Directive 02/2006/CT-NHNN on measures for risks in business activity of credit institutions

DIRECTIVE

ON THE INTENSIFICATION OF RESTRAINING AND PREVENTIVE MEASURES FOR RISKS IN BUSINESS ACTIVITY OF CREDIT INSTITUTIONS

In the first months of the year 2006, monetary, credit and banking activity keeps developing that makes contribution to the monetary stability, inflation control and economic growth. Business activity of credit institutions, however, has been facing many difficulties, challenges due to shortcomings in operation scale, financial capacity and competitiveness, and adverse effect of some objective factors inside and outside the country.

With a view to preventing and restraining risks, assuring the prudence, efficiency and sustainability for the business activity of credit institutions, the Governor of the State Bank of Vietnam requests credit institutions and units of the State Bank to take following measures:

I. FOR CREDIT INSTITUTIONS

1. Evaluating, forecasting socio-economic conditions, domestic and foreign monetary market for the last months of the year 2006 and conditions of their business activity, on that basis, considering for an appropriate adjustment of their objectives, so as to efficiently carry out business activities.

2. Continuing to deploy solutions in the Directive No.02/2005/CT-NHNN dated 20 April 2005 of the Governor of the State Bank on the enhancement of credit quality, credit growth in line with the capacity of funds mobilization and risk control, assurance of system security and in other instructional documents of the Governor of the State Bank on the deployment of banking tasks in the year 2006.

3. Checking, correcting and completing internal procedures on currency trading, foreign exchange, payment, money transfer, informatics technology application in conformity with applicable provisions of related laws. Analysing risks that may occur in each operation procedure to immediately take restraining and preventive measures for risks such as: providing for the limit of loss stop for each foreign exchange trading staff; providing for the allocation, management of foreign currency position, levels for approving domestic and abroad sale, transfer of foreign currency for branches in the system; stipulating in details responsibility for the payment, money transfer, inspection, document archive; installing a software program for making immediate settlement of the foreign currency trading operation.

4. Verifying, selecting staff with sufficient capacity, standard, moral quality to perform operation activities; issuing an authorization mechanism, providing for responsibility of staff in charge and operating staff in line with the capacity and business experience of the staffs who have experienced training, challenges and the available material facilities. Enhancing the internal inspection, control, audit and new technology application for timely detection, prevention of violation and risks.

5. Adequately investing in business operation training in line with the international standards and experience for the staff in charge and operating staffs; equipping modern informatics and telecommunication devices to assure the prudence, confidentiality and the openness; expanding new business areas, products and services only when they are capable of risk evaluation and control.

6. Hastening the implementation of the Project on the modernization of banks and payment system- stage II, connecting the new payment system to all branches; working out a specific technical procedure, availability of an IT department in charge for timely dealing with the security, risk in the payment network.

7. Carrying out the debt classification, setting up and using provisions for credit risk, assuring that all branches in the system strictly comply with provisions of the State Bank; performing the credit grading in respect of borrowers; upgrading, assuring the accuracy and timeliness of the reporting, information system and risk management system.

8. Counting up, following up, closely controlling the quality and limiting volume of lending funds, assuring the debt collection in due course in respect of requirements of funds borrowing for investment and securities mortgage, immovable assets trading, funds borrowing secured by gold and other demands for funds borrowing being in danger of high risk due to changes in the market price. The lending must be in compliance with provisions of applicable laws, and does not run after the “escalation” of goods and services’ price.

II. FOR UNITS OF THE STATE BANK

1. Within their function and assignment, units at the head office of the State Bank shall carry out following assignments:

a. Assisting the Governor of the State Bank in drawing up to submit the Government for issuance of or issuing, under their competence, documents guiding the Ordinance on foreign exchange in accordance with the rate of progress, assuring the synchrony, openness and clearness, convenience, applying operations in line with international rules and practices, preventing foreign exchange risks that may arise.

b. Completing the reporting, information mechanism, controlling, building a warning system to improve the management, control capacity for foreign exchange market, timely detecting potential risks for taking an appropriate settlement measure.

c. Completing the preparation of legal documents under the right rate of progress in accordance with the Decision No.1891/QD-NHNN dated 29 December 2005 of the Governor of the State Bank on the approval of the program on preparation of legal documents of the State Bank in the year 2006 and the working program of the branch in the year 2006.

d. Providing guidance and speeding up credit institutions in the issuance of provisions on standards and minimum requirements for an efficient risk management system, which is applied in their system, including a system of internal control, auditing, assets and liabilities management, credit risk, liquidation and market management.

dd. Submitting the Governor of the State Bank for the amendment of contents of legal documents to assure a safe and efficient operation of the national payment system, retail payment systems, particularly provisions relating to payment card services of credit institutions.

e. Carrying out the entire evaluation of risk levels in the payment and applying informatics technology for proposing and synchronously deploying solutions of risk prevention; drawing up necessary norms, standards to make basis for approving the investment in the payment system and warning credit institutions of risk on a regular basis.

g. Assisting the Governor of the State Bank in the coordination with the Ministry of Finance to continue the issuance, amendment, and completion of the accounting regime in line with international accounting standards.

2. For the State Bank’s Inspectorate

a. Building a system of risk supervision in banking activity which is able to give early warning to credit institutions; submitting the Governor of the State Bank for the issuance of new provisions on the evaluation, classification of credit institutions in accordance with CAMELS standards. Setting up a system of provisions, procedures and inspection manual basing on the risks, at the same time, carrying out general evaluation of the inspection, supervision activities by banks in accordance with 25 basic principles of BASEL Committee.

b. Coordinating with functional Departments and State Bank branches in provinces, cities under the Central Government’s management to intensify the examination, control for operations of credit institutions, especially activities of currency trading, credit, foreign exchange trading, payment, money transfer and the informatics technology application for the purpose of timely correction of shortcomings in the compliance with provisions of applicable laws, finding out and preventing risks during the operation process of credit institutions.

3. For State Bank branches in provinces, cities under the Central Government’s management:

a. Regularly following up, examining, supervising the implementation of provisions of applicable laws and the state of unhealthy competition in business activity of credit institutions in the area of provinces, cities; taking the initiative in speeding up, coordinating with credit institutions in the local area to prevent and timely deal with violations and risks.

b. Making report to the Governor of the State Bank and suggesting timely solutions for violation acts which are in high danger of risk and affect the prestige, security of credit institutions.

III. IMPLEMENTING ORGANIZATION

1. This Directive shall be effective after 15 days since its publication in the Official Gazette.

2. The Director of Administrative Department, Director of the Monetary Policy Department, Heads of units of the State Bank, General Managers of State Bank branches in provinces, cities under the Central Government’s management; the Board of Directors and General Director (Director) of credit institutions shall be responsible for the implementation of this Directive.