Summary of important parts on
Guidance No: 737/NHCS-KT
Hanoi, May 09, 2005
GUIDANCE ON
IMPLEMENTATION OF FINANCIAL MANAGEMENT POLICIES
OF VIETNAM BANK FOR SOCIAL POLICIES (“VBSP”)
- Pursuant to the Regulation regarding organizing and operating of Vietnam Bank for Social
Policies (VBSP) issued attached to Decision 16/2003/QD-TTg dated January 22, 2005 of PM;
- Pursuant to the Decision 180/2002/QD-TTg dated December 19, 2002 of PM refer to the
issuing Financial Management Policy to VBSP;
- Pursuant to Circular 24/2005/TT-BTC dated April 01, 2005 of Ministry of Finance (MOF)
refer to Guidance on implementation of Financial Management Policy to VBSP issued attached
to Decision 180/2002/QD-TTg dated December 19, 2002 of PM;
- Pursuant to the current related Government’s regulation on Financial Management.
General Director of VBSP provides guidance on implementation of Financial Management
Policy of VBSP as follow:
PART A: GENERAL PROVISIONS
1. Vietnam Bank for Social Policies (“ VBSP”) is a Government credit organization, does not
operate for profits, has its legal status, has its chartered capital and balance sheet. VBSP is a
central accounting unit, is provided with capital and other resources by the Government. VBSP
is responsible to use its fund properly, to the right targets, maintaining and developing its fund,
cover expenses and operational risks according to this guidance’s stipulations. VBSP is not
inquired to acquire deposit insurance, its required compulsory reserve requirement of 0% (zero
percent), exempted from tax and other payables to Government’s budget.
2. VBSP’s financial activities follow stipulations of Decree 78/2002/ND-CP dated October 04,
2002 of the Government regarding credit to the poor and other policy beneficiaries; regulations
mentioned above (Decision 180/2002/QD-TTg; Circular 24/2005/TT-BTC); and other related
legal regulations regarding financial management.
3. This guidance is applicable to all units within VBSP’s system that include:
- Head Office
- Transaction Centers and branches at provincial levels
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- Transaction Centers at district levels
- Training Center
Herein after called “units”
4. Heads of units are responsible to the Chairman of BOD, the General Director of VBSP and to
the law in relation to implementation of financial policies in each of their units.
5. VBSP is under inspection and supervision of the Ministry of Finance. Units are under
inspection and supervision of higher level offices of VBSP and the law regarding financial
activities, management of capital and Government’s assets.
PART B: SPECIFIC TERM
I – MANAGING AND UTILIZING CAPITAL, FUNDS, ASSETS
1. VBSP’s Source of capital includes:
1.1. Capital and funds
a) Legal capital: 5,000,000,000,000 VND (five billion VND) given by State Budget upon
establishment, and will be supplemented when activity scale of VBSP is expanded following the
Government’s order.
b) Reserve to supplement chartered capital; development investment reserve, financial reserve;
credit risk provision; provision for Severance Allowance; Reward and Welfare reserves;
c) Capital from Government’s budget (include Central budget, local budget) for lending for
poverty reduction, job creation and other social policies;
d) Retained earnings (if available);
dd) Non refundable funds from domestic and oversea organizations and individuals;
e) Others (if available)
1.2 Fund Mobilisation
1.2.1 Forms of fund mobilization
a) Raising fund from interest bearing deposits according to annual approved plan; non – interest
bearing deposits voluntarily from domestic and oversea organizations and individuals; saving
deposits of the poor;
b) ODA fund given by the Government;
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c) Issuing bonds, Certificate of Deposit and other securities under the Law;
d) Deposit from Government credit organizations that stipulated in point 2 - clause 8 - Decree
78/2002/ND-CP of the Government regarding credit for the poor and other policy beneficiaries;
dd) Borrowing from Post-office’s savings; Vietnam Social Insurance;
e) Borrowing from State Bank of Vietnam; and
f) Borrowing from domestic and oversea financial and credit institutions.
1.2.2 Principles for planning, interest rate and forms of fund mobilization
Annually, based on target guided by the Head Office, capacity of raising fund on site, loan
demand of poor household and other target beneficiaries, all units would develop their fund
mobilization plans, then sending it to the Head Office for approval before implementation.
Raising fund thru interest bearing instruments is only when all non-interest bearing funds have
been used; or raising fund with low interest rate. Interest rate for raising fund in each unit should
follow those below principles:
+ Interest rate for issuing bonds, Certificate of Deposit and other valuable papers is within the
limit approved by MOF.
+ Interest rate for borrowing from Post-office’s Savings; Vietnam Social Insurance is
determined by MOF.
+ For those funds that raised by deposits from domestic and oversea organizations and
individuals; saving deposits of the poor; borrowing from domestic Financial and Credit
institutions, the interest rate should not exceed the Government’s commercial bank interest rate
for raising fund with the same terms, same time, in the same area.
+ For those funds that raised by deposits from Government credit organizations that stipulated
in point 2 - clause 8 - Decree 78/2002/ND-CP dated October 04, 2002 of the Government, the
interest rate should not excess the rate that stated in Circular 04/2003/TT-NHNN dated February
24, 2003 of SBV.
+ Borrowing from oversea Financial and Credit institutions by the Head Office is governed by
the Law of Credit organizations as well as other current regulations. Borrowing interest rate
must get MOF’s approval in writing.
1.3 Trust funds receive from domestic and oversea organizations and individuals
1.4 Other funds
2. Fund and assets management of VBSP
2.12 Provision fund
2.12.1 Credit risk provision
VBSP shall set aside Credit risk provision Fund in order to compensate loan losses caused by
objective reasons like natural disaster, fire, disease, changes in Government policy, market price
fluctuate after using compensation from Insurance company (if available)
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The credit risk provision fund is equal to 0.02% of the total average annual outstanding loan
which is used as the basic and determined by the following formula:
Average annual
outstanding loan
=
January outstanding loan + … + December outstanding loan
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The Head Office set up provision fund at year end (31/12) for the year end financial reports.
Annually, base on available balance of Credit risk provision Fund, General Director would use
it for resolving loan loss by units as regulated by the Chairman of Board Management. In case
Credit risk provision Fund is not used up, the unused balance will be transferred to the
following year. In case Credit risk provision Fund is inadequate to resolve losses of the year,
then General Director will report to Chairman of Board Management in order to ask for
solutions from the Ministry of Finance (MOF).
For loan loss caused by objective reasons in large scale, the resolution will follow the decision
of the Prime Minister and guidance from General Director of VBSP.
2.12.2 Exchange rate Risk Provision
All units are entitled to set up Exchange rate Risk Provision for overseas raised funds for
lending to poor household and policy beneficiaries under the Government’s regulation.
Setting up Exchange rate Risk Provision is only applicable when average inter-bank exchange
rate that issued by SBV higher than accounting book exchange rate at the time of setting up the
provision, as follow:
Require amount
For setting up =
Exchange rate
Risk Provision
Amount to set up
Exchange rate
Risk Provision
(Amount)
Outstanding
balance of
oversea raised fund
in original currency
=
X
Required amount
to set aside Exchange
rate Risk Provision
(Required amt.)
Exchange rate
Exchange rate
that issued
_ in accounting
by SBV
book
_
Available balance
of Exchange rate
Risk Provision
(Available balance)
Timing: Exchange rate Risk Provision is set for each and every type of foreign currency and
summarized in a detailed list of forex loss provision at the end of fiscal year/accounting book
closing date (December 31) for financial report purpose.
If Required amt. greater than Available balance, units use the above formula for setting up the
provision.
If Required amt. less than or equal to Available balance, the unused balance will be carried fwd
to the following year.
On the due date of overseas loans, units will use the provision to resolve losses incurred In case
the provision is inadequate to resolve losses of the year, then units will report to Head Office to
ask the Ministry of Finance (MOF) for solution.
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3. Scope and Principle to determine the amount of compensation for interest rate
difference and management fee
3.1 Scope
- VBSP is provided from the Government’s budget for compensating the interest rate difference
and management fee for loans to targets under Decree 78/2002/ND-CP dated October 04, 2002
of the Gov’t. VBSP is NOT provided with i/r difference compensation and management fee for:
+ Loans not to the right target
+ Loans under programmes on behalf of domestic and oversea organizations and individuals.
+ Loans that were blocked, written off and allowed to resolve by the Government but having
relevant source of loan resolution for VBSP.
3.2 Principles
- Compensation level is determined base on the different between average funding rate from all
source of fund (include those non interest bearing funds) (lai suat hoa` ddong cac nguon von)
and average lending rate.
Average funding rate = Interest expense/ average funding balance
Average lending rate = 90% interest receivable from over due and current loans and interest
receivable on deposits/ average loan balance
- Management fee follow MOF’s annual announcement. The fee for 2005 is 0.55%/month base
on average outstanding loan.
II – MANAGING EXPENSE – REVENUE
1. VBSP’s revenue come from its operation and other activities that generate revenue,
include:
1.1 Revenue from Operating activities
- Lending to poor household and other policy beneficiaries
- Deposits at SBV, State Treasury and Commercial banks.
- Loans on trust contract
- Payment and Cashier services
- Interest subsidies and management fee provided by State’s budget.
- Others
1.2 Revenue from other activities
- Disposal of fixed assets
- Proceeds from loans that were written off through risk provision fund, resolved under the
Government’s decision (written off loans).
- Others
2. Principles to determine Revenue
2.1 Revenue from lending activities, interest income is net revenue in the period
2.2 Interest subsidies and management fee are net provide from State’s budget
2.3 Others (services, disposal of fixed assets, exchange rate devaluation, …) is net revenue
3. VBSP’s expenses
VBSP’s expenses are those proper expenses within a period, include:
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3.1 Operating expenses
- Interest payable
- Expenses for payment and cashier operations
- Service fee payable to trust organisations
- Commissions to lending and savings groups
- money market operational expense
- Others
3.2 Tax, fee and other
3.3 Expense for setting aside Exchange risk provision fund and Credit risk provision fund
3.4 Expense for VBSP’s staff
3.5 Fixed assets
3.6 Operation and management
3.7 Others
III - Difference between revenue and expenditures and extraction to reserve
1. Difference between revenue and expenses
Difference between Income and Expense = total revenue – deductible expenditures during the
year.
The HO manages difference between Revenue and Expense of the whole system in order to
settle as follows:
1.1 Revenue > Expenditures: difference will be allocated as follow:
a) Provide for bonus and welfare reserves, being (in total) 3 months of actual salaries of
the year. The proportion of each reserve will be determined by the BOD.
b) Compensate for deficit of revenue and expenditures of last year.
c) The outstanding surplus difference will be allocated as:

Provide for reserve to supplement chartered capital

Provide for financial reserve

Provide for investment and development reserve
(The proportion of these 3 reserves will be complied with Governmental regulations).
1.2 Revenue < Expenditure:
VBSP shall have the right to carry forward the deficit to the next fiscal year. If the total revenue
in 3 consecutive years is not able to compensate total losses, VBSP should report to MOF and
submit to PM for consideration.
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Purposes of utilizing reserves
2.1 Reserve to supplement chartered capital: is used to supplement charter capital.
2.2 Financial reserve:
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Financial Reserve is used to compensate the unsettled damages, capital losses, asset damages
and other outstanding loans incurred in operation of VBSP after taking into account all
compensations made by parties and organizations that cause losses, claims paid by insurers and
utilizing risk provision funds.
2.3 Investment development reserve:
is used to expand the operation areas and modernize equipments, working conditions of VBSP
defined by VBSP’s BOD (i.e. capital expenditure).
2.4 Reserve for bonus:
is used for periodically bonus or year-end bonus for VBSP staff. Bonus must be decided based
on productivity and achievement of each staff by the Head of Emulation and Awarding Council
of VBSP.

Exceptional bonus for individuals, teams that had effective technical improvement ideas
as well as operational processes. This bonus must be decided by General Director of
VBSP.

Bonus for individuals and entities outside of VBSP who have good relations and have
accomplished all contract conditions those effectively contribute in VBSP’s operations.
Bonus must be decided by Chairman of BOD.
2.5 Reserve for welfare:
centrally managed by VBSP headquarter to spend for:

Building, repairing and supplementing funds for welfare constructions for the whole
VBSP system, or supplementing common welfare constructions in the sector, or in
agreement with other branches.

Sport, culture activities for VBSP staff

Contribution to Social Welfare Fund as needed.

Regular and irregular disadvantage subsidies for VBSP staff

Other social welfare activities
VBSP trade union co-ordinates in managing and using this provision.
IV: Severance allowance provisions
1. Setting up of provision for severance allowance

Monthly, 1% of the payroll is used to provide for severance allowance to spend for
social insurance of the branch. The provision expense is accounted for as expenses.

Quarterly, all branches have to transfer the provisions for severance allowance to
Transaction Center of VBSP.

Transaction center is responsible for managing the provision for severance allowance
and make payment to entities under decision of the General Director.
2. Using the provision for severance allowance:
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The provision is used to pay severance allowance for the VBSP’s staff who have worked for
VBSP for more than 1 year complying government definition, re-education expenditure for
labor due to changing of technology; backup skill training expenditure for female labors of
VBSP; and operation skill improvement training for VBSP staff.
V: Financial planning
1. Prepare and approve financial plan
a. Before 20 October every year, all branches has to prepare a financial plan for
the next year, the plan is prepared in quarterly which includes:

Plan for revenue and expenditure

Plan for personnel and salaries

Plan for equipment purchase (capital acquisition plan)

Plan for assets repair and maintenance
Accounting and Asset management Dept co-ordinates with other related departments at the head
office to collect plan of all branches and consol a Financial Plan of the Bank to obtain approval
from BOD and timely send to the Ministry of Finance and the Ministry of Planning and
investment, including:
-
Capital, and capital usage budgets
Income and Expenses budgets
Budget for subsidy claims from the State Budget for interest subsidies and management
expenses.
1.3 Based on the financial plan approved by the BOD, the GD shall announce the annual plan to
all units in the system, approve and manage periodic financial plans.
The GD’s announcement annual financial plan shall include:
- Total income
- Total expenses
- Net difference between income and expenses
- Other criteria
Based on the financial plan announced, all units are responsible to prepare quarterly analysis
report on progress of implementing the previous quarterly plan and on solutions to implement
the next quarterly financial plan.
Expenses incurred by all units are limited to the specific limits and norms specified in the
approved plans and budgets. Where expenses incurred are expected to be more than the budget,
the unit must seek written approval from the GD for respective amendments to the plans before
taking any action.
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2. Plans for construction and procurement of fixed assets, tools and supplies must be prepared
and submitted together with the annual financial plan. Depending on their scope and nature, the
GD can ask the relevant units to make a presentation for such plans before seeking approval
from the BoD.
Plans for construction and procurement of fixed assets must be notified by the GD to each unit
after being approved by the BOD. The financing and using of the funds for construction and
procurement must be carried out in accordance with current regulations of the Government and
detailed guidelines of VBSP.
VI. Accounting policy, statistics, internal auditing and financial reporting
1. Fiscal year of the Bank is from 1 January to 31 December
2. The branch prepares financial statements, quarterly, annually and surprise reports in
accordance with regulations of the Bank and the State Bank of Vietnam and then sends to Head
Office for consolidation.
Contents of financial statements are:
- Tier 3 Trial Balance (including off balance sheet account)
- Balance sheet
- Statement of profit and loss (01-BC form)
- Reports on lending and fund mobilization (02-BC form)
- Reports on over due loans (03-BC form)
- Reports on income of the Bank’s staff (04-BC form)
- Reports on provision for doubtful debts (05-BC form)
- Reports on finalizing the interest subsidies and management fees to be refunded (06-BC form)
3. Financial statements of branches are sent to Head Office for consolidation. Consolidated
financial statements, after approval by the Board of Directors, are submitted to the Ministry of
Finance. The audit of the Bank’s consolidated financial statements is performed by the State
Audit of Vietnam. Audited consolidated financial statements are submitted to Ministry of
Finance and the State Bank of Vietnam within 15 days of issuance.
4. Heads of branches are responsible for the accuracy and faithfulness of financial statements
and reports on finalizing the interest subsidies and management fees.
5. The Bank carries out internal audit and issues financial statements in accordance with Laws
of Credit Institutions.
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