CIRCULAR

ELABORATION OF SOME ARTICLES OF GOVERNMENT’S DECREE NO. 46/2021/ND-CP DATED MARCH 31, 2021 ON FINANCIAL MANAGEMENT AND BUSINESS PERFORMANCE ASSESSMENT OF VIETNAM DEVELOPMENT BANK

Pursuant to the Law on State Budget dated June 25, 2015;

Pursuant to the Law on Public Investment dated September 13, 2019;

Pursuant to the Government’s Decree No. 87/2017/ND-CP dated July 26, 2017 defining functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Government’s Decree No. 46/2021/ND-CP dated March 31, 2021 on financial management and business performance assessment of Vietnam Development Bank (VDB);

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

The Minister of Finance promulgates a Circular providing guidelines for some Articles of the Government’s Decree No. 46/2021/ND-CP dated March 31, 2021 on financial management and business performance assessment of Vietnam Development Bank (VDB).

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This Circular provides guidelines for some policies on financial management, business performance assessment, assessment and ranking of executives of Vietnam Development Bank (hereinafter referred to as “VDB”) set out in the Government’s Decree No. 46/2021/ND-CP dated March 31, 2021 (hereinafter referred to as “Decree No. 46/2021/ND-CP”).

Article 2. Regulated entities

1. Vietnam Development Bank (VDB).

2. State capital owner’s representative agency in VDB.

3. Other relevant organizations and individuals.

Article 3. Mobilized capital and equity of VDB

1. VDB may mobilize capital from the sources prescribed in Clause 2 Article 6 of the Decree No. 46/2021/ND-CP but must abide by the following rules:

a) Limits and prudential ratios must be maintained by VDB in accordance with guidelines given by the State Bank of Vietnam (SBV);

b) In case VDB raises funds by issuing Government-guaranteed bonds, it must ensure the guarantee limit decided by the Prime Minister and apply the interest rate which must fall within the bracket of interest rates announced by the Ministry of Finance;

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d) In case VDB gets loans from SBV, the lending interest rate shall comply with SBV’s regulations;

dd) Mobilization of capital from other sources shall comply with in accordance with regulations of law and VDB shall assume responsibility for its decision.

2. VDB's equity shall be defined in accordance with Article 7 and Clause 1 Article 40 of the Decree No. 46/2021/ND-CP. The credit limit applied in the next quarter shall be determined according to the separate financial statements of the previous quarter.

Article 4. Rules for capital and asset management

1. VDB shall monitor all of its existing capital and assets, do bookkeeping and sufficiently, accurately, truthfully and promptly reflect the use and changes in its capital and assets in the course of its operation in accordance with regulations on accounting and statistics in force; clearly assign responsibilities of each department or individual in case of damage to or loss of assets; comply with regulations on preservation of working capital and asset management set out in the Decree No. 46/2021/ND-CP.

2. VDB is entitled to use capital for performing activities prescribed in Clause 1 Article 8 of the Decree No. 46/2021/ND-CP. VDB shall only be allowed to carry out trading, discounting and rediscounting of the following types of financial instruments, including: government bonds, government-guaranteed bonds, municipal bonds, and SBV bills in accordance with regulations of law.

Article 5. Risk provisions

1. VDB shall set aside provision for credit losses and other provisions in accordance with Article 16, Article 17, Article 18 of the Decree No. 46/2021/ND-CP and the provisions of Clause 2 of this Article.

2. Rules and procedures for making risk provisions

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b) VDB shall set aside provisions for credit losses on other loans in accordance with Clause 2 Article 16 of the Decree No. 46/2021/ND-CP;;

c) If, after setting aside provisions for credit losses as prescribed in Points a, b, the difference between revenues and expenses of VDB in the fiscal year is a positive number:

- Based on the demand for use of the provision for credit losses for handling bad debts in the following year, the Board of Directors of VDB shall decide to make additional contributions to the provisions for losses on investment credit, export credit and compulsorily guaranteed loans;

- After setting aside the provisions for losses on investment credit, export credit and compulsorily guaranteed loans as prescribed in Clause 2 Article 15 of the Decree No. 46/2021/ND-CP, if VDB incurs no accumulated losses, it shall make other provisions as prescribed in Article 18 of the Decree No. 46/2021/ND-CP.

3. Capital mobilization cost which is used as the basis for setting aside the risk provision for other loans as prescribed in Point b Clause 2 Article 16 of the Decree No. 46/2021/ND-CP shall be calculated as follows:

a) With regard to loans granted by VDB with funding raised from a specific source, the capital mobilization cost shall equal the interest and capital mobilization fee actually incurred by VDB from raising of funding from that source;

b) With regard to the outstanding debt of other remaining loans granted using general funding of VDB, the capital mobilization cost shall be determined according to the average mobilized capital interest rate as follows:

Capital mobilization cost of the outstanding debt of other remaining loans

=

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x

Average mobilized capital interest rate

Where: The average mobilized capital interest rate shall be determined according to Clause 2 Article 6 of this Circular.

4. VDB shall manage and monitor provisions for losses on investment credit, export credit and compulsorily guaranteed loans, and the risk provision for other loans in accordance with Article 17 of the Decree No. 46/2021/ND-CP.

5. Time of recording risk provisions:

By the 20^th of the first month of the following quarter, VDB shall record the amounts temporarily contributed to the risk provisions in the previous quarter in accordance with Article 16 of the Decree No. 46/2021/ND-CP.

With regard to the last quarter of the accounting year, VDB shall determine the amounts of risk provisions set aside in the accounting year as prescribed in Article 16 of the Decree No. 46/2021/ND-CP and do bookkeeping of such amounts at the annual finalization time.

Article 6. Interest rate offsetting

1. Determination of subsidy for interest rate offsetting:

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Subsidy for interest rate offsetting

=

Subsidy for interest rate difference offsetting

+

Post-investment subsidy

2. Determination of subsidy for interest rate difference offsetting:

Subsidy for interest rate difference offsetting

=

Total capital mobilization cost offset by subsidy

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Total revenue earned from use of mobilized capital

Where:

a) Total capital mobilization cost offset by subsidy:

Total capital mobilization cost offset by subsidy is the sum of interests on mobilized capital and costs of issuance of financial instruments (in additional to interests thereof) which is actually incurred by VDB from mobilization of funds for granting loans to investment credit projects, export credit projects, and compulsorily guaranteed loan debts eligible for interest rate difference subsidy (hereinafter referred to as “subsidized projects”), and subsidized budget reserve. Total capital mobilization cost offset by subsidy is calculated adopting the following formula:

Total capital mobilization cost offset by subsidy

=

Mobilized funding offset by subsidy

-

Interest-free funding

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Average mobilized capital interest rate

Where:

- Mobilized funding offset by subsidy means VDB’s funding used for granting loans to subsidized projects and subsidized budget reserve:

Mobilized funding offset by subsidy

=

Average outstanding debt of loans granted to subsidized projects

+

Subsidized budget reserve

Where:

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+ Subsidized budget reserve is the average amount of VDB’s cash balances, deposits at SBV and deposits at other credit institutions but shall not exceed 5,3% of the average outstanding debt of loans granted to subsidized projects.

- Interest-free funding includes: VDB’s charter capital; difference from asset revaluation and exchange rate difference; additional reserve fund of charter capital, development investment fund; undistributed incomes of previous quarters and years; capital construction investment funding derived from state budget and funding from other sources of VDB. When calculating the interest-free funding, VDB shall adopt the weighted average method after deducting:

+ The residual value of fixed assets (which is the cost of the fixed assets minus accumulated depreciation thereof) and the actual construction in progress which shall not exceed 25% of the sum of VDB’s charter capital and additional reserve fund of charter capital;

+ Amounts of charter capital actually contributed by Vietnam Infrastructure Development and Finance Investment Joint Stock Company (VIDIFI) and other organizations (if any) as prescribed by law.

- Average mobilized capital interest rate:

Average mobilized capital interest rate

=

Total costs incurred from capital mobilization

Average total mobilized capital

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+ Total costs incurred from capital mobilization are total interests on mobilized capital and costs of issuance of financial instruments (in addition to interests thereof) actually incurred by VDB (excluding costs of getting loans from overseas financial institutions or credit institutions and foreign loans on-lent by the Government for granting loans to programs/projects which are ineligible for interest rate difference subsidy);

+ Mobilized capital shall be determined according to Clause 2 Article 6 of the Decree No. 46/2021/ND-CP, and exclusive of loans granted by overseas financial institutions or credit institutions and foreign loans on-lent by the Government for granting loans to programs/projects which are ineligible for interest rate difference subsidy.

b) Total revenue earned from use of mobilized capital includes:

- Interests on loans granted which are total interests actually received from loans granted to subsidized projects (including due interest payments and penalty interests);

- Deposit interest from subsidized budget reserve which shall be determined as follows:

Deposit interest received

=

Subsidized budget reserve

x

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Where:

Average deposit interest rate

=

Total interests actually received

Average total budget reserve (cash + deposits)

3. Average numbers specified in Clause 2 of this Article are determined as follows:

Monthy average number

=

Beginning balance + Ending balance of the month

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Quarterly average number

=

Sum of monthly average numbers of the months in the quarter

3

Annual average number

=

Sum of monthly average numbers of the months in the year

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4. Time of recording interest rate difference subsidy granted to VDB

a) By the 20^th of the first month of the following quarter, VDB shall record the temporarily calculated interest rate difference subsidy of the previous quarter as prescribed in Clauses 1, 2 and 3 of this Article;

b) With regard to the last quarter of the accounting year, VDB shall determine the interest rate difference subsidy of the accounting year as prescribed in Clauses 1, 2 and 3 of this Article and do bookkeeping of such subsidy amounts at the annual finalization time.

5. Determination of post-investment subsidy:

Post-investment subsidy

=

Post-investment support amounts granted (quarterly, annual)

-

Recovered post-investment support amounts (quarterly, annual)

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Article 7. VDB’s financial plan

The annual financial plan of VDB shall be prepared in accordance with regulations in Article 29 of the Decree No. 46/2021/ND-CP, and shall, inter alia, include:

1. The plan for use of capital and sources of capital made according to Appendix I enclosed herewith;

2. The plan for interest rate offsetting subsidy and management fees made according to Appendix II enclosed herewith;

3. The plan for incomes, expenses and financial performance made according to Appendix III enclosed herewith;

4. The plan for capital construction investment, purchase, upgrade and modernization of assets made according to Appendix IV enclosed herewith;

5. The plan on labour and salaries made according to Appendix V enclosed herewith;

6. The plan for provision of post-investment support made according to Appendix VI enclosed herewith;

Article 8. Criteria for assessment of annual business performance of VDB

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1. Criterion 1: State investment credit shall be determined according to the results of performance of criteria set out in the State investment credit plan allocated by the Prime Minister to VDB and the plan for collection of principal and interests on investment credit loans allocated by the Ministry of Finance to VDB.

2. Criterion 2: Bad debt ratio is the ratio of the outstanding bad debts of risky debts of VDB to total outstanding risky debts of VDB. Outstanding bad debts shall be determined according to SBV’s regulations on classification of assets and VDB’s off-balance commitments.

3. Criterion 3: Financial performance is the difference between incomes earned and expenses incurred in the assessment year, and determined according to VDB’s audited separate financial statements.

4. Criterion 4: Compliance with regulations on investment, management and use of state capital in VDB with regard to operations performed in the assessment year. Total fine used as the basis for assessment and ranking shall be the sum of fines payable specified in decisions on imposition of penalties for administrative violations detected in a fiscal year, excluding compulsory payments for implementing remedial measures.

5. Criterion 5: Compliance with reporting regime laid down in Article 31 of the Decree No. 46/2021/ND-CP.

Article 9. Methods for assessment of business performance of VDB

1. Criterion 1: State investment credit

a) VDB shall be given A rating if it achieves at least 90% of the State investment credit plan and the principal and interest collection plan annually allocated by the Prime Minister and the Ministry of Finance respectively;

b) VDB shall be given B rating if it achieves from 80% to less than 90% of the State investment credit plan and the principal and interest collection plan annually allocated by the Prime Minister and the Ministry of Finance respectively;

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2. Criterion 2: Bad debt ratio

a) VDB shall be given A rating if its achieved bad debt ratio is equal to or lower than the planned one;

b) VDB shall be given B rating if its achieved bad debt ratio is up to 110% higher than the planned one;

c) VDB shall be given C rating if its achieved bad debt ratio exceeds 110% of the planned one.

3. Criterion 3: Financial performance

a) VDB shall be given A rating if its achieved financial performance is equal to or higher than the planned one;

b) VDB shall be given B rating if its achieved financial performance is at least 90% of the planned one;

c) VDB shall be given C rating if its achieved financial performance is less than 90% of the planned one.

4. Criterion 4: Compliance with regulations on investment, management and use of state capital in VDB with regard to operations performed in the assessment year.

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a1) For violations in monetary and banking sector:

- It is not facing penalties imposed by competent authorities for fraudulent or forging acts; impersonation; sabotaging or destroying Vietnamese money; illegal business operations; provision of untruthful information; stealing information; stealing data as defined in the Government's regulations on penalties for administrative violations in monetary and banking sector;

- With regard to other violations, the penalty it incurs for each violation shall not exceed the average penalty in the penalty bracket;

a2) For violations in taxation or invoice sector: It is not facing penalties imposed by competent authorities for tax evasion as defined in the Government’s regulations on penalties for administrative violations in taxation or invoice sector;

a3) For other violations: The penalty it incurs for each violation shall not exceed the average penalty in the penalty bracket;

a4) The number of branches (including headquarters address) incurring penalties shall not exceed 10% of total branches of VDB.

b) VDB shall be given C rating if it commits violations in one of the following cases:

b1) It has incurred fines in the assessment year for the following violations:

- The violations in monetary and banking sector, including: fraudulent or forging acts; impersonation; sabotaging or destroying Vietnamese money; illegal operations; provision of untruthful information; stealing information; stealing data as defined in the Government's regulations on penalties for administrative violations in monetary and banking sector;

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- Other violations for each of which the fine incurred is the maximum fine of the fine bracket;

- It is forced to implement the penalty imposition decision.

b2) The number of branches (including headquarters address) incurring penalties exceeds 20% of total branches of VDB;

b3) In the assessment year, VDB’s executives commit violations against law during their performance of tasks of VDB to an extent that they are liable to criminal prosecution;

c) VDB shall be given B rating if it is given neither A rating nor C rating.

5. Criterion 5: Compliance with reporting regime laid down in Article 31 of the Decree No. 46/2021/ND-CP dated March 31, 2021:

a) VDB shall be given A rating if it is not reminded in writing or is given no more than 02 written reminders by competent authorities of its invalid or late submission of any type of reports prescribed in Article 31 of the Decree No. 46/2021/ND-CP in the assessment year;

a) VDB shall be given A rating if it is not reminded in writing or is given no more than 03 written reminders by competent authorities of its invalid or late submission of any type of reports prescribed in Article 31 of the Decree No. 46/2021/ND-CP in the assessment year;

c) VDB shall be given B rating if it is given neither A rating nor C rating.

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Article 10. Consolidation of assessment results of VDB

1. VDB shall be rated A if it has no criterion rated C, and has criterion 1 and criterion 2 rated A as prescribed in Article 9 of this Circular.

2. VDB shall be rated C if it has criterion 1 and criterion 2 rated C, or criterion 1 and criterion 2 rated B and the other criteria rated C as prescribed in Article 9 of this Circular.

3. VDB shall be rated B in other cases.

4. Based on performance assessment criteria laid down in this Circular and planned targets assigned by the Ministry of Finance, VDB shall submit annual report on performance assessment and rating results to the Ministry of Finance for appraisal and approval of rating of VDB. This report must be submitted within 60 (sixty) days from the issue date of financial statement audit report.

5. The Ministry of Finance shall appraise and give its opinions about rating results of VDB within 30 working days from the receipt of adequate report from VDB.

Article 11. Assessment and ranking of VDB’s executives

Annual assessment and ranking of VDB’s executives, including position and title holders (Chairperson of the Board of Directors, members of the Board of Directors, General Director, Deputy General Director and Chief Accountant) and members of the Board of Controllers of VDB, shall be carried out in accordance with the provisions of Chapter III of the Government’s Decree No. 159/2020/ND-CP dated December 31, 2020 and its amending and superseding documents (if any).

Article 12. Reporting

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2. Data closing duration:

a) A quarterly report shall include data collected from the first day to the final day of the reporting quarter;

b) Report for the first 06 months shall include data collected from January 01 to June 30 inclusively of the reporting year;

c) An annual report shall include data collected from January 01 to December 31 inclusively of the reporting year.

3. Deadline for submission of reports:

a) A quarterly report shall be submitted within 30 days after the end of the fiscal year;

b) The report for the first 06 months shall be submitted within 60 days after the end of the first 06 months of the fiscal year;

c) For annual reports:

- Unaudited annual financial statements and annual report on professional operations shall be submitted within 90 days from the end of the fiscal year;

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- Annual report on performance assessment and rating of VDB shall be submitted by the deadline prescribed in Clause 4 Article 10 of this Circular.

d) If the submission deadline falls on a weekend or a public holiday, the submission deadline shall be automatically extended to the next business day.

4. Methods for submitting reports:

VDB shall submit the reports prescribed in Clause 1 of this Article adopting one of the following methods:

a) Directly in the form of paper report;

b) By post in the form of paper report;

c) Via the specialized reporting software system in the form of electronic document (if any);

d) Other methods as prescribed by law.

5. Report forms:

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b) Report on debt classification shall be prepared according to Appendix VII enclosed herewith;

c) Report on provisions for credit losses shall be prepared according to Appendix VIII enclosed herewith;

d) The operational performance report for the first 06 months/annual operational performance report of VDB shall be prepared according to Appendix IX enclosed herewith;

dd) Annual report on performance assessment and rating of VDB shall be prepared according to Appendix X enclosed herewith.

6. Within 30 working days from the receipt of the financial statements and the operational performance report for the first 06 months and within 40 working days from the receipt of the annual financial statements and annual operational performance report from VDB as prescribed in Points c, d Clause 5 Article 31 of the Decree No. 46/2021/ND-CP, the Ministry of Finance shall, after getting opinions from the Ministry of Planning and Investment and SBV, prepare and submit consolidated report on operational performance of VDB to the Prime Minister.

Article 13. Transition

VDB shall reverse the balance of the provision for redundancy allowances into other incomes in 2021 from the effective date of this Circular.

Article 14. Implementation and effect

1. This Circular comes into force from the date on which it is signed.

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3. The Board of Directors and General Director of VDB, and other relevant organizations and individuals are responsible for the implementation of this Circular.

4. Any difficulties that arise during the implementation of this Circular should be promptly reported to the Ministry of Finance for consideration./.

PP. MINISTER
DEPUTY MINISTER




Nguyen Duc Chi