Circular 13/2024/TT-NHNN amend Circular 32/2015/TT-NHNN prudential limits and ratios for people’s credit funds

CIRCULAR

Amending and supplementing a number of articles of Circular No. 32/2015/TT-NHNN dated December 31, 2015 of the Governor of the State Bank of Vietnam prescribing prudential limits and ratios for people’s credit funds

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Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated January 18, 2024;

Pursuant to the Government's Decree No. 102/2022/ND-CP dated December 12, 2022 defining the functions, duties, powers and organizational structure of the State Bank of Vietnam;

At the request of the Chief Inspector of the Banking Supervision Agency;

The Governor of the State Bank of Vietnam hereby promulgates the Circular amending and supplementing a number of articles of Circular No. 32/2015/TT-NHNN dated December 31, 2015 of the Governor of the State Bank of Vietnam prescribing prudential limits and ratios for people’s credit funds.

Article 1. To amend and supplement a number of articles of Circular No. 32/2015/TT-NHNN dated December 31, 2015 of the Governor of the State Bank of Vietnam prescribing prudential limits and ratios for people’s credit funds:

1. To amend and supplement Article 1 as follows:

“Article 1. Scope of regulation and subjects of application

1. This Circular regulates the restrictions, limits, and prudential ratios for the operations of people's credit funds, including:

a) The capital adequacy ratio;

b) The solvency ratio;

c) The maximum ratio of short-term funds for provision of medium-term and long-term loans;

d) The restrictions and limits on lending;

dd) The ratio of total deposits to equity.

2. Based on the results of supervision and inspection of people's credit funds, in cases where it is necessary to ensure the prudential operations of people's credit funds, depending on the nature and level of risk, the State Bank’s branches in the provinces or municipalities may request the people's credit funds to maintain one or several lower limits and stricter prudential ratios compared to the levels prescribed in this Circular.

3. People's credit funds under special control are not required to comply with the limits and prudential ratios prescribed in this Circular.”

2. To amend and supplement Clause 1, Article 2 as follows:

“1. Borrowers of a people's credit fund include members of the people's credit fund; legal entities and individuals who are not members but have deposits at the people's credit fund; members of poor households as defined in the regulations on people's credit funds of the State Bank.”

3. To amend and supplement Article 3 as follows:

“Article 3. Information technology system

Every people's credit fund must have an information technology system to implement this Circular, which shall at least meet the following requirements:

1. To store, access, and update the customer database, ensuring risk management in accordance with the regulations of the State Bank and the internal regulations of the people's credit fund.

2. To collect statistics and monitor capital items, assets, and liabilities; to calculate, manage, and supervise the restrictions, prudential limits and ratios for its operations as prescribed in this Circular.

3. To implement the information and statistical reporting regime in accordance with the regulations of the State Bank and the requirements of the State Bank’s branches in the provinces or municipalities.”

4. To amend and supplement Article 4 as follows:

 “Article 4. Internal regulations

1. People's credit funds must have internal regulations on managing the minimum capital adequacy ratio and liquidity management (solvency ratio, maximum ratio of short-term capital used for medium- and long-term loans, ratio of total deposits to equity) as prescribed in this Circular and relevant law regulations. Written internal regulations and their amendments and supplements must be issued or approved by the Board of Directors of the people's credit fund.

2. Internal regulations on the minimum capital adequacy ratio include the following:

a) Process and methodology for monitoring the capital adequacy ratio;

b) Methods for early warning of risks that reduce the capital adequacy ratio;

c) Remedial plan when the capital adequacy ratio is lower than the minimum level, which shall contain at least: measures to increase the capital adequacy ratio; responsibilities, powers, and coordination of departments and individuals in implementing the remedial plan.

3. The internal regulations must include at least the following:

a) Regulations on decentralization, authorization, functions, and tasks of relevant individuals and departments in monitoring and implementing measures to ensure the maintenance of the solvency ratio, the maximum ratio of short-term capital used for medium- and long-term loans, and the ratio of total deposits to equity;

b) Processes, procedures, liquidity management limits, and contingency plans to ensure the maintenance of the solvency ratio, the maximum ratio of short-term capital used for medium- and long-term loans, and the ratio of total deposits to equity as prescribed in this Circular;

c) Regulations on treasury management, revenues, expenditures, and daily capital sources;

d) Criteria for early warning of risks of solvency and liquidity shortage and remedial plans;

dd) Solutions to maintain assets that can be immediately liquidated, such as increasing charter capital, increasing the allocation of funds, and reducing the risk coefficient of assets;

e) Guidance, inspection, control, and internal audit for maintaining the solvency ratio, the ratio of total deposits to equity, the maximum ratio of short-term capital used for medium- and long-term loans, and the ratio of total deposits to equity.

4. Internal regulations on lending and loan management, as prescribed in this Circular and relevant documents, must at least include the following:

a) Criteria for identifying a customer of the people's credit fund and his/her related persons, including cases prescribed at Points b, c, dd, and g, Clause 24, Article 4 of the 2024 Law on Credit Institutions; individual customer with his/her spouse; biological parents, adoptive parents, stepfather, stepmother, parents-in-law; biological children, adopted children, stepchildren, daughters-in-law, sons-in-law; siblings; half-siblings; brothers-in-law, sisters-in-law of such customer's siblings or half-siblings;

b) Restrictions and limits on lending applied to customers or customers and their related persons, mechanisms, and principles of decentralization and authorization of lending to customers or customers and their related parties;

c) Maximum lending limits in the total outstanding loan balance for each type of customers who are members or non-members, and members of poor households in the people's credit fund;

d) Monitoring procedures for loans exceeding 5% of the people's credit fund's equity;

dd) Regulations on reporting to the State Bank’s branches in the provinces or municipalities, and the General Meetings of Members for loans prescribed in Clause 1, Article 135 of the 2024 Law on Credit Institutions.

5. At least once (01) a year and when necessary, people's credit funds must review, re-evaluate, amend, and supplement internal regulations to suit the requirements of ensuring their prudential operations.

6. Within 10 (ten) working days from the date of issuance, amendment, supplementation, or replacement of written internal regulations, people's credit funds shall send (in person or by post) the issued, amended, supplemented, or replaced internal regulations to the State Bank’s branches in the provinces or municipalities. In case of amending, supplementing, or replacing internal regulations, a people's credit fund shall send a written report on the amendments and supplements enclosed with the internal regulations.

7. People's credit funds must amend and supplement internal regulations to comply with this Circular before December 31, 2024.”.

5. To amend and supplement Clause 3 and Point d Clause 4 of Article 5 as follows:

a) To amend and supplement Clause 3 as follows:

“3. Equity includes total Tier 1 and Tier 2 Capital minus Deductions from equity at the time of determining the equity, specifically:

a) Tier 1 Capital

Tier 1 Capital includes:

(i) Charter capital;

(ii) Capital for construction investment and fixed asset acquisition;

(iii) Reserve fund for supplementing charter capital;

(iv) Operational development investment fund;

(v) Financial contingency fund;

(vi) Non-refundable capital from organizations and individuals to people's credit funds;

(vii) Undistributed profits;

Tier 1 Capital must be deducted by the following amounts:

(i) Accumulated losses (if any);

(ii) Capital contributions to cooperative banks;

b) Tier 2 Capital shall be equal to a maximum of 100% of the value of Tier 1 Capital, including: general provision, up to 1.25% of total risk-weighted assets;

c) Deductions from equity: 100% of the decrease due to asset revaluation in accordance with law regulations.

The specific determination of equity to calculate the minimum capital adequacy ratio is prescribed in Appendix 1 to this Circular.”.

b) To amend Point d(i), Clause 4 as follows:

“(i). The original value of fixed assets of people's available funds;”.

6. To amend and supplement Point a, Clause 4, Article 7 as follows:

"a) Charter capital, reserve fund for supplementing charter capital, operational development investment fund, and financial contingency fund remaining after deducting accumulated losses (determined on the balance sheet of accounting accounts at the time of calculating the maximum ratio of short-term capital used for medium- and long-term loans), the original value of purchases and investments in fixed assets, and capital contributions to cooperative banks in accordance with the law regulations;".

7. To add Article 7a after Article 7 as follows:

"Article 7a: Ratio of total deposits to equity

1. People's credit funds must always maintain a ratio of total deposits to equity not exceeding 20.

2. The ratio of total deposits to equity is determined by the following formula:

Where:

- A: Ratio of total deposits to equity.

- B: Total deposits prescribed in Clause 3 of this Article.

- C: Equity prescribed in Clause 4 of this Article.

3. Total deposits include: demand deposits, time deposits, and savings deposits of members, organizations, and other individuals in Vietnamese dong.

4. The equity is recorded in accordance with the financial regime for people's credit funds.".

8. To amend and supplement Article 8 as follows:

“Article 8. Restrictions and limits on lending

1. People's credit funds shall base on the equity determined in accordance with Clause 3, Article 5 of this Circular at the end of the latest working day to determine:

a) Restrictions on lending to organizations and individuals as prescribed in Article 135 of the 2024 Law on Credit Institutions;

b) Limits on lending to a customer or a customer together with his/her related persons as prescribed in Article 136 of the 2024 Law on Credit Institutions.

2. The Board of Directors shall decide on loans to appraisers and loan approvers at the people's credit fund with a value of VND 100 million or more or other lower values in accordance with the internal regulations of the people's credit fund. Other cases shall comply with the internal regulations of the people's credit fund.

3. Regarding loans to the subjects prescribed at Point a, Clause 1 of this Article, people's credit funds must:

a) Report to the State Bank’s branches in the provinces or municipalities in accordance with the regulations of the State Bank;

b) Publicly disclose to the General Meetings of Members for loans up to the time of collecting data for the General Meetings of Members.

4. The total outstanding loan balance for a member which is a legal entity must not exceed the total of such legal entity's contributed capital and its outstanding deposit balance at the people's credit fund at any time.

The total outstanding loan balance for a non-member customer that is a legal entity or a person must not exceed the balance of the deposit contract or savings book.

5. The limits prescribed at Point b, Clause 1 of this Article do not apply to:

a) Loans from entrusted capital of organizations or individuals that the people's credit fund receives in trust without bearing risk;

b) Loans fully secured by deposits at the same people's credit fund.”.

9. To add Article 8a after Article 8 as follows:

“Article 8a. People's credit funds at risk of insolvency or already insolvent.

1. A people's available fund is at risk of insolvency when there is a shortage of assets that can be immediately liquidated at a level of 20% or more at the time of calculating the solvency ratio, leading to the inability to maintain the solvency ratio as prescribed in this Circular for 30 consecutive days.

2. A people's credit fund is insolvent when it is unable to make payments on its debt obligations within 01 month from the due date.

3. When the people's credit fund is at risk of insolvency or already insolvent, it must promptly report to the State Bank’s branch in the province or municipality and notify the Cooperative Bank’s branch of the actual situation, causes, remedial measures already applied, remedial measures to be applied, and proposals and recommendations (if any) to the State Bank’s branch in the province or municipality.

10. To amend and supplement Article 15 as follows:

“Article 15. Responsibilities of affiliates of the State Bank

1. The Banking Supervision Agency shall assume the prime responsibility for and coordinate with the Departments and Agencies under the State Bank to submit to the Governor of the State Bank for handling difficulties and obstacles arising in the implementation of this Circular.

2. The State Bank’s branches in the provinces and municipalities:

a) Decide on the prudential limits and ratios that people's credit funds must maintain as prescribed in Clause 2, Article 1 of this Circular;

b) Inspect, supervise, and handle violations of people's credit funds in their respective localities in implementing this Circular;

c) Guide people's credit funds in their respective localities in implementing this Circular;

d) Receive internal regulations of people's credit funds as prescribed in this Circular.”.

Article 2. To replace and annul of a number of points, clauses, and articles of Circular No. 32/2015/TT-NHNN dated December 31, 2015 of the Governor of the State Bank of Vietnam prescribing prudential limits and ratios for people’s credit funds:

1. To replace Appendix 01, Appendix 02, and Appendix 03 of Circular No. 32/2015/TT-NHNN with Appendix 01, Appendix 02, and Appendix 03 to this Circular.

2. To annul Clause 2 Article 2, Point a (vi) Clause 4 Article 5, Section 2 Chapter II, and Chapter III of Circular No. 32/2015/TT-NHNN.

Article 3. Responsibilities for implementation:

The Chief of Office, Chief Inspector of the Banking Supervision Agency, heads of units affiliated with the State Bank of Vietnam, the State Bank’s branches in the provinces or municipalities, and people’s credit funds shall be responsibility for implementing this Circular.

Article 4. Implementation provisions:

1. This Circular takes effect from August 12, 2024.

2. This Circular annuls the paragraph "2. People's credit funds must ensure that the total deposits does not exceed 20 times the equity" in Clause 3, Clause 27 Article 2, Article 4, and Clause 4 Article 6 of Circular No. 21/2019/TT-NHNN dated November 14, 2019, of the Governor of the State Bank of Vietnam amending and supplementing a number of articles of the Circulars regulating cooperative banks and people's credit funds.