Circular No. 94/2013/TT-BTC guiding financial regulations for people's credit funds

CIRCULAR

Guidelines on financial regulations for people's credit funds

___________________ 

Pursuant to the Law on Credit Organizations dated June 16, 2010;

Pursuant to the Law on Cooperatives dated November 20, 2012;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008, of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 57/2012/NĐ-CP dated July 20, 2012 of the Government on financial systems for credit organizations and foreign bank branches;

At the proposal of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance issues this Circular to guide financial regulations for people's credit funds,

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular guides the financial regime for people's credit funds.

2. Financial activities of people's credit funds shall be carried out in accordance with the provisions of Government Decree No. 57/2012/NĐ-CP dated July 20, 2012 on financial regulations for credit organizations and foreign bank branches (hereinafter referred to as Decree No. 57/2012/NĐ-CP); the contents guided in this Circular and other legal documents on financial management that are relevant.

Article 2. Applicability

People's credit funds are established, organized, and operate in accordance with the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010 and the Law on Cooperatives No. 23/2012/QH13 dated November 20, 2012.

Chapter II

SPECIFIC PROVISIONS

Article 3. Shareholders' Equity of Rural Credit Unions

1. Charter capital is the amount of capital contributions of members recorded in the charter of the people's credit fund.

2. Any exchange rate differences arising during the unfinished construction investment process shall be accounted for as part of the owners' equity in accordance with the law.

3. Asset revaluation difference is the difference between the book value of the asset and its revalued value when there is a decision by the State.

4. Supplementary charter capital reserve funds, business development investment funds, financial contingency funds.

5. Undistributed profits.

6. Other capital belonging to the ownership of the people's credit fund.

Article 4. Use of Capital and Assets

1. People's credit funds have the responsibility to manage, use, and 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 the course of business operations; clearly define responsibilities and forms of handling for each department and individual in cases of damage or loss of assets and capital of the fund.

2. People's credit funds may use operating capital to serve business activities in accordance with the Law on Credit Organizations, Government Decree No. 57/2012/NĐ-CP, and specific guidelines in this Circular, following the principle of ensuring safety and developing capital.

a) Throughout the business operation period, people's credit funds must ensure maintaining the limit on construction investment and fixed asset acquisition directly serving business activities according to the principle: the remaining value of fixed assets does not exceed 50% of the charter capital and supplementary charter capital reserve fund.

b) For real estate held due to debt recovery as stipulated in Clause 3, Article 132 of the Law on Credit Organizations:

- For real estate temporarily held by people's credit funds to sell or transfer to recover capital, people's credit funds do not account for increased assets and do not perform depreciation.

- For real estate purchased by people's credit funds to directly serve business activities, people's credit funds account for increased assets and perform depreciation in accordance with the law and ensure the limit on construction investment and fixed asset acquisition as stipulated in point a, Clause 2 of this Article.

c) People's credit funds implement measures to ensure capital safety as stipulated in Article 8 of Government Decree No. 57/2012/NĐ-CP. The establishment of reserve items in expenses and funds is implemented according to the following specific provisions:

- For risk reserves in banking activities: people's credit funds implement the establishment and use of risk reserves in accordance with the regulations of the Governor of the State Bank of Vietnam after reaching consensus with the Minister of Finance.

- For inventory write-down reserves, long-term investment loss reserves (including securities write-downs), doubtful receivables reserves (excluding credit risk reserves in banking activities) (if any): people's credit funds establish reserves in accordance with general regulations applicable to enterprises.

d) For leased, pledged, mortgaged, or custodied assets of customers, people's credit funds have the responsibility to manage, store, or use them in accordance with agreements with customers in compliance with the law.

đ) Sale and liquidation of assets

- The sale and liquidation of assets of people's credit funds shall be carried out in accordance with the law and the charter of the people's credit funds.

- People's credit funds may sell assets to recover capital for more effective business purposes.

- People's credit funds may liquidate assets that are obsolete, deteriorated, irreparable, technologically outdated, unused, or ineffective and cannot be sold in their original condition; assets that have exceeded their service life as prescribed and cannot continue to be used. When liquidating assets, people's credit funds must establish a liquidation committee.

- For assets that must be auctioned when sold or liquidated according to the law, people's credit funds must organize auctions in accordance with the law.

Article 5. Revenue Management

1. The revenue of the people's credit cooperative includes the following sources of income:

a) Income from business operations:

- Interest income from lending to customers; interest income from deposits; other income from credit activities;

- Dividend income;

- Income from money transfer services and handling collection and payment services for members;

- Other business income.

b) Other income, including:

- Income from agency and trust services related to banking activities and asset management as prescribed by the State Bank of Vietnam;

- Income from providing financial advisory services to members;

- Income from the sale and liquidation of fixed assets;

- Income from loans that have been processed through risk provisions (including debts that were written off but later recovered);

- Income from debts owed to parties whose identity cannot be determined or who have lost their status as creditors, recorded as increased income;

- Penalties paid by customers for breach of contract;

- Insurance compensation received;

- Refunds or reductions of taxes already paid;

- Reversal of excess risk provisions but not recorded as reduced expenses according to laws on risk provisions;

- Other income.

2. Principles for recognizing revenue

a) For credit activities

- Interest income from credit provision:

The people's credit cooperative records interest receivable arising during the period as income for loans classified as standard non-provisioned loans according to regulations.

For interest receivable arising during the period from remaining loans, it shall not be recorded as income; the people's credit cooperative will monitor such receivables off-balance sheet and record them as business income when collected.

- Deposit interest income: the interest receivable during the period.

b) For dividend income: dividends and profits distributed from capital contributions are recorded as income when there is a resolution or decision to distribute.

c) For other business income: total revenue is the entire amount of product sales, goods sales, and service provision income arising during the period accepted for payment by customers after deducting trade discounts, price reductions, and returned goods value (if supported by valid documentation), regardless of whether payment has been received.

d) For receivables recorded as income but not collected by the due date, the people's credit cooperative shall reduce revenue if in the same accounting period or record it as an expense if in a different accounting period and monitor it off-balance sheet to urge collection. When collected, it shall be recorded as business income.

3. All income generated during the period by the people's credit cooperative must be supported by invoices or valid documentation and fully recorded as revenue.

Article 6. Expense Management

1. Expenses of the people's credit cooperative include the following expenditures:

a) Expenditures for business operations

- Interest payments on deposits and loans;

- Expenditures for capital contributions;

- Expenditures for money transfer services and handling collection and payment services for members;

- Other business expenditures.

b) Tax payments and fees, including land lease-related taxes, fees, and levies (excluding corporate income tax) as prescribed by law.

c) Expenditures for assets

- Depreciation expenses for fixed assets used in business operations are carried out according to the management, usage, and depreciation system for enterprises.

In case of purchasing fixed assets on installment: the people's credit cooperative records the difference between the total payment amount and the immediate purchase price of the fixed asset as an expense over the payment period, except where the difference is capitalized (recorded as part of the asset's original cost) according to accounting standards.

- Lease expenses for fixed assets: lease expenses are carried out according to the lease agreement. If lease payments are made in one lump sum for multiple years, the lease expense is allocated gradually over the years of asset use. For lease-related expenses not deductible as lease payments according to regulations, the people's credit cooperative allocates them over the period of land use.

- Maintenance expenses for fixed assets;

- Repair expenses for fixed assets;

- Purchase and repair expenses for tools and equipment;

- Insurance expenses for assets;

- Other asset-related expenses.

d) Employee expenses as prescribed by law, including:

- Wages, salaries, and allowances for staff working at the people's credit cooperative, including:

Expenses for wages and allowances for full-time members of the Board of Directors and Supervisory Board; allowances for part-time members of the Board of Directors and Supervisory Board. The level of expenditure is decided by the Board of Directors based on the resolution of the Member Assembly.

Expenses for wages and allowances for employees of the people's credit cooperative based on labor contracts or collective labor agreements.

- Contributions based on salary: social insurance, health insurance, unemployment insurance, and union dues payments.

- Unemployment benefits paid to employees according to legal provisions for enterprises;

- Purchase of personal accident insurance;

- Meal expenses;

- Labor protection expenses for those required to wear protective gear while working;

- Uniform expenses for employees;

- Expenses for female workers according to legal provisions;

- Medical expenses including regular medical check-up costs for employees, preventive drug purchases, and other medical expenses under the responsibility of the enterprise according to current legal provisions;

- Pay annual leave allowance in accordance with the provisions of the law;

- Other employee expenses as prescribed by law.

đ) Expenditures for management and administrative activities, including the following expenses:

- Travel expenses;

- Electricity, water, telephone, paper, office supplies, fuel, and other material expenses;

- Vault and cash box operation expenses;

- Money transportation expenses;

- Consulting and expert hiring expenses both domestically and internationally;

- Audit expenses;

- Commissions and agency fees, as well as entrusted expenses must be reflected in agency and entrustment contracts that have reasonable and valid supporting documents;

- Establishment of a science and technology development fund in accordance with the provisions of the law. The use of the fund shall be carried out in accordance with current regulations;

- Scientific research and technology development costs: the remaining portion of expenses after utilizing the entire science and technology development fund;

- Training and professional instruction costs as prescribed by law;

- Costs for building, developing, and applying new products and services provided by the cooperative bank;

- Incentive rewards for innovative improvements, increased labor productivity, and cost-saving measures: based on the principle of being commensurate with actual effectiveness; credit cooperatives must establish and publicly announce reward regulations and form a board to verify innovations;

- Fire prevention and firefighting costs;

- Environmental protection costs. If the annual expenditure is significant and has long-term effects, it may be allocated over subsequent years;

- Costs for promotional activities, advertising, marketing, sales promotions, conferences, reception and protocol, and other expenses as regulated, which must be supported by invoices or valid documents as stipulated by the Ministry of Finance, linked to the business results of the credit cooperative;

- Brokerage commission expenses: The payment of brokerage commissions by credit cooperatives must be tied to the economic benefits generated by the brokerage activities. Credit cooperatives base on their specific conditions to formulate appropriate brokerage commission regulations in accordance with the law, to apply uniformly and publicly within the credit cooperative. The management council of the credit cooperative approves the brokerage commission regulations applicable within the unit;

The recipients of brokerage commissions are organizations and individuals (domestic and foreign) who provide brokerage services to credit cooperatives. Brokerage commissions shall not be applied to agents of credit cooperatives, designated customers, management positions, or employees of credit cooperatives;

The payment of brokerage commissions must be based on contracts or confirmation letters between credit cooperatives and the recipients of brokerage commissions, which must include basic contents such as the name of the recipient, the nature of the expense, the amount, the method of payment, the start and end dates, and the responsibilities of both parties;

For brokerage expenses for leasing assets (including seized assets and debt-settlement assets): the maximum brokerage fee for leasing assets by credit cooperatives shall not exceed 2% of the total revenue from leasing activities facilitated by brokerage in the year;

For brokerage expenses for selling collateralized or pledged assets: the brokerage fee for selling collateralized or pledged assets by credit cooperatives shall not exceed 1% of the actual value obtained from the sale of such assets through brokerage;

- Security expenses; costs for militia self-defense, national defense, and security work;

e) Risk reserve, asset preservation, and deposit insurance costs;

- Expenses for establishing risk reserves in the operations of credit cooperatives as prescribed in Point c, Clause 2, Article 4 of this Circular;

- Expenses for participating in organizations for asset preservation and deposit insurance as prescribed by law;

g) Other expenses;

- Membership fees paid to industry associations that credit cooperatives participate in, at the rates set by these associations;

- Party and mass organization work expenses at credit cooperatives (the portion of expenses outside the organizational budget of the Party and mass organizations funded from specified sources);

- Expenses for revenues already recorded but actually not received and not reduced from revenue;

- Expenses for debts that were previously determined to be unclaimed, recorded as income, but later identified as having creditors;

- Expenses for the sale or liquidation of assets (if any), including the residual value of fixed assets sold or transferred;

- Expenses for service fees paid to organizations authorized to perform debt collection services as prescribed by law; expenses for recovering written-off debts and bad debt recovery costs;

- Penalties for administrative violations; fines and compensation for breach of economic contracts for which credit cooperatives are responsible;

- Expenses for handling losses remaining after compensating according to the provisions of Article 11 of Decree 57/2012/NĐ-CP;

- Social work expenses, including financial support for healthcare, education, disaster relief, and financial support for building homes of sympathy for the poor, and other expenses as prescribed by law;

- Court fees and execution fees;

- Other expenses;

2. Principles for recognizing expenses

a) Credit cooperative expenses are actual expenses incurred during the period related to business operations;

b) Expenses recorded as business expenses of credit cooperatives must comply with the matching principle between revenue and expenses and must be supported by valid invoices and documents as prescribed by law;

3. Credit cooperatives shall not include the following items in their expenses:

a) Administrative penalties that individuals must pay according to the law;

b) Expenses unrelated to the business operations of credit cooperatives;

d) Expenses covered by other sources;

d) Expenses that have been recorded but not actually paid;

đ) Expenses covered by other funding sources;

e) Other unreasonable or invalid expenses.

Article 7. Accounting Currency

1. The determination of accounting currency shall be carried out in accordance with Article 18 of Decree No. 57/2012/NĐ-CP.

2. When credit cooperatives engage in economic activities involving foreign currencies, they must convert such amounts into Vietnamese Dong in accordance with the provisions of the law.

Article 8. Distribution of Profit After Corporate Income Tax

1. Covering losses from previous years that have exceeded the allowable deduction period against pre-tax profit.

2. Allocating 5% to the supplementary capital reserve fund of the credit cooperative. The maximum level of this fund shall not exceed the amount of the credit cooperative's charter capital.

3. Allocating 10% to the financial provision fund. The maximum balance of the financial provision fund shall not exceed 25% of the credit cooperative's charter capital.

4. Allocating at least 20% to the business development investment fund.

5. Establishing other funds as decided by the members' general meeting;

6. The remaining income after establishing the funds as stipulated in Clauses 1, 2, 3, 4, and 5 of this Article shall be distributed to the members of the credit cooperative according to the following principles:

a) In proportion to their contributions;

b) Based on the extent of their use of products and services provided by the credit cooperative;

c) The specific ratio and method of distribution shall be defined in the Charter of the credit cooperative.

Article 9. Accounting System, Audit, Financial Reporting, and Transparency

1. Credit cooperatives shall implement the accounting system as prescribed by law, recording all original vouchers, updating accounting ledgers, and accurately, timely, truthfully, and objectively reflecting all economic and financial activities.

2. The fiscal year of credit cooperatives begins on January 1 and ends on December 31 of each calendar year.

3. Credit cooperatives shall settle accounts, prepare, and submit financial reports in accordance with the provisions of this Circular.

The Chairman of the Board of Management of the credit cooperative shall be responsible for the accuracy and truthfulness of these reports.

4. Contents of Financial Reports

a) Annual financial reports, interim financial reports, and bank accounting reports in accordance with the financial reporting regulations set forth by the State Bank of Vietnam for credit institutions.

b) Report on the fulfillment of obligations to the state budget (as attached).

c) Annual financial report audit results in accordance with the independent audit regulations set forth by the State Bank of Vietnam for credit cooperatives.

d) Special reports: As required by management authorities.

5. Deadline for Submission of Reports

a) Annual financial report: no later than 90 days from the end of the fiscal year.

Credit cooperatives shall submit audited annual financial reports along with the conclusions of independent auditing organizations (audit reports) immediately upon completion of the audit.

b) Interim financial reports: no later than the first day of the quarter following the reporting period.

c) The deadline for submitting reports on the fulfillment of obligations to the state budget is no later than 90 days from the end of the fiscal year for annual reports and no later than the first day of the quarter following the reporting period for interim reports.

d) The deadline for submitting audit results of annual financial reports is immediately upon completion of the audit.

6. Recipients of Reports

Department of Finance and the State Bank of Vietnam branch in the province or city where the credit cooperative is headquartered.

Article 10. Financial Inspection and Handling of Violations

1. Forms of Financial Inspection

Financial inspections shall be conducted in the following forms:

a) Regular or surprise financial inspections.

b) Financial inspections on specific topics as required by financial management work.

2. Authorities Conducting Financial Inspections

a) The State Bank of Vietnam branch in the province or city where the people's credit fund has its headquarters:

- Conducting comprehensive inspections, supervision of the operations of the people's credit fund including financial activities.

- Notifying the Department of Finance in the province or city where the people's credit fund has its headquarters about violations and issues related to the implementation of financial management systems discovered during inspections for coordinated handling.

b) The Department of Finance in the province or city where the people's credit fund has its headquarters:

- Conducting financial inspections in accordance with current laws on financial inspections.

- Inspecting issues related to financial management work and compliance with financial systems of the people's credit fund.

- Notifying the State Bank of Vietnam branch in the province or city where the people's credit fund has its headquarters about inspection results for coordinated handling.

c) The Department of Finance and the State Bank of Vietnam branch in the province or city where the people's credit fund has its headquarters have the responsibility to notify the Ministry of Finance about issues arising during inspections of the people's credit fund related to financial systems for the Ministry of Finance to study and improve financial systems for the people's credit fund.

3. Handling Violations

People's credit funds violating financial systems and state financial reporting systems will be handled according to the provisions of the law.

Chapter III

IMPLEMENTATION

Article 11. Effective Date

1. This Circular takes effect from September 1, 2013 and applies to the 2013 fiscal year.

2. This Circular replaces Circular No. 62/2006/TT-BTC dated June 29, 2006 of the Ministry of Finance guiding the implementation of financial systems for grassroots people's credit funds.

3. In the course of implementation, if there are difficulties or obstacles, please reflect them to the Ministry of Finance for consideration and resolution./.