Circular No. 42/2016/TT-NHNN of the State Bank of Vietnam dated December 30, 2016 promulgating on ranking of People’s Credit Funds

THE STATE BANK OF VIETNAM

Circular No. 42/2016/TT-NHNN of the State Bank of Vietnam dated December 30, 2016 promulgating on ranking of People’s Credit Funds

Pursuant to the Law on Vietnam State Bank No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on credit institutions No. 47/2010/QH12 dated June 16, 2010;

Pursuant to the Decree No. 156/2013/ND-CP dated November 11, 2013 of the Government stipulating functions, tasks, rights and organizational structure of the Vietnam State Bank;

At the proposal of the Director of Banking Inspection and Supervision Department;

The State Bank Governor promulgates the Circular on ranking of People’s Credit Funds

Chapter I

GENERAL PROVISIONS

Article 1. Scope of application

This Circular promulgates on ranking of People’s Credit Funds.

Article 2.Subjects of application

1. This Circular is applied for the following subjects:

a) People’s Credit Funds.

b) Organizations, individuals related to ranking of People’s Credit Funds.

2. This Circular is not applied for:

a) People’s Credit Funds are under the special control;

b) People’s Credit Funds are processing orders, procedures of being revoked the establishment and operation license as stipulated by the law;

c) People’s Credit Funds that

Article 3.Methods of ranking People’s Credit Funds

1. Ranking of People’s Credit Funds shall be implemented based on criteria as stipulated under Article 5 of this Circular.

2. People’s Credit Funds shall be ranked as A (Good), B (Fairly good), C (Average), D (Weak) as stipulated under Article 12 of this Circular.

Article 4. Documents, information and data for ranking

1. Documents, information for ranking People’s Credit Funds include:

a) Report, statistics as stipulated on reporting regime for People’s Credit Funds;

b) Report on independent audit; report on self-assessment on internal audit system; report on internal audit and other audit documents (if being under the subjects of being audited).

c) Regulations, internal procedures, charter of People’s Credit Funds;

d) Balance sheet; Financial Statements (if People’s Credit Funds are not under the subjects of being audited independently, financial statements shall be audits according to the Law);

dd) Conclusions on supervision for People’s Credit Funds made by Banking Inspectors and Supervisors;

e) Minutes on working among Banking Inspectors and Supervisors and People’s Credit Funds and documents presented by Banking Inspectors and Supervisors at the request of Banking Inspectors and Supervisors;

g) Minutes on Examination of related agencies including Tax Department, Vietnam Deposit Insurance, Cooperative Bank.

2. Data used to be assessed and ranked:

a) Data used to be ranked for Equity criteria (excluding Capital Adequacy Ratio), Asset Quality, Business Results is the data that will be used to determine on December 31 of the ranking year.

b) Criteria on Capital Adequacy Ratio, Administration, Management and Control, Solvency shall be calculated based on supervision results

Article 5.Criteria for ranking and points for People’s Credit Funds

The ranking will be out of 100 points, and it will be allocated for each criteria as follows:

1. Equity                                                              10 points

2. Asset Quality                                                   30 points

3. Administration, Management and Control       30 points

4. Business Results                                              10 points

5. Solvency                                                                    20 points.

Chapter II

SPECIFIC PROVISIONS

Section 1

CALCULATION FOR RANKING CRITERIA

Article 6.Calculation for Equity criteria

Equity criteria will be out of 10 points, the maximum point is 10 points and the minimum point is zero, including 3 different components as follows:

1. Legal capital ratio:

a) From 500% or more: 3 points;

b) From 400% to under 500%: 2 points;

c) From 300% to under 400%: 1 point;

2. Capital Adequacy Ratio:

a) From 10% or more: 5 points;

b) From 9% to under 10%: 3 points;

c) From 8% to 9%: 1 point;

d) Under 8%: 0 point;

3. Maintenance of Capital Adequacy Ratio:

Complying with regulation of the Vietnam State Bank on Capital Adequacy Ratio in two continuous years receives 2 points. Each time of violating on Capital Adequacy Ratio (at any time in the year) shall be lost 1 point, the maximum point to be lost is 2 points;

Article 7.Calculation for Asset Quality

Asset Quality will be out of 30 points; the minimum point is 0 point and includes three components as follows:

1. Bad debt ratio:

a) 0%: 14 points

b) From 0% to 1%: 12 points;

c) From 1% to 2%: 10 points;

d) From 2% to 3%: 8 points;

dd) From 4% or more: 0 point;

2. Debt capital loss ratio / Non-performing loan 

a) 0%: 10 points

b) From 0% to 0.5%: 9 points;

c) From 0.5% to 1%: 7 points;

d) From 1% to 1.5%: 5 points;

dd) From 1.5% to under 2%: 3 points;

e) From 2% or more: 0 point;

3. Debts with attention being paid/Non-performing loan 

a) 0%: 6 points

b) From 0% to under 1%: 5 points;

c) From 1% to 2%: 4 points;

d) From 2% to under 3%: 3 points;

dd) From 3% to under 4%: 2 points;

e) From 4% or more: 0 point;

Article 8.Calculation of Administration, Management and Control criteria

Administration, Management and Control criteria will be out of 30 points, the minimum point is zero point and include 4 component criteria that is calculated as follows:

1. Complying with the Law on credit institutions, regulations of the State Bank on conditions, standards of members of the Management Board, Controlling Board or Director will receive 3 points. Each subject being member of Management Board, Controlling Board or Director fails to meet conditions and standards will be deducted 1 point, the maximum point for deduction is 3 points.

2. Complying with regulations on credit institutions, regulations of the State Bank on capital contribution of members, transferring, conditions on membership shall get 2 points. Each violation shall be deducted 1 point; the maximum point for deduction is 2 points.

3. Complying with regulations on credit institutions, regulations of the State Bank on operation shall receive 23 points. If People’s Credit Funds violates, the deduction shall be as follows:

a) Failing to stipulate regulations, internal procedures, charter of People’s Credit Funds; contents of regulations, internal procedures, charter are not in accordance with the law. Each regulation, procedure, charter failing to be in accordance with the law shall be deducted 1 point; the maximum point for deduction is 2 points.

b) Failing to comply with regulation, internal procedures, charter. Each time of violation (at any time in the year) shall be deducted 1 point; the maximum point for deduction is 2 points.

c) Failing to comply with regulations on: credit, limitation of loan; classification of debt, use of risk provisions; funds, payment; opening and use of account; accounting finalization; financial payment and collection; finalization and profit distribution; capital mobilization and service; purchase, investment and use of assets; safety of assets; deposit insurance; prevention of money laundering; information on credit; performing requests, recommendations of administrative agencies; management and use of the license. Each time of violation (at any time in the year shall be deducted1 point; the maximum point for deduction is 2 points.

d) Lending with a purpose of making profit, trying to get money, assets of People’s Credit Funds. . Each time of violation shall be deducted 6 points; the maximum point for deduction is 6 points.

4. Complying with reporting regime shall receive 2 points. If People’s Credit Funds violates, the deduction shall be as follows:

a) Failing to report on time to the State Bank’s branches where Banking Inspection and Supervision Department is not located as stipulated by the State Bank from 2 times or more shall be deducted 1 point.

b)Information, data in the report is inaccurate two times or more shall be deducted 1 point.

Article 9. Calculation of business result criteria

Criteria for business result will be out of 10, the minimum point is zero and including 3 component criteria shall be calculated as follows:

1. Profit ration/total income:

a) From 10% or more:             4 points

b) From 5% to under 10%       3 points

c) From 1% to under 5%                   2 points

2. Profit ratio/total average asset:

a) From 2% or more                4 points

b) From 1.5% to under 2%               3 points

c) From 1% to under 1.5%                2 points

d) Under 1%                                     0 point

3. Net income/working capital:

a) From 10% or more              2 points

b) From 8% to under 10%       1 point

c) Under 8%                                               0 point

Article 10.Calculation on solvency

Solvency criteria will be out of 20 points; the minimum point is 0 point and includes 3 component criteria as follows:

1. Solvency in the following working day:

a) Ratio is always greater than or equal to 1                           8 points

b) If there is one time the ratio is smaller than 1            4 points

c) If there are two times the ratio is smaller than 1                  1 point

d) If there are three times the ratio is smaller than 1               0 point

2. Solvency ratio within 7 following working days:

a) Ratio is always greater than or equal to 1                           8 points

b) If there is one time the ratio is smaller than 1            4 points

c) If there are two times the ratio is smaller than 1                  1 point

d) If there are three times the ratio is smaller than 1               0 point

3. The maximum ratio for short-term capital used for medium- and long term loans:

a) If the ration is always smaller than or equal to 30%  4 points;

b) If there is one time the ratio is greater than 30%                 2 points;

c) If there is two times the ratio is greater than 30%      1 point;

d) If there is three times the ratio is greater than 30%   0 point;

Article 11.Calculation of total points

Calculation of total points of People’s Credit Funds is the total point that is received from criteria as stipulated under Article 6, 7, 8, 9 and 10 of this Circular.

Section 2

RANKING, NOTIFYING AND MANAGING RANKING RESULTS

Article 12.Ranking

1. People’s Credit Funds shall be ranked as follows: Rank A (Good) with total points of 80 points or more; Rank B (Fairly good) with total points of from 70 points to under 80 points; Rank C (Average) with total points of from 60 points to under 70 points; Rank D (weak) with total points of under 60 points.

2. If a People’s credit fund were to receive zero points in one criteria or from two component criteria it would lose one rank.

Article 13.Procedures on ranking

1. Rankings will be conducted annually and be completed prior to April 31 by Branches of the State Bank, Banking Supervision and Inspection Department.

2. Within 5 working days since the ranking result is released, branches of the State Bank, Banking Supervision and Inspection Department shall report to the State Bank Governor on ranking results (through Banking Supervision and Inspection Department) according to Form No. 01 and Form No. 02 promulgated together with this Circular.

3. Prior to June 15, Banking Supervision and Inspection Department shall assume as the prime responsibility to submit to the State Bank Governor promulgating the Decision on approving ranking results.

Article 14.Notifying and managing ranking results

1. Within 5 working days since ranking results are approved by the State Bank Governor, State Bank’s branches and Banking Supervision and Inspection Department shall notify the result to each People’s Credit Fund;

2. People’s Credit Fund shall manage ranking results with confidential regime and not provide its ranking result to other organizations and individuals.

Article 15.

Chapter III

IMPLEMENTATION PROVISIONS

Article 15. Effect

1. This Circular takes effect on May 01, 2017.

2. The ranking of People’s Credit Funds in 2016 shall be continued as stipulated under the Decision No. 14/2007/QD-NHNN dated April 09, 2007 of the State Bank Governor promulgating on regulations on ranking People’s Credit Funds.

3. Decision No. 14/2007/QD-NHNN dated April 09, 2007 of the State Bank Governor promulgating regulations on ranking People’s Credit Funds shall be ceased since this Circular takes effect.

Article 16.Implementation organization

Chief of State Bank Office, Chief of Banking Inspection and Supervision Department, heads of units under the management of the State Bank, Directors of branches of the State Bank, Chairmen, Directors of People’s Credit Funds shall implement this Circular./.

For The Governor

Deputy Governor

Nguyen Phuoc Thanh

* All Appendices are not translated herein.