CIRCULAR

ON GUIDELINES FOR FINANCIAL REGULATIONS APPLIED TO CREDIT INSTITUTIONS AND BRANCHES OF FOREIGN BANKS

Pursuant to Law on Enterprises dated November 26, 2014;

Pursuant to Law on Credit Institutions dated June 16, 2010 and Law on amendments to Law on Credit Institutions dated November 20, 2017;

Pursuant to Law on management and use of state capital invested in business at enterprises dated November 26, 2014;

Pursuant to the Law on Electronic Transaction dated November 29, 2005;

Pursuant to the Law on Information Technology dated June 29, 2006;

Pursuant to Government's Decree No. 93/2017/ND-CP dated August 7, 2017 on financial regulations applied to credit institutions and branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions.

Pursuant to Government's Decree No. 64/2007/ND-CP dated April 10, 2007 on application of information technology in operation of regulatory bodies;

Pursuant to the Government’s Decree No. 87/2017/ND-CP dated July 26, 2017 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the Director of Finance of banks and financial institutions;

The Minister of Finance issues a Circular on guidelines for the financial regulations applied to credit institutions and branches of foreign banks.

Chapter I

GENERAL PROVISIONS

Article 1. Scope

This Circular provides guidelines for Government's Decree No. 93/2017/ND-CP dated August 7, 2017 on financial regulations applied to credit institutions and branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions (hereinafter referred to as Decree No. 93/2017/ND-CP).

Article 2. Regulated entities

1. This Circular applies to:

a) Credit institutions, branches of foreign banks that are incorporated and operating under Law on Credit Institutions dated June 16, 2010 and Law on amendments to the Law on credit institutions No. 17/2017/QH14 dated November 20, 2017 and amending and alternative documents (hereinafter referred to as the Law on credit institutions).

b) Other relevant organizations and individuals.

2. This Circular does not apply to the credit institutions as microfinance institutions, policy banks, cooperative banks, people's credit funds.

Chapter II

SPECIFIC PROVISIONS

Article 3. Management and utilization of capital and assets

1. Credit institutions and branches of foreign banks shall manage and use capital and assets as prescribed in Chapter II of Decree No. 93/2017/ND-CP , relevant law provisions and guidelines in this Circular.

2. As for property with lien for debt settlement as stipulated in Clause 3, Article 132 of the Law on Credit Institutions:

a) Regarding property on which a credit institution claims the lien temporarily to sell, transfer for fund recovery within 3 years, the credit institution does not record an increase in assets or the depreciation or amortization.

b) Regarding property acquired by a credit institution to serve directly to the business activities, the credit institution shall record an increase in assets or the depreciation or amortization in accordance with the law provisions and ensure limited investment in the procurement of fixed assets in accordance with provisions of Clause 3, Clause 4 Article 6 of Decree No. 93/2017/ND-CP .

3. During the course of business operation, the credit institutions and branches of foreign banks must ensure to maintain limited investment in the procurement of fixed assets directly used for business on the principles:  the residual value of fixed assets does not exceed 50% of the charter capital and additional reserve fund of charter capital in accounting records for the credit institutions, not exceed 50% of the granted capital and additional reserve fund of capital in accounting records granted for the branches of foreign banks.

Article 4. Revenue

Revenues of the credit institutions and foreign bank branches include the revenues provided for in Article 16 of the Decree No. 93/2017/ND-CP. Certain revenues of a credit institution or branch of foreign bank are specified in the following guidelines:

1. Revenues earned from other services:  Revenue earned from assets preservation service, safe deposit box rental, money brokerage; and revenue earned from other services.

2. Revenues earned from other services as per the law, including revenue earned from asset rental less proceeds from lease of property with lien for debt settlement as prescribed in Clause 3 Article 132 of the Law on credit institutions for the purpose of debt recovery.

3. Other revenues:

a) Revenue earned from liabilities whose creditors cease to exist or are not identifiable as per the law which is accounted for as an increase in income;

b) Revenue from fines paid by customers, money paid for compensation by customers due to breach of contract, which is accounted for as income;

c) Revenue earned from insurance proceeds, which is accounted for as income after deducting insurance contribution;

d) Other revenues as prescribed by law.

Article 5. Revenue recognition principle

The revenue recognition principle associated with revenues of credit institutions and foreign bank branches is provided for in Article 16 of the Decree No. 93/2017/ND-CP as follows:

1. The revenue determined for the purpose of calculation of corporate income tax shall be done in accordance with the Law on Enterprise income tax and its guiding documents.

2. With regard to interest income and similar income:

a) Interest revenue from credit extending: Each credit institution or branch of foreign bank shall evaluate debt recoverability and classify debts as prescribed in law on banking as the basis for accounting for interests receivable as follows:

- The credit institution or branch of foreign bank shall record the receivable interest arising in the period as income associated with the debts classified as standard debts which are not required to set aside loan loss reserves as prescribed by the State bank of Vietnam.

- The receivable interest of debts remaining classified in the standard debt category as a result of implementing state policies and the receivable interest arising in the period of remaining debts shall not be accounted for as income, the credit institution or branch of foreign bank shall monitor them off-balance sheet to urge the collection; when collected, they shall be accounted for as income.

b) Deposit interest revenue:  the amount of interest receivable during the period.

3. Credit institutions and branches of foreign banks shall recognize revenues from exchange differences as a result of re-evaluation of foreign currency and gold as prescribed in accounting standards and current law provisions.

4. Revenue from business associated with securities (other than shares):

a) In case of trading securities: Credit institutions and branches of foreign banks shall record trading securities as income as prescribed in law on corporate accounting.

b) In case of investment securities, other than securities subject to debt classification and loan loss reserves as loans: The credit institutions and branches of foreign banks shall record estimated revenues of interests.

5. With regard to interest revenue from contributed capital:  dividends, profits distributed from capital contribution are the interest to be divided when there is resolution or decision on distribution.

6. With regard to revenue from remaining activities:  Revenue is total proceed from sale of goods or provision of service arising in the period which the client accepts payment regardless of whether cash has been collected.

7. With regard to accounts receivable which have been accounted for as income but they are considered uncollectible or they are not obtained when they are due, the credit institution or branch of foreign bank shall recognize a reduction in revenue if it is in the same accounting period or recognize them as expenses if it is not in the same accounting period and monitoring off-balance sheet to urge the collection.  When accounts receivable are collected, they shall be accounted for as income.

Article 6. Expenses

Expenses of the credit institutions and foreign bank branches include the expenses specified in Article 17 of the Decree No. 93/2017/ND-CP.  Certain expenses of the credit institutions and branches of foreign banks are specified in the following guidelines:

1. Brokerage commission:

a) Credit institutions and branches of foreign banks are entitled to pay commissions on brokerage as permitted by the law.

b) Brokerage commissions to be paid to brokers, not applied to agencies of credit institutions or branches of foreign banks; managers and employees of credit institutions or branches of foreign banks and relevant persons of credit institutions or branches of foreign banks as prescribed in the Law on credit institutions and amending or alternative documents (if any).

c) The brokerage commissions shall be paid according to the contract or written certification between the credit institution or branch of foreign bank and the recipient of brokerage commission, at least containing: the name of the commission recipient; content of spending; spending rate; payment method; performance and end time; responsibilities of the parties.

d) With regard to commissions paid for brokerage of asset rental (including assets foreclosed, assets used as payment for debt): broker spending level to rent out assets of the credit institutions and foreign bank branches must not exceed 5% of all proceeds from the asset leasing brought by the brokerage during the year.

dd) As for the expenses associated with brokerage of selling assets mortgaged, pledged:  broker spending level to sell assets mortgaged, pledged of the credit institutions and foreign bank branches must not exceed 1% of the actual value obtained from the sale of assets through brokerage.

e) Board of directors or Member assembly or General Director (Director) of the credit institution or branch of foreign bank shall issue regulations on brokerage commission for consistent and transparent application.

2. Expenses associated with employees prescribed in Point h Clause 2 Article 17 of Decree No. 93/2017/ND-CP. Certain expenses associated with employees are guided as follows:

a) Personal protective equipment: solely to be paid to those who need personal protective equipment during working.

b) Shift meals: Credit institutions whose 100% of charter capital is held by the state and credit institutions whose more than 50% of charter capital is held by the state shall pay shift meals according to statutory amount applied to state-owned enterprises.

c) Medical expenses including the expenses associated with period medical examination for employees, purchase of reserve medicine and other medical expenses under the responsibility of the enterprises as prescribed by law.

d) Other expenses, including: Expenses associated with paid annual leave, additional expenditure concerning female employees in accordance with law on labor and other expenses as per the law.

3. Expenses associated with management and assignments prescribed in Point I Clause 2 Article 17 of Decree No. 93/2017/ND-CP , in which:

a) Expenditure on scientific and technological research includes:

- Expenditure on the appropriation for the fund of scientific and technological development in accordance with the law provisions. The use of funds shall comply with the current regulations;

- Expenditure on remaining amount if the balance of scientific and technological development fund is not sufficient to spend on research and application of science and technology in the year.

b) Expenditure on rewards to innovation to improve productivity or costs saving in conformity with actual effectiveness; the credit institutions and branches of foreign banks must build and publish regulations on rewards and establishment of a council for initiative acceptance test.

4. Expenses associated with assets:

a) Expenditure on depreciation of fixed assets used for business activities shall comply with the regulations on management, use and appropriation for depreciation of fixed assets for enterprises.

In case of purchase for deferred payment of fixed assets:  the credit institutions, branches of foreign banks shall record the difference between the total amount payable and cash down price of fixed asset as expenses according to the payment schedule, except that the difference is included in the input value of fixed assets (capitalization) in accordance with accounting standards.

b) Expenditure on leasing fixed assets:  Cost of lease of fixed assets shall comply with the lease contract.  In case of making lump-sum payment for the rent of assets for many years, the rent is apportioned into the cost of doing business by the number of years of using assets.

c) Expenditure on property and building management and operation service shall comply with the service contract.

5. Other expenses prescribed in Point n Clause 2 Article 17 of Decree No. 93/2017/ND-CP , in which:

a) Fees contributed to professional associations which credit institutions or branches of foreign banks join.

b) Expenditure on recovery of written off debts, costs associated with recovery of bad debts which are expenses associated with debt recovery, including debt collection fees paid to debt collection organizations in accordance with the law provisions.

c) Other expenses, including:

- Expenditure on liabilities whose creditors cease to exist and be accounted for as income but then creditors is identified;

- Expenditure on fines and damages compensation for breach of economic contract under responsibilities of the credit institutions and foreign bank branches;

- Expenditure on fines for administrative violations less fines those individuals must pay under the provisions of the law;

- Expenditure on court fees, fees for judgment enforcement;

- Other expenses as prescribed by law.

Article 7. Expense recognition principle

1. Expenses of a branch of foreign bank or credit institution are the expenses actually incurred on the business of the branch of foreign bank or credit institution; in compliance with the matching principle between revenue and expense with valid and sufficient invoices and documents as prescribed by law. The credit institution or branch of foreign bank shall not record expenditures covered by other funding sources as expense.  The determination and accounting for expense shall be made in accordance with Vietnamese accounting standards and relevant law provisions.

2. The expense determined for the purpose of calculation of corporate income tax shall be done in accordance with the Law on Enterprise income tax and its guiding documents.

3. Credit institutions whose 100% of charter capital is held by the state and credit institutions whose over 50% of charter capital is held by the state may solely record deductible expenses as business expense in accordance with regulations of law on corporate income tax. With regard to expenditure on amount of loan loss provision in excess of statutory amount which is deductible, upon calculation of corporate income tax, due to difference in regulations on loan loss provision between law on corporate income tax and the State bank of Vietnam (if any); expenditure on fees contributed to overseas professional associations that credit institutions join and fines for administrative violations (except for fines for administrative violations that individuals must pay as per the law), the credit institutions whose 100% of charter capital is held by the state and credit institutions whose over 50% of charter capital is held by the state are entitled to cover above-mentioned expenditures using profit after corporate income tax.

Article 8. Report contents, forms, periods, deadlines, and recipients

1. Credit institutions and branches of foreign banks shall follow the reporting regulations prescribed in Article 25, Article 26 of Decree No. 93/2017/ND-CP and this Circular.

2. Report on annual financial plan: Credit institutions whose 100% of charter capital is held by the state and credit institutions whose over 50% of charter capital is held by the state shall send reports on annual financial plan as prescribed in Article 25 of Decree No. 93/2017/ND-CP .

3. Financial statements include:

a) Interim and annual balance sheets;

b) Interim and annual income statements;

c) Interim and annual cash flow statements;

d) Interim and annual notes to financial statements;

dd) Other statements, including:

- Monthly balance sheets;

- Annual report on some financial safety ratios;

- Annual report on income of managers and employees.

Regulations on financial statements of credit institutions and branches of foreign banks are the same as those applied to credit institutions; reports on some financial safety ratios and reports on income of managers and employees of credit institutions and branches of foreign banks shall comply with Appendix 1 and Appendix 2 of this Circular.

4. Deadlines for statements/reports:

a) The deadline for submission of annual report on financial plan is specified in Article 25 of Decree No. 93/2017/ND-CP .

b) The deadline for submission of monthly report: the 10^th of the subsequent month.

c) The deadline for submission of interim financial statement is the 30^th of first month of the subsequent quarter.

d) The deadline for submission of unaudited annual financial statement is the 180^th in case of foreign credit institutions and the 90^th in case of other credit institutions from the end of the fiscal year.

dd) The deadline for submission of audited annual financial statement enclosed with opinions of independent audit organization (audit report): promptly after closing of audit.

e) If the deadline for submission of financial statement falls on a public/legal holiday or weekend, it will be automatically extended to the succeeding working day.

5. The report recipients:

Credit institutions and branches of foreign banks shall send financial statements to the State bank of Vietnam for monitoring and to the Ministry of Finance.

Article 9. Reporting forms

Credit institutions and branches of foreign banks shall send reports/statements to the Ministry of Finance using the following forms:

1. Physical form:

Credit institutions and branches of foreign banks shall send physical audited annual statements prescribed in Points a, b, c, d Clause 3 Article 8 of this Circular.

2. Electronic form:

a) Credit institutions and branches of foreign banks shall send electronic reports/statements as prescribed in Article 8 of this Circular.

b) Credit institutions and branches of foreign banks shall connect to Ministry of Finance’s website to send electronic financial statements to the Ministry of Finance as guided.

c) Credit institutions and branches of foreign banks not qualified for network communication with the Ministry of Finance shall send reports/statements via information carriers or send physical reports/statements to Department of Finance of Banks and Financial Institutions affiliated to the Ministry of Finance for update.

d) If the data transmission system breaks down, reports shall be sent via information carriers or in physical form to Department of Finance of Banks and Financial Institutions affiliated to the Ministry of Finance at the address 28 Tran Hung Dao, Hoan Kiem, Hanoi (the Ministry of Finance’s headquarters).

Article 10. Responsibilities of regulatory bodies

1. The Ministry of Finance shall provide credit institutions and branches of foreign banks with guidelines for electronic reporting.

2. Responsibilities of the State bank of Vietnam:

Biannually (before July 31) and annually (before March 31 of subsequent year), the State Bank of Vietnam shall inform the Ministry of Finance the financial situation of the credit institutions, foreign bank branches under the provisions of Clause 2, Article 38 of the Decree No.57/2012/ND-CP, specifically with the following indicators (grouping by type of activity):

- The number of the credit institutions, foreign bank branches.

- The total charter capital, equity, assets, total gross loan, wholesale capital mobilization, nonperforming loan ratio and the safety ratios in operation of the credit institution, foreign bank branches.

- Total profit (loss) and the number of credit institutions and foreign bank branches having profit (loss).

- Financial situation, performance results of the credit institutions more than 50% of the charter capital of which is held by the State.

- The other related indicators, contents.

- Violations of the financial regulations of the credit institutions and foreign bank branches detected during the inspection and supervision.

Article 11. Responsibilities of credit institutions, branches of foreign banks

Comply with financial regulations prescribed in the Law on credit institutions; Decree No. 93/2017/ND-CP ; specific guidelines in this Circular and other legislative documents on financial management.

Chapter III

IMPLEMENTATION

Article 12. Implementation

1. This Circular comes into force as of March 26, 2018.

2. This Circular supersedes the Circular No. 05/2013/TT-BTC dated January 9, 2013 of the Ministry of Finance on the financial regulations applied to credit institutions, branches of foreign banks.

3. While awaiting guidance of the Ministry of Finance on electronic reporting, credit institutions and branches of foreign banks shall send physical financial statements (other monthly balance sheets) as prescribed in Clause 3 Article 8 of this Circular.

4. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Finance for consideration./.