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THE
STATE BANK OF VIETNAM
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No.
06/2008/QD-NHNN
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Hanoi,
March 12, 2008
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DECISION
PROMULGATING THE REGULATION ON RATING OF JOINT STOCK
COMMERCIAL BANKS
THE STATE BANK GOVERNOR
Pursuant to the 1997 Law on
the State Bank of Vietnam and the 2003 Law Amending and Supplementing a Number
of Articles of the Law on the State Bank of Vietnam;
Pursuant to the 1997 Law on Credit Institutions and the 2004 Law Amending and
Supplementing a Number of Articles of the Law on Credit Institutions;
Pursuant to the Governments Decree No. 52/2003/ND-CP of May 19, 2003, defining
the functions, tasks, powers and organizational structure of the State Bank of
Vietnam;
At the proposal of the Director of the Department of Banks and Non-Bank Credit
Institutions,
DECIDES:
Article 1.
To promulgate together with this Decision the Regulation on rating of joint
stock commercial banks.
Article 2.
This Decision takes effect 15 days after its publication in CONG BAO and
replaces the State Bank Governors Decision No. 400/2004/QD-NHNN of April 16,
2004, promulgating the Regulation on rating of state-run and people-founded
joint stock commercial banks.
Article 3.
The director of the Office, the director of the Department of Banks and
Non-Bank Credit Institutions, the chief inspector of the State Bank, heads of
concerned units under the State Bank, directors of the State Banks branches in
provinces and centrally run cities where the head offices of joint stock
commercial banks are located, chairmen of Boards of Directors and directors of
joint stock commercial banks shall implement this Decision.
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FOR THE STATE
BANK GOVERNOR
DEPUTY GOVERNOR
Tran Minh Tuan
REGULATION
ON RATING OF JOINT STOCK COMMERCIAL BANKS
(Promulgated together with the State Bank Governors Decision No.
06/2008/QD-NHNN of March 12, 2008)
Chapter I
GENERAL PROVISIONS
Article 1.
Governing scope and subjects of application
This Regulation applies to joint
stock commercial banks which are permitted to be established and operate in
Vietnam in accordance with the Law on Credit Institutions.
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1. Equity.
2. Asset quality.
3. Management capability.
4. Business performance.
5. Liquidity.
Article 3.
Assessment and rating method
1. The assessment and rating of
joint stock commercial banks shall be based on the scores obtained under each
indicator specified in Article 2 of this Regulation.
2. The scoring principle is to
subtract the deducted points under each indicator from maximum points. Joint
stock commercial banks which do not provide business activities as specified in
this Regulation will be given no point for the indicator of such business
activities.
3. Data used for scoring are
based on:
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b/ Data from the inspection and
supervision by the State Bank (off-site supervision data, inspection
conclusions);
c/ Other related documents such
as reports from independent auditors, management letter from independent
auditors, internal audit reports of joint stock commercial banks;
d/ Data in financial statements
of joint stock commercial banks in the year of rating audited by independent
auditors.
4. The structure of scores under
various indicators and total scores for assessment and rating:
a/ The maximum total of scores
for rating a joint stock commercial bank is 100 points.
b/ Structure of scores under
each rating indicator is specified as follows:
- Equity: Maximum is 15 points,
minimum is minus 3 points;
- Asset quality: Maximum is 35
points, minimum is 0 point;
- Management capability: Maximum
is 15 points, minimum is 0 point;
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- Liquidity: Maximum is 15
points, minimum is 0 point.
Article 4.
Interpretation of terms
In this Regulation, the terms
below are construed as follows:
1. Total outstanding loan
balance: consists of normal outstanding loans and outstanding loans paid on
behalf of customers.
2. Total non-performing loans:
means the sum of loans under groups 3, 4 and 5 as specified in Clause 3,
Article 1 of the State Bank Governors Decision No. 18/2007/QD-NHNN of April 25,
2007, amending and supplementing a number of articles of the Regulation on
classification of debts, deduction for setting up, and use of provisions for
offsetting credit risks in credit institutions banking activities, promulgated
together with the State Bank Governors Decision No. 493/2005/QD-NHNN of April
22, 2005, or Article 7 of the Regulation on classification of debts, deduction
for setting up, and use of provisions for offsetting credit risks in credit
institutions banking activities, promulgated together with the State Bank
Governors Decision No. 493/2005/QD-NHNN of April 22, 2005.
3. Non-performing loan ratio:
means the ratio of total non-performing loans to total outstanding loan
balance.
4. Equity includes tier-1
capital (to ensure the limit upon identification of tier-1 capital) plus tier-2
capital (to ensure the limit upon identification of tier-2 capital) and
subtract all items to be deducted from equity as specified in Article 3 of the
Regulation on safety ratios in credit institutions activities, promulgated
together with the State Bank Governors Decision No. 457/2005/QD-NHNN of April
19, 2005, and Clause 3, Article 1 of the State Bank Governors Decision No.
03/2007/QD-NHNN of January 19, 2007, amending and supplementing a number of
articles of the Regulation on safety ratios in credit institutions activities,
promulgated together with the State Bank Governors Decision No.
457/2005/QD-NHNN of April 19, 2005.
5. Owners equity: means an item
reflected on the balance sheet of joint stock commercial banks in the year of
rating audited by independent auditors.
6. Pre-tax profit: means an item
reflected on the business performance report of joint stock commercial banks in
the year of rating audited by independent auditors. Pre-tax profit is calculated
by subtracting operating expenses and provisions set up in the year from
operating income and adding recovered credit risk provisions within the year.
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7. Average owners equity is
calculated using the following formula:
In which:
+ 
is average owners equity of the year of
rating;
+ Y0 is the owners equity as of
December 31 of the year preceding the rating year (or the first day of January
of the rating year) reflected in the balance sheet as of December 31 of the
year preceding the rating year audited by an independent auditor;
+ Y1, Y2, Y3 is the owners equity
as of March 31, June 30, and September 30 of the rating year, respectively;
+ Y4 is the owners equity as of
December 31 of the rating year reflected in the balance sheet as of December 31
of the rating year audited by an independent auditor.
8. Earning assets: means the
total of asset items that can bring about returns for the credit institution as
of December 31 of the rating year, consisting of the following categories on
the consolidated balance sheet of joint stock commercial banks audited by an
independent auditor: money and gold deposited in other credit institutions,
loans to other credit institutions: trading securities; loans to customers:
investment securities; capital contribution, long term investment; real estate
for investment purposes.
9. Off-balance sheet commitments
include irrevocable unconditional guarantees, payment acceptance and loan
commitments with specific time schedule for implementation.
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11. Investments on balance sheet
consist of the following items: trading securities, investment securities and
capital contribution for long-term investment.
12. Material: is a term to
reflect the importance of information (an accounting data) in financial
statements. Information is considered material if the lack of such information
or lack of accuracy of such information will impact decisions made by the
person who uses such financial statements (Vietnam audit standard No. 320
promulgated together with Decision No. 28/2003/QD-BTC of March 14, 2003, of the
Minister of Finance).
Chapter II
SPECIFIC PR004FVISIONS
Section 1.
SCORING SCALE OF RATING INDICATORS
Article 5.
Equity: The maximum score is 15 points, minimum is minus 3 points.
1. Joint stock commercial banks
will attain the maximum score of 15 points when they meet the following
conditions:
a/ Charter capital in the year
of rating is not less than legal capital.
b/ Capital adequacy,
specifically:
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- Charter capital has been used
in strict compliance with the State Banks regulations.
c/ The State Banks direction of
encouraging effective capital increase is ensured.
2. Deducted points: maximum 18
points
a/ Charter capital is less than
legal capital: 5 points to be deducted.
b/ Insufficient capital
adequacy: maximum 8 points to be deducted.
- The minimum capital adequacy
ratio is less than 8%: 4 points will be deducted upon violation of one of the
following cases:
+ The average minimum capital
adequacy ratio in the year of rating attains 8% or more but the minimum capital
adequacy ratio in one or some months of such year is less than 8%;
+ The average minimum capital adequacy
ratio in the year of rating is less than 8%.
- Charter capital has not been
used in compliance with the State Banks regulations: 4 points will be deducted
upon violation of one of the following cases:
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+ Loss in business performance
and no funds available but dividends are distributed to shareholders (use of
charter capital);
+ Purchase of fixed assets
exceeds 50% of equity;
+ Other violation regarding the
use of charter capital.
c/ Failure to ensure the State
Banks direction of encouraging effective capital increase: maximum 5 points to
be deducted.
(i) The average minimum capital
adequacy ratio in the year of rating is over 8% and no month in such year
attaining less than 8%, and the ratio of pre-tax profit to average owners
equity reaching from 14% to below 17%: 2 points will be deducted.
(ii) Joint stock commercial
banks which do not fall within the following cases: (1) The average minimum capital
adequacy ratio in the year of rating is over 8% and no month in such year
attaining less than 8%, and the ratio of pretax profit to average owners equity
reaching 17% and higher; (2) conditions specified at Point c.(i), Clause 2 of
this Article: 5 points will be deducted.
Article 6.
Asset quality: Maximum score is 35 points, minimum score is 0 point
1. Quality of loans and advances
to customers and loans to other credit institutions: Maximum score is 20
points, minimum score is 0 point for joint stock commercial banks whose balance
of loans and advances to customers and loans to other credit institutions is
less than 50% of total assets; and maximum score of 25 points and minimum score
of 0 point for joint stock commercial banks whose balance of loans and advances
to customers and loans to other credit institutions account for 50% or more of
total assets.
a/ To attain the maximum score
in terms of quality of loans and advances to customers and loans to other
credit institutions, joint stock commercial banks must ensure that:
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- They comply with the State
Banks Regulation on classification of debts, deduction for setting up and use
of provisions for offsetting credit risks.
b/ In case joint stock commercial
banks fail to meet one of the conditions specified at Point a, Clause 1 of this
Article, its scores will be deducted as follows:
- The non-performing loan ratio
is between over 3% and 5%: 10 points will be deducted from joint stock
commercial banks whose balance of loans and advances to customers and loans to
other credit institutions is less than 50% of total assets; or 13 points will
be deducted from joint stock commercial banks whose balance of loans and
advances to customers and loans to other credit institutions is equal to or
more than 50% of total assets.
- The non-performing loan ratio
is between over 5% and 10%: 15 points will be deducted from joint stock
commercial banks whose balance of loans and advances to customers and loans to
other credit institutions is less than 50% of total assets; or 19 points will
be deducted from joint stock commercial banks whose balance of loans and
advances to customers and loans to other credit institutions is equal to or
more than 50% of total assets.
- The non-performing loan ratio
is over 10% or fails to follow the State Banks Regulation on classification of
debts, deduction for setting up and use of provisions for offsetting credit
risks, which has impacted the reasonable integrity of the quality of loans and
advances to customers and loans to other credit institutions in material terms
of the financial statements of joint stock commercial banks in the year of
rating audited by independent auditors (incorrect classification of debts and
setting up of insufficient provisions have resulted in disqualification
opinions of independent auditors reflected in management letter, report of
independent auditor, or joint stock commercial banks being administratively
sanctioned by the State Banks Inspectorate as stated in the conclusion of the
State Banks Inspectorate in the year of rating): 20 points to be deducted from
joint stock commercial banks whose balance of loans and advances to customers
and loans to other credit institutions is less than 50% of total assets; or 25
points to be deducted from joint stock commercial banks whose balance of loans
and advances to customers and loans to other credit institutions accounts for
50% or more of total assets.
2. Investment quality: Maximum
score: 5 points, minimum score: 0 point
a/ A joint-stock commercial bank
will attain maximum 5 points for investment quality indicator if the ratio of
securities depreciation provisions to the total investment balance in the
balance sheet does not exceed 1%, otherwise 5 points will be deducted.
b/ This Clause is not applicable
to joint-stock commercial banks whose outstanding balance of loans and advances
to customers and loans to other credit institutions accounts for 50% or more of
their total assets.
3. Structure of on-balance sheet
assets: maximum score: 5 points, minimum score: 0 point.
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b/ The ratio of earning assets
to the total on-balance sheet assets attains less than 75%: deduct maximum 5
points:
- From 65% to less than 75%:
deduct 2 points;
- From 50% to less than 65%:
deduct 3 points;
- Less than 50%: deduct 5
points.
4. Off-balance sheet commitment
quality: Maximum score: 5 points, minimum score: 0 point.
a/ A joint-stock commercial bank
will attain maximum 5 points for the indicator of off-balance sheet commitment
quality if it satisfies the following conditions:
- The off-balance sheet
commitment quality ratio is less than or equal to 3%;
- It complies with the State
Banks regulations on loan classification, provision setting up and utilization
for handling of credit risks of off-balance sheet commitments.
b/ A joint-stock commercial bank
failing to meet one of the conditions stated at Point a, Clause 1 of this
Article is subject to score deduction as follows:
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- The off-balance sheet
commitment quality ratio is over 5% or the bank fails to comply with the State
Banks regulations on classification of debts, deduction for setting up and use
of provisions for offsetting of credit risks of off-balance sheet commitments,
which has impacted the reasonable integrity of off-balance sheet commitment
items in material terms of the financial statement of joint-stock commercial
banks in the year of rating audited by an independent auditor (insufficient
provision setting up has resulted in disqualification opinions of independent
auditors in the management letter and independent auditors report or the
joint-stock commercial bank is sanctioned by the State Banks Inspectorate for
its administrative violations, which is shown in the conclusion of the State
Banks Inspectorate for the year of rating): deduct 5 points.
Article 7.
Management capacity: maximum score: 15 points, minimum score: 0 point
1. A joint-stock commercial bank
will attain maximum 15 points if it satisfies the following conditions:
a/ Having an adequate number of
members of the Board of Directors and Supervisory Board:
b/ Fully issuing, standardizing
and observing internal regulations;
c/ The internal inspection and
auditing system corresponds to the bank size and operates efficiently, ensuring
that all major risks are identified, measured, inspected and controlled on a
regular basis;
d/ Members of the Board of
Directors, the Supervisory Board, the Board of Management are competent,
unified, respectful to the laws, responsible and properly perform their tasks
and exercise their powers in the management and control of the bank;
e/ Observing the State Banks
regulations on shareholders, shares and stocks.
2. A joint-stock commercial bank
failing to satisfy one of the conditions stipulated in Clause 1 of this Article
is subject to score deduction as follows:
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- Not having enough members of
the Board of Directors or the Supervisory Board according to the State Banks
regulations and the Charter of the joint-stock commercial bank;
- Failing to issue fully and
standardize internal regulations on the operation of the Board of Directors,
the Supervisory Board and the Board of Management as well as other regulations
necessary for the banks operation (credit, guarantee, accounting and other
operations) or there are comments of the State Banks Inspectorate (in the
Inspectorates conclusion of the year of rating) or of independent auditors (in
the independent auditors report, management letter of the year of rating) that
the banks internal procedures are ineffective, leading to restrictions on the
inspection and auditing process.
b/ The internal inspection and
auditing system is weak and operates inefficiently: 4 points will be deducted
when there is one of the following indicators:
- Regarding organizational
structure, the internal inspection and auditing system is neither under nor
subject to direct guidance by the Supervisory Board and the salary, bonus and
responsibilities allowance regime for the internal auditing division is decided
by the Board of Management (the general director, deputy general director of
the joint-stock commercial bank);
- The person in charge of the
internal auditing division does not have professional qualification (bachelor
level and higher) in finance-banking or accounting-auditing; fails to have
3-year work experience in the financial and banking sector;
- The joint-stock commercial
bank fails to issue official regulations on internal auditing procedures for
uniform application in the entire system or internal auditing procedures have
been issued but are inefficient (the findings by internal auditing are fewer
than or different from those stated in the independent auditors report and the
conclusion of the State Banks Inspectorate, which has affected the reasonable
integrity in material terms of the financial statement and the banks compliance
with legal regulations.)
c/ Failing to satisfy the
conditions stipulated at Point d, Clause 1 of this Article: deduct maximum 6
points:
- Lack of internal unity: deduct
3 points;
- A member of the Board of
Directors, the Supervisory Board or the Board of Management violates
regulations of the law and the State Bank (violates Articles 77 and 78 of the
Law on Credit Institutions), fails to properly perform tasks and exercise
powers in the governance, control and management of the bank, especially in
guiding the implementation of regulations on safety of banking activities and
statistical reporting of credit institutions promulgated by the State Bank
Governor: deduct 3 points.
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+ The number of stockholders is
not enough according to current regulations on stockholders, shares, stocks and
charter capital of joint-stock commercial banks promulgated by the State Bank
Governor;
+ Violating one of the following
conditions: Stockholder records are incomplete; the representative is
disqualified; contributed capital and stock holding limits set forth in current
regulations on stockholders, shares, stocks and charter capital of joint-stock
commercial banks promulgated by the State Bank Governor are violated;
+ Violating one of the following
conditions: The issuance of stocks and management of stockholders do not comply
with current regulations on stockholders, shares, stocks and charter capital of
joint-stock commercial banks promulgated by the State Bank Governor.
3. If a joint-stock commercial
bank is put under special control status, its score will be 0 for the indicator
of governance, control and management.
Article 8.
Business performance: maximum score: 20 points, minimum score: 0 point
1. Business performance: maximum
15 points:
a/ Business performance with
profits, maximum 15 points:
- The ratio of pre-tax income to
equity attains from 17% and more: 15 points;
- The ratio of pre-tax income to
equity attains from 14% to less than 17%: 15 points;
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- The ratio of pre-tax income to
equity attains from 5% to less than 10%: 8 points;
- The ratio of pre-tax income to
equity attains less than 5%: 5 points.
b/ Business performance in the
period attains no profit: 0 score.
2. Reward score for services:
maximum 5 points
a/ The ratio of income generated
from services to total income: 3 points
- Attaining from 8% and higher:
3 points:
- Attaining from 2% to less than
8%: 1 point:
- Attaining less than 2%: 0
point.
b/ The ratio of net income
generated from services to pre-tax income: 2 points
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- Attaining between 14% and less
than 30%: 1 score;
- Attaining less than 14%: 0
score.
Article 9.
Liquidity: Maximum score: 15 points, minimum score: 0 point
1. Current ratio = quick
assets/current liabilities:
a/ A joint-stock commercial bank
assuring a liquidity ratio in accordance with the State Banks regulations will
attain maximum 12 points.
b/ A joint-stock commercial bank
failing to assure a liquidity ratio in accordance with the State Banks
regulations is subject to score deduction as follows:
- Failing to ensure the
liquidity ratio once: deduct 5 points;
- Violating the regulations on
liquidity ratio for several times, causing the State Bank to issue warnings or
sanction the bank for administrative violations of the regulations on liquidity
ratio: deduct 12 points.
2. Maximum ratio of short-term
funds to long-term loans: To comply with the State Banks regulations.
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b/ Violating regulations on
maximum ratio of short-term funds to long-term loans once: deduct 2 points.
c/ Violating regulations on
maximum ratio of short-term funds to long-term loans for several times: deduct
3 points
3. The assessment and rating
based on this indicator may use daily/monthly average data according to the
State Banks statistic and reporting regime.
Section 2.
RATING
Article 10.
Scoring
The total score of a joint-stock
commercial bank is calculated by adding up all the points attained under each
indicator under Articles 5, 6, 7, 8 and 9 of this Regulation.
Article 11.
Rating of joint-stock commercial banks
1. A joint-stock commercial bank
to be rated A must attain a total score of 80 points or more and its score for
each indicator as stipulated in Articles 5, 6, 7, 8 and 9 of this Regulation
must not be less than 65% of the maximum score stipulated for that indicator.
2. A joint-stock commercial bank
to be rated B must attain a total score of between 60 and 79 points and its
score for each indicator stipulated in Articles 5, 6, 7, 8 and 9 of this
Regulation must not be less than 50% of the maximum score stipulated for that
indicator; or attain a total score of more than 79 points but the score for at
least one indicator must be between over 50% and less than 65% of the maximum
score stipulated for that indicator.
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4. A joint-stock commercial bank
to be rated D attains a total score of less than 50 points; or has a total
score of more than 50 but the score attained for at least one indicator is
below 45% of the maximum score stipulated for that indicator.
Article 12.
Time frame for rating
1. The data to be used for
evaluation and rating are based on the official accounting data of the year of
rating of the joint-stock commercial bank which have been audited by an
independent audit organization. Regarding the indicators on banking operation
safety in particular, the data to be used for rating shall be based on the
reporting data of the year of rating in accordance with current information and
reporting regulations. The indicator of management capacity (Article 7) shall
be rated for the entire fiscal year.
2. Time for evaluation and
rating:
a/ Not later than May 10 of the
subsequent year, each joint-stock commercial bank shall conduct self-rating and
send the rating results to the State Banks branch of the province or centrally
run city where its head office is located;
b/ Not later than May 31 of the
subsequent year, the State Banks branch of the province or centrally run city shall
give opinions on assessment of the self-rating results provided by the
joint-stock commercial bank whose head office is located in the locality and
submit consolidated results of rating to the State Bank (the State Banks
Inspectorate);
c/ In June annually, the State
Bank Governor shall approve the rating results of joint-stock commercial banks.
Chapter
III
ORGANIZATION OF
IMPLEMENTATION
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1. To provide true and accurate
data in compliance with current information and reporting regulations. Should
the reporting data of a joint-stock commercial bank be found incorrect after
rating, the chairman of the Board of Directors, the chief of the Supervisory
Board and the general director of the joint-stock commercial bank shall take
full responsibility for that. The State Bank will re-announce the rating of
that joint-stock commercial bank.
2. To conduct self-rating in
accordance with the time frame allowed and a set form.
Article 14.
Responsibilities of the State Banks branches of provinces or centrally run
cities where head offices of joint-stock commercial banks are located
1. To supervise and urge
joint-stock commercial banks to submit their self-rating reports in time.
2. To check and identify the
preciseness of the data provided by joint-stock commercial banks.
3. To give opinions on the
results of self-rating provided by joint-stock commercial banks in accordance
with regulations.
4. To submit to the State Banks
Inspectorate the following documents to serve as a basis for rating joint-stock
commercial banks:
- Self-rating report of the
joint-stock commercial bank, made according to a set form;
- A written report on checking
results of the data provided by the joint-stock commercial banks and opinions on
the self-rating results submitted by the joint-stock commercial banks in the
locality.
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1. The Department of Banks and
Non-bank Credit Institutions shall guide joint-stock commercial banks to
implement this Regulation.
2. The State Banks Inspectorate
shall direct the evaluation and rating of joint-stock commercial banks
according to a set form; act as the contact to coordinate relevant departments of
the State Bank to appraise and submit to the State Bank Governor for approval
the results of rating of joint-stock commercial banks; publicize the official
rating results on the State Banks website: and recommend solutions for
joint-stock commercial banks rated C and D.