THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Hanoi, December 30, 1998
GUIDING THE FINANCIAL MANAGEMENT OF STOCK CREDIT INSTITUTION
In furtherance of the Corporate Law promulgated together with
Order No.47-LCT/HDNN8 of January 2, 1991 of the Chairman of the State Council of the Socialist Republic of Vietnam (now the State President), the Law amending and supplementing a number of Articles of the Corporate Law which was passed by the IXth National Assembly, 5th session on June 22, 1994;
In furtherance of the Law on Credit Institutions promulgated together with Order No.01-L/CTN of December 26, 1997 of the State President of the Socialist Republic of Vietnam;
Pursuant to Decree No.178/CP of October 28, 1994 of the Government on the tasks, powers, and organizational structure of the Ministry of Finance;
Pursuant to Notice No.188/TB-VPCP-m of October 31, 1998 of the Government Office on the conclusions made by Deputy Prime Minister Nguyen Tan Dung concerning the handling of overdue debts of the stock commercial banks;
Proceeding from the Prime Minister’s directions in Official
Dispatch No.5224/VPCP-KTTH of December 19, 1998 of the Government Office on the financial management of stock credit institutions;
The Ministry of Finance hereby provides the following guidance for the financial management of stock credit institutions;
1. Stock credit institutions include stock commercial banks, stock financial companies, stock financial leasing companies and other stock non-bank credit institutions, which are categorized as stock companies and doing business in monetary and credit and banking services. These enterprises take limited liability for their capital and property as well as their business result and have to preserve the stockholders’ capital contributions.
2. Operations of stock credit institutions are regulated by the Corporate Law; the Law on Credit Institutions; the financial management regime prescribed in this Circular and other related legal documents.
3. Stock credit institutions are subject to financial management by the State agencies that have the function of financial management of enterprises. The accounting of accountancy and the drafting of financial final settlement reports shall comply with the Ordinance on Accounting and Statistics and the current regulations.
A fiscal year shall commence on January 1st and end on December 31 of the year.
I. CAPITAL SOURCES OF STOCK CREDIT INSTITUTIONS
1. Statutory capital:
It is the capital stated in the statue of a stock credit institution, which is determined by the institution’s founders and stipulated by the agency that has decided the establishment of such credit institution, including:
1.1. Stockholders’ capital contributions under State’s ownership, including:
– State owned capital used by State enterprises to buy shares from the stock credit institution (in form of money, value of the land use right or land rent, or value of other kinds of property…)
– Stock interests earned from State – owned capital, which are retained to increase the stocks and supplement the statutory capital of the stock credit institution (if any).
– Capital accumulated by the stock credit institution with deductions for the establishment of the reserve fund to supplement the statutory capital, which shall correspond to the percentage of State enterprises’ capital contributions at the stock credit institution.
– Other capital sources of State – budget origin.
1.2. Stockholders’ capital contributions not under State’s ownership, including:
– Capital contributed by stockholders.
– Capital accumulated by the stock credit institution through the establishment of the reserve fund to supplement the statutory capital, that corresponds to the percentage of capital contributions of stockholders other than State enterprises.
2. Capital mobilized from people of different strata and deposits of economic organizations.
3. Capital borrowed from credit institutions inside and outside the country.
4. Other capital sources (capital generated in the payment process, investment authorized capital, aid capital and capital contributions of organizations and individuals inside and outside the country…).
5. Funds and interests generated in the profit distribution process.
Financial companies, financial leasing companies and other non-bank credit institution do not have sources of capital which are demand deposits and capital generated in the payment process.
II. MANAGEMENT OF STATE CAPITAL AND PROPERTY AT STOCK CREDIT INSTITUTIONS
1. Representatives of State capital at stock credit institutions:
– The chairman of the Managing Board of a State enterprise or the general director (director) of the enterprise (for enterprises without Managing Boards) shall be the legal representative of such enterprise’s capital contribution to the stock credit institution, who is answerable to the State for the efficiency of the use, preservation and development of the State capital contributed to the stock credit institution.
– The legal representative of the State enterprise which buys stocks from the stock credit institution may authorize another person to represent the State capital contribution at the institution for the management thereof.
– The person from the State enterprise who is authorized to directly work at the stock credit institution is answerable to the State enterprise for the efficiency of the use, preservation and development of the State capital contributed to that institution. He/she shall have the same rights and tasks as a stockholder’s representative as prescribed by law within the capital contribution of the enterprise.
2. Increase and decrease of stocks which are State capital at stock credit institutions:
– Increase of State capital at stock credit institutions:
The State capital at a stock credit institution shall increase through additional capital contribution, use of the stock dividends to increase the statutory capital and expand business, or depreciation of the reserve fund to supplement the statutory capital, corresponding to the amount of State capital already contributed.
+ The State enterprise that makes additional capital contribution must get the consent of the chairman of the Managing Board of the enterprise (after the Managing Board reports thereon to the agency that has decided the establishment of the enterprise as well as to the financial management agency).
+ Where the State enterprise does not have a Managing Board, the additional capital contribution shall be decided by the enterprise’s director (after reporting thereon to the financial management agency and getting the approval of the agency that has decided the establishment of the enterprise).
+ The increase of State capital at the stock credit institution in case of retaining stock dividends and deducting the reserve fund to supplement the statutory capital shall be decided according to the resolution of the stockholders’ congress.
– Decrease of State capital at stock credit institutions:
State capital at a stock credit institution shall decrease in cases where the Managing Board of the stock credit institution decides to decrease the statutory capital or narrow the institution’s operations with the approval of the agency that has decided the establishment of the credit institution: or where the stock credit institution is dissolved or bankrupt…The decreased capital amount shall be returned to its owners or dealt with according to the law on Bankruptcy (in case of bankruptcy).
III. PRESERVATION OF CAPITAL AND RISK PROVISION RESERVES AT STOCK CREDIT INSTITUTIONS
Stock credit institutions shall have to preserve capital and ensure safety for capital contributors, ensure their liquidation capability in the operation process and increase the efficiency of the use of capital. Stock credit institutions shall be entitled to preserve capital and set up risk-provision reserve funds with various sources such as:
1. The compulsory reserve fund which is set up with annual deductions.
2. The reserves which are created from deductions made according to the expenditure plan, including:
– The reserve for risks in credit – granting activities
– The reserve for risks in payment services provision activities.
3. Compensations paid by insurance companies to the stock credit institutions that have purchased insurance for their property or deposits in accordance with the current regulations.
The deduction for establishment and use of the above reserves for the preservation of capital as well as reserves for risks shall comply with the regulations set specifically for credit institutions.
IV. MANAGEMENT OF REVENUES AND EXPENDITURES OF STOCK CREDIT INSTITUTIONS.
1. Revenues to stock credit institutions shall include:
a. Revenues from business activities:
– Revenue from loan interests;
– Revenue from deposit interests;
– Revenue from service charges, including payment charges, money transfer charges, guaranty charges, charges of consultancy service and other services;
– Revenue from foreign exchange, gold and silver trading.
b. Revenues from other activities:
– Revenue as profit from financial activities: Sale and/or purchase of trust bills, bonds, shares, valuable papers, joint venture activities, stock purchase…
– Revenue from leasing property;
-Revenue from the collection of fines; recovery of canceled loans; reimbursement of reserve deductions made in the previous year which remain unused or are not fully used; liquidation or sale of property and other revenues…
Stock credit institutions shall have to conduct full, accurate and prompt accounting of all generated revenues in strict compliance with the State regulations.
2. Expenditures of stock credit institutions:
a. Business expenses:
– Expenses on the payment of deposit interests.
– Expenses on the payment of loan interests.
– Expenses on the payment of interests of term bonds and bills.
– Expenses on the depreciation of fixed assets;
– Expenses on the payment of wages and other expenses of wage character under the following regulations:
+ In case the stock credit institution sets the wage price unit on the basis of labor norms, which has been ratified by the competent State agency, the wage expenses shall be accounted into the planned expenses but shall not exceed the wage price unit and the volume of the completed workload.
+ If the stock credit institution applies the labor contract or collective labor agreement regime, wages, allowances and other expenses of wage or allowance character shall be paid according to labor contracts or collective labor agreements.
+ If the stock credit institution has not set a wage price unit, the expenses on wages and other expenses of wage character shall be accounted into the total expenditures and determined on the basis of the average income of the State-owned credit institutions in the same locality.
The tax departments and financial management agencies shall coordinate with the Departments of Labor, War Invalids and Social Affairs and base themselves on the wage regime applicable to the State-owned credit institutions and the local market prices to determine the average wage and expenses of wage character or the wage price unit (in case of wage payment according to the wage price unit), then submit them to the provincial/municipal People’s Committees for decision and application in stock credit institutions.
+ In case the stock credit institution suffers business losses, the total wage fund it is entitled to establish and spend shall not exceed the basic wage fund, calculated on the basis of the actual number of workers involved in business and the minimum wage level set for State officials and employees.
– Expenses on shift meals for workers as determined by the stock credit institution according to the business results, provided that the expenses for each person must not exceed the minimum wage level set by the State for State officials and employees.
– Expenses on renting property for business activities.
– Expenses on the payments of commissions for consignment service and other services of the credit institution.
– Expenses on other business activities.
b/ Expenses on financial activities:
– Expenses on the sale and purchase of trust bills, bonds and shares.
– Expenses on the depreciation of the leased fixed assets.
c/ Expenses on the payment of taxes, charges and fees as prescribed by law, including the excise, the tax on the transfer of the land-use right, the business registration tax…
d/ Expenses on business-related services:
– The post charge, charge for maintenance and repair of fixed assets, expense of procurement of working tools, working travel allowance, expenses on transportation, warehouse and cash transactions, inspection and auditing.
– Expenses on advertisement, marketing, sale promotion, receptions, ceremonies, transactions, external relations, conferences and other expenses shall comply with the following stipulations: during the first two years after the institution’s establishment, the expense level must not exceed 7 of its total expenditures and afterward shall not exceed 5 of its total expenditures.
e/ Other reasonable and lawful expenses :
– Expenses on reserves, including risk-provision reserves in credit-granting activities and in the provision of payment services.
The deduction for establishment and use of the above-said reserves shall be decided by the Governor of the State Bank after consulting the Minister of Finance.
– Expenses on the retrieval of written-off loans.
– Expenses on the collection of fines as prescribed;
– Expenses on the payment of allowances to workers who discontinue their work under Decree No.178/CP of December 13, 1994 of the Government.
– Expenses on professional training;
– Expenses on office uniform dresses (to be applied as in State-owned credit institutions) and on labor protection.
– Expenses on liquidation and sale of property;
– Expenses on insurance for deposits, property and on payment of yearly fees to associations to which the concerned stock credit institution is a party.
– Other expenses.
3. Stock credit institutions are not allowed to account into their expenditures the following expenses:
– On damages which have been covered by the Government or compensated by the party that has caused the damage or by the insurance company.
– On the payment of fines due to breaches of traffic regulations or breaches of economic contracts (provided that the institution’s collected fine amount less than its payable fine amount), fines on overdue debts and fines on violations of financial regulations …
– On travels abroad, that exceed the level prescribed by the State.
– Expenses which must be covered by the welfare fund and the reward fund.
– Regular and irregular allowances for people meeting with difficulty, expenses for charity purposes.
– Expenses in support of mass organizations, social organizations and other agencies, except for expenses in support of education outside the institution, such as: contributions to the learning-promotion fund, support for schools of disabled children.
– Expenses on capital construction and procurement of fixed assets.
– Other expenses, which must be covered by other sources.
Stock credit institutions shall have to account for their expenses in strict compliance with the regulations and take responsibility before law for the legitimacy of such expenses and comply with the regulations on accountancy vouchers.
– Stock financial companies, stock financial leasing companies and other non-bank stock credit institutions shall not have revenues and expenditures related to the demand deposits and payment services.
– For the difference of exchange rates incurred from the re-evaluation of the year-end foreign exchange balance at the time of making the financial report, the concerned credit institution shall not make an account of revenues or expenditures related thereto but shall retain the balance on the financial report in order to make a reverse entry at the beginning of the subsequent year so as to write off such balance.
V. PROFIT DISTRIBUTION AND DEDUCTIONS FOR ESTABLISHMENT OF FUNDS
Profit of stock credit institutions is the difference between the total revenues and (-) the total expenses (including taxes prescribed by law). The generated profit shall also include the previous year’s profit found out in the present year, which has been subtracted with losses according to the current regulations, provided that such losses have been determined in the yearly final settlement report.
– The yearly profit of a stock credit institution shall be distributed in the following order:
1. To pay enterprise income tax as prescribed by law.
2. To pay fines on tax-related administrative violations, violations of the regulations on business registration , overdue debts, violations of the regulations on accounting and statistics and breaches of economic contracts (provided that after clearing, the collected fine amount less than the payable fine amount), and to cover other lawful expenses that are entitled thereto when the enterprise income tax to be paid is determined.
3. To cover losses which have not been subtracted from the pre-tax income profit of the enterprise.
After covering the expenses mentioned in Points 1, 2 and 3 above, the remaining profit (given it is 100) shall be distributed as follows :
– For deduction for the reserve fund to supplement the statutory capital: 5, the maximum level under the current regulations;
– For deduction for the compulsory reserve fund: 5. This fund shall be set up with profit deductions till such deduction’s value is equal to 10 of the statutory capital of the stock credit institution.
– For the distribution of stock dividends according to the levels of capital contributions of stockholders.
- For deductions for the establishment of other funds.
The levels of deduction for the distribution of stock dividends and for the establishment of other funds shall be decided by the Managing Board after approval by the annual stockholders’ congress.
VI. FUNDS’ USE PURPOSES
1. The reserve fund for the supplement of the statutory capital shall be used to increase the statutory capital and expand business activities.
2. The compulsory reserve fund shall be used to ensure safety for the stock credit institution so that it can get ready to deal with force majeure cases.
3. Other funds shall be used as directed by the Managing Board in accordance with the annual Resolution of the stockholders’ congress.
Stock credit institutions are not allowed to use the above-said funds for the payment of stock interests.
VII. ACCOUNTING- STATISTICAL- AUDITING WORK
1. Stock credit institutions shall have to make accountancy accounting and financial reports in strict compliance with the Ordinance on Accounting and Statistics as well as with the current accounting and statistical regime set by the State for credit institutions.
2. Stock credit institutions shall have to draw up and submit financial reports to the Ministry of Finance, the tax authorities and the State Bank on the monthly, quarterly and yearly basis, including :
– The accounting balance;
– The report on business results;
– The report on capital sources and the use of capital;
– The report on deductions for establishment and use of funds and the distribution of stock dividends.
The monthly reports shall be sent to the concerned agencies on the 10th day of the subsequent month. The quarterly report shall be sent after 20 days of the subsequent quarter at the latest. The yearly report shall be sent 90 days after the year-end at the latest.
3. Within 120 days after a fiscal year, stock credit institutions shall have to publicize their financial situation. The annual financial reports must be certified by independent auditing units. The Ministry of Finance may examine the yearly financial final settlement report of a stock credit institution if it deems necessary.
The financial management regime applicable to stock credit institutions shall take affect 15 days after the signing of this Circular. In the course of implementation, if any problem arises, it should be reported to the Ministry of Finance.
FOR THE MINISTER OF FINANCE
Tran Van Ta