Circular No. 63/2006/TT-BTC guiding the financial regime for Central Credit Cooperatives Fund

CIRCULAR

Guidelines for implementing financial regimes for

Central Credit Cooperatives

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Implementing Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regimes for credit organizations; based on the organizational structure and nature of operations of the system of credit cooperatives, the Ministry of Finance provides specific guidelines on certain aspects of the financial regime for central credit cooperatives as follows:

PART I

GENERAL PROVISIONS

1. The subject of this Circular is the Central Credit Cooperative established, organized, and operated according to the Law on Credit Organizations No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Organizations No. 20/2004/QH11 dated June 15, 2004.

2. Financial activities of the Central Credit Cooperative shall be carried out in accordance with the provisions of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on financial regimes for credit organizations, the specific guidance provided in this Circular, and other regulatory documents concerning financial management.

3. The Chairman of the Board of Management, General Director of the Central Credit Cooperative shall be responsible under the law and before state management agencies for the implementation of the financial regime of the Central Credit Cooperative.

Chapter II

SPECIFIC PROVISIONS

I. MANAGEMENT OF CAPITAL AND ASSETS

1. Charter capital is the amount of capital recorded in the Charter of the Central Credit Cooperative, including:

- Capital support from the Government.

- Capital contributions from member credit cooperatives.

- Capital contributions from other legal entities and individuals.

2. The actual charter capital of the Central Credit Cooperative as stipulated in Article 6 of Decree No. 146/2005/NĐ-CP is the charter capital reflected in the accounting books of the Central Credit Cooperative.

3. The Central Credit Cooperative has the responsibility to monitor all existing assets and capital, implement accounting in accordance with current accounting regulations; fully, accurately, and promptly reflect the situation of capital and asset usage and changes during business operations, clearly defining the responsibilities of each department and individual for cases of damage or loss of assets.

4. The Central Credit Cooperative may use operating capital to serve business activities in accordance with the Law on Credit Organizations No. 02/1997/QH10 dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Organizations No. 20/2004/QH11 dated June 15, 2004, following the principle of ensuring safety and developing capital. The Central Credit Cooperative may purchase and invest in fixed assets according to the principle that the remaining value of fixed assets does not exceed 50% of first-tier own capital and must comply with all state regulations on investment and construction management.

5. When there is a loss of assets, the Central Credit Cooperative must determine the cause, responsibility, and handle it as follows:

5.1. If the cause is subjective, the person causing the loss must compensate. The Board of Management or the General Director of the Central Credit Cooperative decides the level of compensation according to the law and is responsible for their decision.

5.2. If the asset was insured, it will be handled according to the insurance contract.

5.3. Utilize reserve funds established within expenses to offset losses in accordance with the law.

5.4. The value of the loss after compensating with personal and collective compensation, insurance organization compensation, and utilizing reserve funds established within expenses, if insufficient, will be covered by the financial reserve fund of the Central Credit Cooperative. In case the financial reserve fund is insufficient to cover the shortfall, the deficit will be recorded as other expenses in the period.

6. Leasing, mortgaging, pledging, selling, liquidating assets:

6.1. Leasing, mortgaging, pledging assets.

The Central Credit Cooperative has the right to lease, mortgage, or pledge its assets according to the Civil Code and other laws to ensure effectiveness, safety, and capital development.

6.2. Selling assets.

a. The Central Credit Cooperative can sell assets to recover capital for more effective business purposes.

b. The difference between the proceeds from selling assets and the remaining value of the sold assets and the costs of selling assets is recorded as income or expense on the report of business results of the Central Credit Cooperative.

6.3. Liquidating assets.

a. The Central Credit Cooperative can liquidate obsolete, deteriorated, irreparable damaged, technologically outdated, or inefficiently used assets.

b. When liquidating assets, the Central Credit Cooperative must establish a Liquidation Committee. For assets required by law to be auctioned, the Central Credit Cooperative must organize auctions according to the law when liquidating.

c. The difference between the proceeds from liquidating assets and the remaining value of the liquidated assets and the costs of liquidating assets is recorded as income or expense on the report of business results of the Central Credit Cooperative.

7. For assets leased, pledged, mortgaged, or held in custody by customers, the Central Credit Cooperative has the responsibility to manage, store, or use them in accordance with agreements with customers and applicable laws.

8. The Central Credit Cooperative implements measures to ensure capital safety as stipulated in Article 9 of Decree No. 146/2005/NĐ-CP of the Government. The establishment of reserve funds in expenses, the Central Credit Cooperative shall implement according to the following specific provisions:

8.1. For credit risk reserves in banking operations, the Central Credit Cooperative shall establish and use reserves according to the regulations of the Governor of the State Bank.

8.2. For inventory write-down reserves, long-term investment loss reserves (including securities write-downs), and doubtful receivables reserves (excluding credit risk reserves in banking operations): The Central Credit Cooperative shall establish reserves according to general regulations for enterprises.

8.3. Regarding unemployment benefits reserves: The Central People's Credit Fund shall establish the unemployment benefits reserve fund in accordance with the provisions of the Labor Code and the guidelines of the Ministry of Finance on the establishment, management, utilization, and accounting of the unemployment benefits reserve fund at enterprises.

II. MANAGEMENT OF REVENUE AND EXPENSES

1. Revenue Management:

1.1. The revenue of the Central People's Credit Fund includes the income items stipulated in Article 16 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government, including:

a. Income from business activities comprising:

- Income from credit operations.

- Interest income from deposits.

- Service fees.

- Income from foreign exchange and gold trading activities.

- Interest income from capital contributions and share purchases.

- Income from debt buying and selling activities.

- Income from exchange rate differences.

- Other business income.

b. Other income comprising:

- Revenue from the sale or liquidation of fixed assets.

- Income from capital that has been processed using risk reserves.

- Penalties from customers for breach of contract.

- Other income.

1.2. Conditions and timing for recognizing revenue:

a. For credit operations: The Central People's Credit Fund shall record the interest receivable arising during the period as income for debts determined to be recoverable both principal and interest on time without having to set aside specific risk reserves according to regulations.

For the interest receivable recorded as income but not paid by the debtor at maturity, the Central People's Credit Fund shall record it as business operation expenses and track it off-balance sheet to urge collection. When collected, it shall be recorded as business operation income.

For the interest receivable arising during the period from remaining debts not recorded as income, the Central People's Credit Fund shall track it off-balance sheet to urge collection. When collected, it shall be recorded as business operation income.

b. For interest income from deposits, bond investments, bills... it is the interest receivable during the period.

c. For dividends and profits distributed from capital contribution and share purchase activities: it shall be recorded when there is a resolution or decision to distribute.

d. For income from exchange rate differences, the Central People's Credit Fund shall record it according to accounting standards.

e. For other business income: income is the total amount received from selling products, goods, and services provided during the period accepted by customers for payment after deducting trade discounts, sales reductions, and returned goods value (if there is valid documentation), regardless of whether the money has been received or not.

1.3. Revenue items of the Central People's Credit Fund arising during the period must have invoices or valid documentation and must be fully recorded as revenue.

2. Expense Management: Expenses of the Central People's Credit Fund are the amounts incurred during the period for business operations and other activities as stipulated in Article 17 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government. Some expense items of the Central People's Credit Fund are implemented as follows:

2.1. Business Operation Expenses:

a. Interest payable on deposits and loans.

b. Costs related to foreign exchange and gold trading.

c. Costs for banking service operations.

d. Costs for purchasing and selling stocks and bonds.

đ. Costs for debt buying and selling activities.

e. Costs for capital contribution and share purchase activities.

g. Exchange rate differences costs according to accounting standards.

h. Rental costs.

i. Depreciation costs of fixed assets used for business operations are carried out according to current management, usage, and depreciation rules.

k. In case of purchasing fixed assets on installment: The Central People's Credit Fund shall record the difference between the total amount to be paid and the immediate purchase price of the fixed asset as an expense over the payment period, except when this difference is capitalized into the original cost of the fixed asset according to accounting standards.

l. Wages, salaries, and wage-like expenses:

The Central People's Credit Fund is a cooperative credit organization but its charter capital mainly consists of state support capital, therefore, wages, salaries, and wage-like expenses are applied similarly to state-owned companies. Annually, based on the characteristics and operational situation of the Central People's Credit Fund, the Ministry of Finance will coordinate with the State Bank to review and approve the wage rates for the Central People's Credit Fund.

m. Expenses for revenues previously recognized but actually not received.

n. Outsourced service expenses:

- These include expenses for leasing repairs of fixed assets, transportation, electricity, water, telephone, materials, printing paper, office supplies, labor tools, fire prevention and extinguishing, consulting, auditing, insurance premiums for assets, insurance premiums for personal accidents, travel expenses, allowances for vacation travel according to regulations, commission, agency brokerage, entrusted services, and other services.

All these expenses must have complete invoices or valid documentation according to the regulations of the Ministry of Finance.

- Repair expenses for fixed assets are recorded as expenses in the year according to actual expenditures. Repair expenses for special fixed assets according to cycles are pre-recorded as expenses according to budget estimates, the recording time is at the end of the fiscal year. When repairs are carried out, if the actual expenditure exceeds the pre-recorded amount, the difference is recorded as an expense; if less, it is recorded as a reduction in expenses.

- Fixed asset rental expenses for operations are carried out according to lease contracts. In cases where rent is paid in one lump sum for multiple years, the rent is gradually allocated to business expenses according to the number of years the asset is used. For expenses related to land leases, which cannot be deducted according to the law, the Central People's Credit Fund shall allocate them to expenses according to the duration of land use.

- Renting organizations permitted to perform debt collection services according to the law.

- Commission, agency, and entrusted service expenses must be reflected in agency and entrusted contracts and can only be recorded as expenses according to the amount due, with valid supporting documents.

- Brokerage commission expenses:

+ The payment of brokerage commissions by the Central People's Credit Fund must be linked to the economic efficiency generated by such brokerage activities. Based on the guidance documents on brokerage commission expenses issued by the Ministry of Finance, the specific conditions and characteristics of its own operations, the Central People's Credit Fund shall establish a regulation on the payment of brokerage commissions to be uniformly and publicly applied within the Central People's Credit Fund. The Management Council of the Central People's Credit Fund shall approve this regulation for application within the unit.

+ Based on the approved regulation, the General Director of the Central People's Credit Fund shall decide on the payment of commissions for each brokerage activity according to the specific brokerage transactions arising from operations.

+ The recipients of brokerage commission payments are organizations and individuals (both domestic and foreign) that provide brokerage services to the Central People's Credit Fund.

+ Brokerage commissions shall not be applicable to agents of the Central People's Credit Fund, designated customers, managerial positions, or employees of the Central People's Credit Fund.

+ The payment of brokerage commissions must be based on contracts or confirmation letters between the Central People's Credit Fund and the recipient of the commission, which must include basic contents such as the name of the commission recipient; the nature of the expense; the amount; the method of payment; the time of implementation and completion; and the responsibilities of both parties.

+ For brokerage expenses related to leasing assets (including seized assets and debt-settlement assets): the maximum level of brokerage expenses for leasing assets by the Central People's Credit Fund shall not exceed 5% of the total revenue from leasing assets generated through brokerage activities in a year.

+ For brokerage expenses related to selling mortgaged or pledged assets: the level of brokerage commissions for selling mortgaged or pledged assets by the Central People's Credit Fund shall not exceed 1% of the actual value received from the sale of such assets through brokerage, and the brokerage expense for selling a single asset shall not exceed 100 million VND.

p. Tax and fee expenses, including land rental fees related to business and service activities (excluding corporate income tax), as prescribed by law.

q. Other expenses

- Expenses for mid-shift meals for employees provided by the Central People's Credit Fund, which must be consistent with business efficiency but must ensure that the monthly expenditure per employee does not exceed the minimum wage set by the State for civil servants.

- Expenses for labor protection equipment for those who need it while working and for transaction uniforms for staff working at the Central People's Credit Fund, as stipulated by regulations.

- Expenses for severance pay for employees as prescribed by regulations.

- Expenses for female workers as prescribed by regulations.

- Payment of membership fees to domestic industry associations in which the Central People's Credit Fund participates, at levels approved by the Ministry of Finance. For participation in foreign industry associations, the Central People's Credit Fund may allocate these fees as operating expenses according to the fees set by foreign industry associations.

- Expenses for Party and mass organization work at the Central People's Credit Fund (expenses outside the funding sources allocated to these organizations).

- Expenses for setting aside reserves in the operations of the Central People's Credit Fund as prescribed in Point 9, Section I, Chapter II of this Circular.

- Expenses for participating in deposit insurance organizations or deposit preservation organizations as prescribed by law.

- Expenses for rewarding innovative ideas, increased productivity, and cost-saving initiatives: in accordance with the principle of being commensurate with the actual benefits achieved. The Management Council of the Central People's Credit Fund must establish and publicly announce reward regulations within the Central People's Credit Fund.

- Research and development expenses: The Central People's Credit Fund may account for research and development expenditures that yield practical applications beneficial to its business operations and expenditures aimed at technological innovation to enhance business efficiency. Research topics and budget estimates for each project must be approved by the Management Council, which will bear responsibility for the effectiveness of the projects.

- Training and educational support expenses as prescribed by law.

- Health care expenses, including expenditures for employees as currently regulated by the State, beyond the scope covered by social insurance and employee contributions.

- Expenditure for protecting the organization.

- Warehouse and fund operation expenses.

- Expenses for environmental protection. If the annual expenses are significant and have long-term effects, they can be allocated over subsequent years.

- Reception, publicity, advertising, marketing, promotional, and external transaction expenses, conference costs, and other types of expenses as prescribed, supported by invoices or receipts as required by the Ministry of Finance, and linked to the business results of the Central People's Credit Fund. Maximum expenditure levels are subject to legal provisions on corporate income tax.

- Expenses for other business operations.

2.2. Other operational expenses

a. Expenses for the sale or liquidation of assets.

b. Remaining value of fixed assets upon liquidation or sale.

c. Expenses for recovering written-off debts and collecting overdue difficult-to-collect debts.

- The Central People's Credit Fund may pay to legal entities that have contributed to the recovery of written-off debts and difficult-to-collect overdue debts, based on their efforts and the effectiveness of their contributions.

- The Central People's Credit Fund shall establish a regulation on the payment for the recovery of written-off debts and difficult-to-collect overdue debts, submit it for approval by the Management Council, and publicly announce these regulations. The General Director (or Director) of the Central People's Credit Fund shall be responsible for these expenditures.

- The level of payment to legal entities contributing to the recovery of written-off debts and difficult-to-collect overdue debts in a year shall not exceed 5% of the recovered debt. The maximum recovery expense for a single debt shall not exceed 150 million VND.

d. Penalties paid due to violations of economic contracts.

e. Only process the remaining property loss after compensating with sources as prescribed in Point 6, Section I, Chapter II of this Circular.

g. Other reasonable and legitimate expenses.

2.3. The Central People's Credit Fund shall not include in its costs the following items:

a. Penalties for violations of laws caused by individuals that do not bear the name of the Central People's Credit Fund, such as traffic law, tax law, environmental law, labor law, violation of statistical reporting systems, financial accounting regulations, and other laws.

b. Expenses unrelated to the business operations of the Central People's Credit Fund, and expenses without valid supporting documents.

c. Expenses covered by other funding sources.

d. Other unreasonable expenses.

3. If the Central People's Credit Fund engages in economic activities denominated in foreign currencies, it must convert them into Vietnamese Dong according to the guidelines of the Ministry of Finance.

III. DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF FUNDS

1. Distribution of profits:

After covering previous year losses as stipulated by corporate income tax law and paying corporate income tax as required by law, the profits of the Central People's Credit Fund shall be distributed as follows:

1.1. Establish a supplementary capital reserve fund at 5%, with the maximum level of this fund not exceeding the amount of the registered capital of the Central People's Credit Fund.

1.2. Cover previous years' losses that have exceeded the allowable deduction period from pre-tax profit.

1.3. The remaining profit after deducting the amounts specified in Clauses 1.1 and 1.2 above shall be distributed as follows:

a. Establish a financial provision fund at 10%, with the maximum level of this fund not exceeding 25% of the registered capital of the Central People's Credit Fund.

b. Establish a minimum development investment fund at 20%.

c. The remaining profit shall be distributed as follows:

- Allocate up to 5% to the management board reward fund of the Central People's Credit Fund. The annual allocation amount shall not exceed 500 million VND, provided that the pre-tax profit rate achieved on state-owned capital at the Central People's Credit Fund is equal to or greater than the planned profit rate.

- Establish two incentive and welfare funds, with the maximum allocation not exceeding three months' salary.

- Distribute dividends to organizational and individual members who have contributed capital to the Central People's Credit Fund. The dividend distribution ratio for members is based on the capital contribution approved by the Board of Directors of the Central People's Credit Fund for annual review and decision by the General Assembly.

d. Any remaining amount (if any) shall be used to supplement the development investment fund.

2. Regarding the principle of using these funds, the Central People's Credit Fund shall comply with the provisions of Article 24 of Decree No. 146/2005/NĐ-CP dated November 23, 2005 issued by the Government.

3. For the portion of dividends distributed from state-supported capital in the registered capital of the Central People's Credit Fund, it shall be retained to supplement state support capital for the Central People's Credit Fund and used for other purposes as decided by the Prime Minister.

IV. ACCOUNTING SYSTEM, AUDITING, REPORTING AND FINANCIAL DISCLOSURE 1. The Central People's Credit Fund shall implement the accounting system as prescribed by law, record all original vouchers, update accounting ledgers, and accurately, timely, truthfully, and objectively reflect all economic and financial activities.

2. The fiscal year of the Central People's Credit Fund begins on January 1 and ends on December 31 of each calendar year.

3. The Central People's Credit Fund shall complete financial settlement and fully comply with the regulations on financial reporting, preparation, presentation, and submission to the Ministry of Finance as prescribed in this Circular.

3.1. Content of Financial Reports.

a. Financial Plan Report: The Central People's Credit Fund shall prepare an annual financial plan including:

- Capital source and utilization plan.

- Income, expense, and business result plan, and budget revenue targets.

b. Financial Report: The Central People's Credit Fund is responsible for preparing and submitting all financial reports (including electronic versions):

- Labor force and salary plan.

- Level III account balance sheet of the Central People's Credit Fund, including off-balance-sheet accounts.

- Accounting balance sheet of the Central People's Credit Fund.

- Financial report explanation including certain contents (according to attached forms):

+ Fixed asset increase/decrease situation.

+ Asset status report assessed according to risk levels as prescribed by law.

+ Business results and implementation of state budget revenue.

+ Labor and wage situation of the Central People's Credit Fund.

+ Collateral asset situation, loan situation to major customers, investment capital situation at member units, capital contribution and share purchase situation.

+ Capital source and utilization situation.

- Independent audit report.

3.2. The Chairman of the Board of Directors and the General Director of the Central People's Credit Fund are responsible for the accuracy and truthfulness of these reports.

3.3. Deadline for Submission of Reports.

a. Deadline for submission of financial plans:

Financial plans prepared by the Central People's Credit Fund must be reviewed and approved by the Board of Directors of the Central People's Credit Fund and submitted to the Ministry of Finance before November 15 of the preceding year.

b. Deadline for submission of financial reports and audit results:

- Quarterly reports must be submitted within 45 days after the end of the quarter.

- Annual reports must be submitted within 90 days after the end of the fiscal year.

- The independent auditor's financial report audit results of the Central People's Credit Fund must be submitted to the Ministry of Finance within 120 days after the end of the fiscal year.

3.4. Recipient of Reports.

a. The Central People's Credit Fund shall submit financial plans and financial reports to the Ministry of Finance.

b. The submission of reports to the State Bank shall be carried out according to the regulations of the State Bank.

4. Financial disclosure for the Central People's Credit Fund: The Central People's Credit Fund shall implement the financial disclosure system according to the accounting laws.

5. Audit work:

5.1. Internal audit:

5.1. Internal audit:

The Central People's Credit Fund must organize internal audits of its financial reports in accordance with the provisions of the Law on Credit Institutions.

5.2. Independent Audit:

At least thirty days before the end of the fiscal year, the Central People's Credit Fund must select an independent auditing organization in accordance with the State Bank's regulations and auditing laws to audit its activities. The results of the audit of the Central People's Credit Fund's financial reports must be sent to the Ministry of Finance.

V. FINANCIAL INSPECTION AND VIOLATION HANDLING FOR CREDIT INSTITUTIONS

1. The Central People's Credit Fund is responsible for the accuracy and truthfulness of its financial reports. The Ministry of Finance is responsible for inspecting the compliance with the financial system of the Central People's Credit Fund. Financial inspections are conducted in the following forms:

1.1. Regular or surprise financial inspections.

1.2. Special topic financial inspections based on financial management requirements.

2. Handling Violations:

2.1. The Central People's Credit Fund will be subject to penalties if it violates the state's financial system.

2.2. In cases where the Central People's Credit Fund fails to implement or fully implement the reporting system regulations set out in Point 3, Section IV, Chapter II of this Circular, it will be subject to penalties under the accounting laws.

Chapter III

IMPLEMENTATION

This Circular takes effect fifteen days from the date of publication in the Official Gazette. This Circular replaces Circular No. 98/2000/TT-BTC dated October 12, 2000, issued by the Ministry of Finance.

2. Any difficulties encountered during implementation should be reported to the Ministry of Finance for study, consideration, and resolution./.