Circular No. 16/2018/TT-BTC dated February 07, 2018 of the Ministry of Finance on guiding a number of articles regarding the financial regime applicable to credit institutions and foreign bank branches

CIRCULAR

Guiding a number of articles regarding the financial regime applicable to credit institutions and foreign bank branches^[1]

Pursuant to the November 26, 2014 Enterprise Law;

Pursuant to the June 16, 2010 Law on Credit Institutions and the November 20, 2017 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

Pursuant to the November 26, 2014 Law on Management and Use of State Capital Invested in Production and Business at Enterprises;

Pursuant to the November 29, 2005 Law on E-Transactions;

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

Pursuant the Government’s Decree No. 93/2017/ND-CP of August 7, 2017, on the financial regime applicable to credit institutions and foreign bank branches and financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% of state-owned charter capital and credit institutions with state capital;

Pursuant to the Government’s Decree No. 64/2007/ND-CP of April 10, 2007, on application of information technology in activities of state agencies;

Pursuant to the Government’s Decree 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

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

The Minister of Finance promulgates the Circular guiding a number of articles regarding the financial regime applicable to credit institutions and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

This Circular guides a number of articles regarding the financial regime applicable to credit institutions and foreign bank branches in the Government’s Decree No. 93/2017/ND-CP of August 7, 2017, on the financial regime applicable to credit institutions and foreign bank branches and financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% of state-owned charter capital and credit institutions with state capital (below referred to as Decree No. 93/2017/ND-CP).

Article 2.Subjects of application

1. This Circular applies to:

a/ Credit institutions and foreign bank branches established, organized and operating under the June 16, 2010 Law on Credit Institutions and the November 20, 2017 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions and their amending, supplementing and replacing documents (if any) (below referred to as the Law on Credit Institutions);

b/ Other related agencies, organizations and individuals.

2. This Circular does not apply to credit institutions being microfinance institutions, policy banks, cooperative banks and people’s credit funds.

Chapter II

SPECIFIC PROVISIONS

Article 3.Management and use of capital and assets

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

2. For immovable assets held as a result of debt handling in accordance with Clause 3, Article 132 of the Law on Credit Institutions:

a/ For immovable assets which credit institutions temporarily hold for sale or transfer to recover capital within 3 years, credit institutions shall neither account them as asset increase nor amortize them;

b/ For immovable assets which credit institutions redeem to directly serve their business activities, credit institutions shall account such assets as asset increase and amortize them in accordance with law and ensure limits of investment in and procurement of fixed assets prescribed in Clauses 3 and 4, Article 6 of Decree No. 93/2017/ND-CP.

3. During their business operation, credit institutions and foreign bank branches shall maintain the limits of investment in and procurement of fixed assets in direct service of business activities on the principle that the residual value of such fixed assets must not exceed 50% of the charter capital and the booked charter capital addition reserve fund, for credit institutions; or must not exceed 50% of the allocated capital and the booked allocated capital addition reserve fund, for foreign bank branches.

Article 4.Turnover

Turnover of credit institutions and foreign bank branches includes the revenues prescribed in Article 16 of Decree No. 93/2017/ND-CP. Some revenues of credit institutions and foreign bank branches must comply with the following guidance:

1. Revenues from provision of other services: revenues from provision of asset preservation services, safe and deposit box hiring, and monetary consultancy and brokerage services; and revenues from other services.

2. Revenues from other activities in accordance with law, in which revenues from lease of immovable assets temporarily held, which are used to clear against the granted loans for debt handling under Clause 3, Article 132 of the Law on Credit Institutions, shall be subtracted from revenues from lease of assets.

3. Other revenues:

a/ Revenues from payables whose creditors no longer exist or cannot be identified in accordance with law shall be accounted as an income increase;

b/ Revenues from fines and compensations paid by customers for contract breaches shall be accounted as income;

c/ Revenues from collection of insurance indemnities, after paying expenses to make up for the insurance-covered loss, shall be accounted as income;

d/ Other revenues in accordance with law.

Article 5.Turnover recognition principles

The principles for recognition of turnover of credit institutions and foreign bank branches prescribed in Article 16 of Decree No. 93/2017/ND-CP are as follows:

1. The determination of turnover when calculating enterprise income tax must comply with the Law on Enterprise Income Tax and guiding documents.

2. For income from interests and similar income amounts:

a/ Revenues from collection of interests on provided loans: Credit institutions and foreign bank branches shall assess debt recovery capacity and classify debts in accordance with the banking law for use as a basis for accounting receivable interest amounts and conduct the accounting as follows:

- Credit institutions and foreign bank branches shall account receivable interest amounts arising in the period as income, for debts classified as qualified debts for which no risk provision is required under regulations of the State Bank of Vietnam.

- For receivable interest amounts on debts kept in the group of qualified debts arising due to implementation of the State’s policies and receivable interest amounts arising in the period of remaining debts, credit institutions and foreign bank branches are not required to account them as income but shall conduct off-balance sheet monitoring so as to urge the collection; once collected, such amounts shall be accounted as income.

b/ Revenues from deposit interests: the amounts of interest receivable during the period.

3. Revenues from the exchange-rate difference arising due to the revaluation of foreign currencies and gold, credit institutions and foreign bank branches shall make records of these revenues in accordance with the accounting standards and relevant laws.

4. Revenues from trading in assorted securities (excluding stocks):

a/ For revenues from securities trading: Credit institutions and foreign bank branches shall account such revenues as income in accordance with the corporate accounting regulations applicable to securities trading;

b/ For revenues from securities investment, except securities for which credit institutions and foreign bank branches are required to classify debts and set aside a risk provision as a loan, credit institutions and foreign bank branches shall account the interest amount expected to be collected as an estimated turnover.

5. Revenues from capital contribution interests: Dividends and profits divided from capital contribution are interest amounts to be divided when there is a resolution or decision on division.

6. Turnover from remaining activities: Turnover is the entire proceeds from the sale of goods and provision of services in the period accepted by customers, regardless of whether or not turnover is collected.

7. For receivable amounts which have been accounted as income but are later evaluated as irretrievable or cannot be retrieved upon their maturity, credit institutions and foreign bank branches shall account such amounts as income reduction, if such amounts arise in the same accounting period, or account them as costs if they do not arise in the same accounting period and conduct off-balance sheet monitoring so as to urge the collection. Once collected, they shall be accounted as income.

Article 6.Expenses

Expenses of credit institutions and foreign bank branches include the expenses specified in Article 17 of Decree No. 93/2017/ND-CP. Some expenses of credit institutions and foreign bank branches must comply with the following guidance:

1. Expenses for payment of brokerage commissions must comply with the following provisions:

a/ Credit institutions and foreign bank branches may only pay brokerage commissions for brokerage activities permitted by law;

b/ Brokerage commissions shall only be paid to third parties (acting as intermediaries) and not to agents of credit institutions and foreign bank branches; and managers, staff members and affiliated persons of credit institutions and foreign bank branches in accordance with the Law on Credit Institutions and amending, supplementing and replacing documents (if any);

c/ The payment of brokerage commissions shall be based on contracts or written certifications between credit institutions or foreign bank branches and the commission recipients. A contract or written certification must at least contain the following details: name of the commission recipient; spending content; spending level; mode of payment; time of implementation and completion; and responsibilities of the involved parties;

d/ For commissions for brokerage for lease of assets (including foreclosed assets and assets assigned in replacement of debts): The level of commission paid by credit institutions and foreign bank branches for brokerage for lease of each asset must not exceed 5% of the total proceeds from the lease of such asset brought about in the year;

dd/ For commissions for brokerage for sale of mortgaged or pledged assets: The level of commission paid by credit institutions and foreign bank branches for brokerage for sale of each mortgaged or pledged asset must not exceed 1% of the actual proceeds from sale of such asset via brokerage;

e/ The Boards of Directors or Members’ Councils or directors general (directors) of credit institutions and foreign bank branches shall issue regulations on payment of brokerage commission for application in a unified and public manner.

2. Payments to employees as prescribed at Point h, Clause 2, Article 17 of Decree No. 93/2017/ND-CP. Some payments to employees are specified as follows:

a/ Labor protection expenses: To be paid only to those who need to be equipped with labor protection devices while working;

b/ Shift meal expenses: Credit institutions with 100% or over 50% of state-owned charter capital shall pay shift meal expenses at the level prescribed for state enterprises;

c/ Medical care expenses include expenses for periodical health check-ups for employees, expenses for procurement of preventive medicines and other health care expenses falling under responsibilities of enterprises in accordance with current law;

d/ Other expenses include annual leave expenses, expenses for female employees in accordance with the labor law and other expenses in accordance with law.

3. Expenses for management and official duties as prescribed at Point i, Clause 2, Article 17 of Decree No. 93/2017/ND-CP, including;

a/ Expenses for scientific and technological research and application, including:

- Expenses for setting aside scientific and technological development funds in accordance with law. The use of these funds must comply with the current regulations;

- Expenses for covering the deficit in case the balance of scientific and technological development funds is not enough to cover expenses for scientific and technological research and application in the year.

b/ Payment of rewards for innovations, productivity improvement and cost savings in correspondence with benefits and efficiency actually brought about; credit institutions and foreign bank branches shall formulate and publicize their regulations on payment of rewards and establishment of councils for evaluation of innovations.

4. Asset-related expenses:

a/ Expenses for amortization of fixed assets used for business activities must  comply with the regime of management, use and amortization of fixed assets of enterprises.

For a fixed asset purchased on deferred payment: Credit institutions and foreign bank branches shall account for the difference between the total amount payable and purchase price of the fixed asset as cost according to payment periods except where the difference is included in the original cost of the fixed asset (capitalization) in accordance with the accounting standards;

b/ Expenses for lease of fixed assets: Expenses for lease of fixed assets must comply with lease contracts. In case the rental of a fixed asset is paid in lump sum for several years, the rental shall be gradually accounted as business expenses by the number of years of asset use;

c/ Expenses for hiring asset or building management and operation must comply with hire contracts.

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

a/ Payment of dues to trade associations of which the credit institution or foreign bank branch is a member;

b/ Expenses for recovery of written-off debts or collection of bad debts are expenses for debt recovery, including also payments for debt recovery services provided by organizations licensed to provide debt recovery services in accordance with law and expenses for debt trading.

c/ Other expenses include:

- Expenses for payable debts of which creditors have been determined as no longer identifiable and which have been accounted as income but their creditors are later identified;

- Expenses for payment of fines and compensations for breaches of economic contracts for which credit institutions and foreign bank branches are held liable;

- Expenses for payment of fines for administrative violations, except fines payable by individuals in accordance with law;

- Expenses for court fee and judgment execution fee;

- Other expenses as prescribed by law.

Article 7.Expense recognition principles

1. Expenses of a credit institution or foreign bank branch are actually arising expenses related to its business activities; must comply with the principle of balancing between turnover and expenses; and have sufficient valid invoices and documents in accordance with law. Credit institutions and foreign bank branches may not account as expenses their spending items funded by other sources. The determination and accounting of expenses must comply with Vietnam’s accounting standards and relevant laws.

2. The determination of expenses when calculating enterprise income tax must comply with the Law on Enterprise Income Tax and guiding documents.

3. Credit institutions with 100% or over 50% of state-owned charter capital may account as business costs expenses deductible under the law on enterprise income tax. Particularly, expenses for setting aside a risk provision which exceeds the deductible level when determining enterprise income tax due to a difference between the enterprise income tax law’s provisions on setting aside of risk provisions and the State Bank of Vietnam’s regulations (if any); expenses for payment of dues to trade associations of which credit institutions are members and expenses for payment of fines for administrative violations (except fines to be paid by individuals in accordance with law), credit institutions with 100% or over 50% of state-owned charter capital may use their after-enterprise income tax profits to cover.

Article 8.Reporting contents, forms, periods and deadlines, time limits, and report recipients

1. Credit institutions and foreign bank branches shall comply with the provisions of Articles 25 and 26 of Decree No. 93/2017/ND-CP and the guidance in this Circular.

2. Reports on annual financial plans: Credit institutions with 100% or over 50% of state-owned charter capital shall send reports on annual financial plans under Article 25 of Decree No. 93/2017/ND-CP.

3. Financial statements, including:

a/ Mid-year and annual accounting balance sheets;

b/ Mid-year and annual reports on business results;

c/ Mid-year and annual cash flow statements;

d/ Explanations on mid-year and annual financial statements;

dd/ Other reports, including:

- Monthly bookkeeping account balance sheet;

- Annual report on a number of financial safety targets;

- Report on annual income of managers and employees.

Financial statements of credit institutions and foreign bank branches must comply with the law on the financial reporting regime applicable to credit institutions; particularly, reports on a number of financial safety targets and reports on income of managers and employees of credit institutions and foreign bank branches shall be made according to Appendices 1 and 2 to this Circular, respectively.

3. Deadlines and time limits for submission reports:

a/ The deadlines for submission of reports on annual financial plans must comply with Article 25 of Decree No. 93/2017/ND-CP;

b/ The deadline for submission of a monthly report is the 10^thof the subsequent month;

c/ The deadline for submission of a mid-year financial statement is the 30^thof the first month of the subsequent quarter;

d/ The time limit for submission of an unaudited financial statement is 180 days, for foreign credit institutions, or 90 days, for other credit institutions, from the last day of the fiscal year;

dd/ The time for submission of an audited financial statement (enclosed with conclusion of an independent audit firm): right after the audit is completed;

e/ If the deadline for submission of a financial statement falls on a public holiday, New Year holiday or weekend, the financial statement shall be submitted no later than the first subsequent working day.

4. Report recipients:

Credit institutions and foreign bank branches shall submit financial statements to the State Bank of Vietnam for the latter to supervise their implementation of the financial regime and, at the same time, submit reports to the Ministry of Finance.

Article 9.Reporting forms

Credit institutions and foreign bank branches shall submit reports to the Ministry of Finance in the following forms:

1. Written report:

Credit institutions and foreign bank branches shall submit their audited annual financial statements specified at Points a, b, c, and d, Clause 3, Article 8 of this Circular in written form.

2. Electronic report:

a/ Credit institutions and foreign bank branches shall submit reports specified in Article 8 of this Circular in electronic form;

b/ Credit institutions and foreign bank branches shall connect to the Ministry of Finance via the latter’s portal so as to submit electronic reports to the latter under its specific guidance;

c/ In case a credit institution or foreign bank branch lacks conditions for connecting its information network with that of the Ministry of Finance, it shall send electronic files of reports recorded on information-carrying objects or written reports to the Ministry of Finance (the Department of Banking and Financial Institutions) for the latter to update reported data;

d/ In case a breakdown occurs in the data transmission system, reporting units shall send electronic files of reports recorded on information-carrying objects or written reports to the Ministry of Finance (the Department of Banking and Financial Institutions) at the head office of the Ministry of Finance - No. 28 Tran Hung Dao - Hoan Kiem - Hanoi.

Article 10.Responsibilities of management agencies

1. The Ministry of Finance shall guide credit institutions and foreign bank branches to submit electronic reports.

2. Responsibilities of the State Bank of Vietnam:

Biannually (before July 31) and annually (before March 31 of the subsequent year), the State Bank of Vietnam shall notify the Ministry of Finance of the financial status of credit institutions and foreign bank branches as prescribed in Clause 2, Article 38 of Decree No. 93/2017/ND-CP, according to the following norms (classified by type of credit institutions):

- The number of credit institutions and foreign bank branches.

- The total amount of charter capital, equity, assets, total debits, total amount of mobilized capital, non-performing loan ratio and other prudential ratios in operation of credit institutions and foreign bank branches.

- Total profits (losses) and the number of credit institutions and foreign bank branches operating at a profit (suffering losses).

- The financial status and operational efficiency of credit institutions with 50% of state-owned charter capital.

- Other related norms and contents.

- Violations of the financial regime committed by credit institutions and foreign bank branches and detected through inspection and supervision.

Article 11.Responsibilities of credit institutions and foreign bank branches

To comply with the financial regime prescribed in the Law on Credit Institutions; Decree No. 93/2017/ND-CP, this Circular and relevant legal documents on financial management.

Chapter III

ORGANIZATION OF IMPLEMENTATION

Article 12.Implementation provisions

1. This Circular takes effect on March 26, 2018.

2. This Circular replaces the Ministry of Finance’s Circular No. 05/2013/TT-BTC of January 9, 2013, guiding the financial regime applicable to credit institutions and foreign bank branches.

3. Pending the provision by the Ministry of Finance of guidance on submission of electronic reports, credit institutions and foreign bank branches shall send financial statements (except monthly accounting balance sheets) prescribed in Clause 3, Article 8 of this Circular in written form.

4. Any problems arising in the course of implementation of this Circular should be reported to the Ministry of Finance for study, consideration and settlement.-

For the Minister of Finance
Deputy Minister
TRAN VAN HIEU

* The appendices to this Circular are not translated.