOANS.

- INTEREST PAID ON BILLS AND BONDS ISSUED.

- EXPENSES FOR GOLD, SILVER, AND PRECIOUS STONE TRADING.

- EXPENSES FOR FOREIGN EXCHANGE TRADING.

- OTHER BUSINESS EXPENSES.

b) Administrative expenses:

- WAGES INCLUDING PAYMENTS FOR WAGES AND WAGE-LIKE BENEFITS FOR FUND STAFF, SUBSIDIES FOR STAFF DETACHED TO WORK AT THE FUND (IF ANY).

SOCIAL INSURANCE, HEALTH INSURANCE, AND OTHER CONTRIBUTIONS ACCORDING TO WAGES OF THOSE WORKING DIRECTLY AT THE CREDIT FUND SHALL BE DEDUCTED ACCORDING TO THE REGULATIONS.

- DEPRECIATION OF FIXED ASSETS.

- EXPENSES FOR NECESSARY EQUIPMENT PURCHASES FOR FUND ACTIVITIES.

- EXPENSES FOR MAINTENANCE AND REPAIR OF ASSETS.

- EXPENSES FOR OFFICE SUPPLIES AND STATIONERY.

- EXPENSES FOR SAFEKEEPING.

- POSTAGE AND TELEGRAPH EXPENSES.

- MEETING EXPENSES OF THE FUND.

- TRAINING AND PROFESSIONAL SKILL DEVELOPMENT EXPENSES FOR FUND STAFF.

- WATER, ELECTRICITY, AND SANITATION EXPENSES.

- OTHER NECESSARY EXPENSES FOR FUND ACTIVITIES.

c\. TAX PAYMENTS ACCORDING TO THE TAX LAWS.

d\. DEDUCTION TO THE RISK BUFFER FUND.

3.3\. MANAGEMENT OF INCOME AND EXPENSES:

a\. CREDIT FUNDS MUST COLLECT ALL INCOME GENERATED DURING BUSINESS ACTIVITIES PROMPTLY AND ACCURATELY AND RECORD IT IN THE INCOME ACCOUNT. CREDIT FUNDS SHALL NOT ALLOW ANY INCOME TO REMAIN UNACCOUNTED FOR OR NOT RECORDED IN THE INCOME ACCOUNT.

b\. CREDIT FUNDS SHALL BE ALLOWED TO SPEND ON FUND OPERATIONS AS FOLLOWS:

- BUSINESS EXPENSES: SPENDING ACCORDING TO THE ACTUAL AMOUNTS INCURRED DURING OPERATIONS AT THE INTEREST RATE DETERMINED BY THE BOARD OF MANAGEMENT ACCORDING TO THE INTEREST RATE MECHANISM OF THE STATE BANK.

- WAGES, SUBSIDIES, AND COMPENSATION FOR FUND STAFF SHALL BE DECIDED BY THE BOARD OF MANAGEMENT ACCORDING TO THE ANNUAL GENERAL MEETING RESOLUTION. THE WAGE LEVEL SHOULD BE LINKED TO THE BUSINESS RESULTS OF THE FUND, ENSURING THE LIVING STANDARDS OF STAFF, AND BE CONSISTENT WITH THE INCOME LEVEL OF LABORERS IN THE SAME INDUSTRY IN THE SAME AREA.

- EXPENSES FOR FIXED ASSETS:

+ Provision for depreciation of fixed assets: Annually, based on the value of fixed assets subject to depreciation and the basic depreciation rate prescribed by the State regulations, Credit Unions must accurately and fully provide for the depreciation of fixed assets.

+ Expenditure on maintenance and repair of assets according to necessary requirements within the annual plan approved by the Annual General Meeting. When carrying out maintenance and repair of fixed assets, there must be a budget estimate and strict settlement according to the prescribed regulations. Expenditure on maintenance and repair is recorded as expenses for the actual amount spent on maintenance and repair work completed and settled during the year and approved.

+ Expenditure on purchasing labor tools (working equipment not included in fixed assets): expenditure on purchasing necessary labor tools for the operation of the Credit Union within the annual plan approved by the Annual General Meeting.

+ The Credit Union may incur expenditure on purchasing deposit insurance according to insurance contracts with insurance organizations.

+ Other expenditures such as postal fees, water and electricity charges, office supplies, stamps... are incurred according to necessary requirements for the normal operation of the Credit Union.

c) All foreign currency income and expenditure (if any) shall be converted into Vietnamese Dong at the actual exchange rate at the time of occurrence for recording in revenue and expenses.

d) The Credit Union records actual income and expenses according to the guidance above, based on having complete legal vouchers.

e) Risk compensation fund: is provided from costs throughout the year at a rate of 1.0% to 1.5% of the average annual outstanding loans, based on the principle: ensuring that after providing this fund, the Credit Union still makes a profit. During the year, based on business results and potential risks, the Board of Directors of the Credit Union decides the level of provision to form the monthly and quarterly risk compensation fund to ensure the total provision for the year within the specified ratio.

h) The Credit Union is responsible for implementing the above expenditures according to State regulations and provisions in this document. The Credit Union shall not record the following items as expenses:

- Losses and damages to capital and assets caused by individuals or groups which are their personal or collective responsibility to compensate, and shall not be recorded as expenses or used from the risk compensation fund to offset.

- Expenditures on construction and purchase of fixed assets must be taken from the basic construction fund.

- Losses from risks covered by the risk compensation fund.

If any of the above items occur, they must be offset using the correct source.

4/ Profit Distribution:

- The annual operating profit of the Credit Union is determined based on: total income realized in the year minus (-) total reasonable and valid expenses realized in the year by the Credit Union.

The annual realized profit of the Credit Union is distributed as follows:

- Pay tax interest according to the law (during the period exempted or reduced, the exempted or reduced amount is added to the supplementary capital reserve fund, not used for distribution).

- The remainder (considered as 100%) is further distributed as follows:

+ Provide 5% to establish a supplementary capital reserve fund.

+ Provide a minimum of 35% to establish a business development fund.

+ Distribute dividend according to the actual contributed capital of each shareholder as stipulated in the charter (the maximum distribution rate does not exceed the average loan interest rate for the year calculated for each share of actual contributed capital).

+ Establish a bonus and welfare fund.

The specific annual provision for the business development fund, bonus fund, welfare fund, and dividend distribution is proposed by the Board of Directors and reviewed and approved by the Annual General Meeting according to the principle: ensuring the existence and development of the Credit Union, the rights of capital contributors and employees working for the Credit Union, and being consistent with the achieved results (profit) each year.

- In case of losses in the business results of the year, the risk compensation reserve fund, the supplementary capital reserve fund, and the business development fund can be used to offset, if still insufficient, the profits realized in subsequent years will be used to offset according to the prescribed regulations. 5/ Management and use of funds:

- The Credit Union must open separate accounts for each type of fund according to the prescribed regulations. The distribution and use of funds are determined by the Board of Directors according to the resolution of the Annual General Meeting.

- The supplementary capital reserve fund is provided to increase the registered capital. This fund can be used for purposes such as the use of registered capital as directed in point 2 of Part II mentioned above.

- The risk compensation reserve fund: is recorded separately, used to offset losses and damages to capital and assets during operations or due to business losses, and shall not be used for other purposes, the specific annual usage level is decided by the Board of Directors after review.

- The bonus fund is used for:

+ Regular and extraordinary bonuses for units, individuals within the organization who have made contributions leading to effective business results.

+ Bonuses for members of the Credit Union who have made contributions leading to effective business results for the Credit Union.

- The welfare fund is used for:

+ Investment in building, purchasing, and repairing welfare assets of the unit. + Expenditure on welfare needs of the Credit Union's staff such as hardship allowances, cultural, sports activities...

6/ Obligation to collect and pay taxes to the State budget:

According to the current Tax Law, the Credit Union must timely and fully pay into the State budget the following taxes as prescribed:

+ Business license tax as prescribed by the Government.

+ Income tax: 45% calculated on taxable income according to Decree No. 57/CP dated August 28, 1993 of the Government. For the first two years of establishment, starting from when income begins, income tax is temporarily exempted to invest in maintaining and expanding the scope of business, and reduced by 50% of income tax in the next two years (according to the guidance of the Ministry of Finance in document No. 198 TC/TCT dated January 25, 1994).

- Other taxes as prescribed by law.

7/ Accounting and bookkeeping system:

- The Credit Union is responsible for opening accounting books, recording vouchers, and conducting financial accounting and settlement according to the regulations of the State in the Accounting and Statistics Ordinance and detailed guidelines of the State Bank.

- The credit union is responsible for preparing financial settlement statements and submitting the following quarterly and annual reports to the local tax authority and the local State Bank: + Balance sheet.

+ Annual financial settlement report.

+ Report on changes in fixed assets.

+ Report on changes in reserve funds.

Deadline for submission of reports:

+ Quarterly financial settlement report must be submitted no later than 20 days after the end of the quarter. Annual financial settlement report must be submitted no later than 40 days after the end of the year.

The annual financial settlement of the credit union shall be reviewed by the Board of Directors and approved by the Annual General Meeting. The tax authority and the local State Bank shall conduct financial settlement inspections of the credit union according to their management functions.

8/ Financial planning:

The credit union is responsible for developing the annual financial plan, which shall be reviewed by the Board of Directors and then submitted to the Annual General Meeting for approval. Before December 31 of the year preceding the planned year, the credit union must submit the following documents to the local tax authority and the local State Bank for monitoring purposes:

- Plan for sources and use of capital.

- Plan for business results.

- Plan for construction and purchase of assets.

- Plan for establishment and use of reserve funds.

III- IMPLEMENTATION PROVISIONS

The credit union is liable under the law for the use and preservation of state capital and assets, economic organizations' and individuals' capital and assets aimed at mutual cooperation and assistance for production development and people's livelihoods, while building and developing the People's Credit Union system according to the new model approved by the Government.

The credit union is liable under the law for implementing the financial management system of the credit union as stipulated in this document and is subject to supervision and inspection by financial authorities and the State Bank according to prescribed regulations.

This Circular applies to grassroots People's Credit Unions and regional People's Credit Unions during the pilot phase and takes effect from January 1, 1996.

In case of difficulties during implementation, please reflect them to the Ministry of Finance for consideration and resolution.

Nguyen Sinh Hung (Signed)