DIRECTIVE

ON THE ENHANCEMENT OF CREDIT QUALITY, CREDIT EXPANSION IN LINE WITH THE CAPACITY OF FUNDS MOBILIZATION AND RISK CONTROL, ASSURANCE OF SYSTEM SECURITY

With a view to implementing the Resolution No. 41/2004/QH11 dated 03/12/2004 of the National Assembly on the 2005 socio-economic development task, the Resolution No. 01/2005/NQ-CP dated 14/01/2005 of the Government on several essential solutions guiding the implementation of the socio-economic plan and the State Budget in 2005, which assigned the State Bank of Vietnam to deploy solutions for the active implementation of the monetary policy, the exchange rate, interest policy in line with the objective, developments of the market for the enhancement of credit quality and prudence in the banking activity. In early months of 2005, the economy has been stable and growing, the consumer price index has increased by 3.7%; credit activity has been expanded; however, credit risks have not been controlled and assessed accurately in conformity with international rules, standards and requirements for the integration.

For the contribution to the high and sustainable economic development, the monetary stability and inflation control, credit institutions and units of the State Bank of Vietnam must implement following solutions:

I. WITH RESPECT TO CREDIT INSTITUTIONS

1. To take comprehensive solutions for funds mobilization from domestic market; to exploit and use efficiently the financing sources from international organizations for rural credit projects, small and medium enterprises; to actively deal with unsettled debts for the enhancement of ability to satisfy timely demands for credit funds of the economy on the basis of the credit prudence and efficiency.

2. The speed of credit expansion must be in line with the growth of the actually mobilized funds, the credit targets, which were set at the beginning of the year and the ability to control the credit quality; to secure the liquidity for the payment requirements and prudence in business activities.

3. To correctly comply with provisions of applicable laws on lending, guarantee, financial leasing, discount, factoring and loans security; to consider and decide on lending with security assets which are created from borrowed funds, to avoid obstacles in the disposal of security assets for the debt recovery; To pay special attention to the implementation of solutions for the enhancement of credit quality to avoid the accumulation of bad debts.

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5. To carry out the review, supplement and amendment of regulations, procedures of credit operation to ensure the compliance with provisions of applicable laws, in line with conditions of business activity, to prevent and limit credit risks. Credit institutions promptly issue and implement following operational provisions:

a. Provisions on risk management, especially for the credit risk; the management information system and the smooth internal business management system from the head office to branches in localities.

b. Provisions on the restructuring of repayment terms in line with provisions at Paragraph 2 and Paragraph 6, Article 1 of the Decision No.127/2005/QD-NHNN dated 03/02/2005 of the Governor of the State Bank on the amendment, supplement of several articles of the Regulation on lending by credit institutions to customers issued in conjunction with the Decision No.1627/2001/QD-NHNN dated 31/12/2001 (hereinafter referred to as Decision No.127).

c. The examination and supervision procedures for the borrowing process, the use of borrowed funds and the debt repayment of customers that was issued in conformity with provisions of the Decision No.127.

d. To enhancement of the quantity and quality of staffs in charge of internal control for credit activities; to renovate the credit control method, which aims at the centralized management, the close supervision and timely dealing with risks.

6. To analyze, estimate the scale, structure and credit efficiency in respect of economic industries, economic sectors and urban, rural areas, and on that basis to take solutions for developing credit activity safely efficiently- sustainably:

a. To take the initiative of studying development schemes, plans of economic industries, localities; to assess and forecast the funds requirement, the funds mobilization capability, the level of credit risk to determine the rate of credit expansion and its structure for each industry, each urban and rural locality.

b. To control closely over the lending subjects and the rate of foreign currency credit expansion to avoid exchange rate risk, interest rate risk and not to affect the general credit growth.

c. It is required to provide co-financing loans to projects which are in need of large loans and the long borrowing term; to expand lending to efficient projects with short time of funds recovery from small and medium enterprises, from the collective and private ownership.

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7. To implement provisions on the risk security and prudence in the credit activity:

a. To build and implement synchronously a system of internal regulations, procedures on risk management with particular attention to be paid to the design of the borrowing customer policy, credit manuals, provisions on the assessment, classification of borrowing customers, assessment of credit quality and settlement of bad debts.

b. To expand the long and medium term credits at a proper level, to secure a good matching between the lending term and the term structure of mobilized funds.

c. To correctly comply with provisions on limits in respect of lending, guarantee, financial leasing, discount and factoring applicable to a single customer and prudential ratios in business activity.

d. To closely cooperate with ministries, industries, localities and borrowing customers to promptly recover borrowing debts from units that have borrowed for the implementation of capital construction projects, according to the State policy that all unsettled debts relating to capital construction projects must be completely settled by the end of 2006.

8. In respect of loans to the state companies and state enterprises, which are equitized, assigned, sold, rented or their form of management is changed:

a. To timely satisfy borrowing demands, which are efficient and payable, from State-owned enterprises.

b. The lending to state-owned companies shall be made in accordance with provisions of applicable laws on lending and the Decree No.199/2004/ND-CP dated 03/12/2004 of the Government on the Regulation on the financial management of state-owned companies and the management to state-owned capital that has been invested in other enterprises; particular attention is to be paid to the authority of the Board of Directors, representative for the owners of state-owned companies as to the approval of the borrowing contract, assets pledge and mortgage contract.

c. Commercial banks actively participate in the preparation and decision on plans of streamlining state enterprises which have borrowed bank funds in the capacity as a lender, in line with policies and solutions of continuing to strongly renovate state-owned enterprises, which are stated in the Resolution of the ninth Conference of the Central Partys executive committee, legislature IX. The settlement of loans and new lending to these enterprises shall be implemented in accordance with provisions of the law on state enterprise (assignment, allotment, leasing, equitization, integration, merging, splitting, dissolution, bankruptcy) and the guidance of the Government in the Official Dispatch No.601/CP-DMDN dated 06/5/2004 on the receipt and performance of financial obligations by restructured state-owned enterprises to credit institutions.

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9. To mobilize funds sources to invest in projects of equipment and technology modernization for the sake of business activities; to promptly deploy new technology, equipment for the diversification of credit, payment services, and banking facilities and for the improvement of business efficiency and competitiveness.

II. IN RESPECT OF UNITS OF THE STATE BANK OF VIETNAM

1. Within the scope of their competence, assignment, units in the head office of the State Bank of Vietnam should implement following tasks:

a. To recommend and implement prudently and actively solutions for the management to monetary policies for the macro-economic stabilization and enhancement of economic growth. To follow up closely the movement of currency and macro-economic developments, market signals so as to make necessary adjustment in the management of credit monetary policies to avoid substantial fluctuation in the interest rate, exchange rate, which may increase adverse conditions for banking credit activities.

b. To perform well the function, assignments and enhance the management, supervision role of the State Bank of Vietnam toward credit institutions to early detect and timely deal with obstacles, petition for the ease of business activities of credit institutions.

c. To study, submit to the Governor of the State Bank for the amendment, supplement of provisions on lending in foreign currency, guarantee, financial leasing and other provisions on credit extension in line with international rules and standards, market principles to raise the autonomy rights and self-responsibility of credit institutions.

2. In respect of the State Bank Inspection:

a. To intensify the inspection, control of the compliance with provisions of the law on credit activities; to timely detect and take determined solutions for every violation act.

b. To follow up, analyze credit institutions loans with restructured term of repayment to give early warnings, demands to credit institutions for appropriate solutions for debt recovery and for the prevention of credit risk from happening.

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d. To study and submit the Governor of the State Bank for the issuance of provisions on minimum requirements to the internal risk management system of credit institutions and provisions on the classification of credit institutions by CAMEL standards.

3. The Department of Banks and Non-bank credit institutions should accelerate and submit the Governor of the State Bank for the issuance of following provisions:

a. Provisions on debt classification, provisioning and use of provisions for dealing with credit risks in banking activities in accordance with the policy on the renovation of credit regime and to assure the completeness with the Decision No.127.

b. Provisions on the capital adequacy, risk control, internal audit, opening, establishment and termination of the operation of business center, branches, representative offices, non-productive units of commercial banks.

4. The Department of Finance Accounting should complete and submit the Governor of the State Bank for the issuance of Regime on accounting and lending in line with the Decision 127.

5. The Credit Information Centre should implement technological solutions, enhance the quality of the official staff to intensify the function and the ability to collect, settle, supply information so as to assist efficiently the activity of credit institutions; and support the supervision of the State Bank of Vietnam.

6. With respect to the State Bank branches in provinces, cities under the central Government management:

a. To regularly follow up, control, inspect the compliance with applicable provisions on lending, guarantee, financial leasing, discount, factoring, loan security and other forms of credit-extension; to actively cooperate with local credit institutions to timely deal with violations and prevent unhealthy competition among credit institutions from taking place.

b. To advise party committees, local authority and actively to cooperate with and inform branches of state - owned commercial banks in their respective location of the preparation and implementation of plans to restructure state-owned enterprises, which have borrowed from banks, in line with the guidelines of the Resolution of ninth Conference of the Executive committee of the Central Party, legislature IX and the applicable laws on the state enterprises.

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1. This Directive becomes effective after fifteen days since its publication in the Official Gazette.

2. The Director of Administrative Department, the Director of the Legal Department, Director of the Department of Monetary Policy and Heads of units of the State Bank, Directors of the State Bank branches in provinces, cities under the central Governments management; the Board of Directors and the General Director (Director) of credit institutions are responsible for the implementation of this Directive./.

THE GOVERNOR OF THE STATE BANK




Le Duc Thuy