Press Release of issuance of Circular No.32/2015/TT-NHNN
The Governor of the State Bank of Vietnam (SBV) issued Circular No. 32/2015/TT-NHNN on December 31, 2015 on prudential ratios in operations of people’s credit funds. The Circular will take effect from March 1, 2016.
Decision No.1328/2005/QD – NHNN dated September 6, 2005 on promulgating “Regulations on prudential ratios in operations of local people’s credit funds” and Item 3 of Article 37 of Circular No.04/2015/TT-NHNN dated March 31, 2015 on people’s credit funds cease to be effective.
The Circular No. 32/2015/TT-NHNN maintains regulations of Decision No. 1328/2005/QD – NHNN and supplements several substances in line with practical management, governance and the restructuring of people’s credit funds.
The Circular includes 5 Chapters and 17 Articles as follows:
Chapter I: General provisions including 04 Articles stipulates governing scope, interpretation, information technology system and internal regulations.
Chapter II: Specific provisions including 02 Items and 06 Articles stipulates prudential ratios in operations of people’s credit funds (capital adequacy ratio; solvency ratio; maximum ratio of short- term capital funds utilized to extend medium and long term loans), lending cap, report and violation resolution.
Chapter III: Transitional regulations including 04 Articles stipulates responsibilities of people’s credit funds, transition of lending cap and maximum ratio of short- term capital funds utilized to extend medium and long term loans; and resolution after transition.
Chapter IV: Implementing regulations stipulate responsibilities of SBV entities.
Chapter V: Terms of execution including 02 Articles stipulates the effective date and the implementing responsibility.
Several main substances of the Circular are as follows:
- Firstly, in regard to capital adequacy ratio, the Circular supplements regulations on categories of tier 1 and 2 capital to ensure the accuracy and be in line with the economic essence of each category of the equity capital. The Circular also stipulates specific categories not to be included in tier 1 capital and the equity.
- Secondly, in regard to solvency ratio, the Circular supplements regulations on categories of liquid Assets and payable Liabilities in line with relevant documents.
- Thirdly, in regard to the maximum ratio of short- term capital funds utilized to extend medium and long term loans, people’s credit funds are allowed to use 30% of short- term capital funds for medium and long term lending and the determination of this ratio must be based on remaining duration of capital fund and the mature of loans.
- Fourthly, in regard to lending cap: the Circular stipulates the lending cap in accordance with Articles No.126 and 127 of Law on Credit Institutions and practical operations of people’s credit funds in order to manage the credit extension focused on managers of people’s credit funds, and avoid hazard risks as well as loss of capital.
The issuance of Circular No. 32/2015/TT-NHNN aims at creating legal framework for successfully implementing objectives and measures of restructuring and resolving NPLs approved by the Prime Minister in Decision No.254/QD – TTg dated March 1, 2013 and Decision No.843/QD-TTg dated May 31, 2013. The Circular also creates standards of governing, safe and sound operations of people’s credit funds in accordance with international standards, meeting the requirements of management and supervision of people’s credit funds in the new period, thereby gradually developing people’s credit funds safely and more effectively, contributing to socio-economic development.
Translated by TLH