People’s Credit Fund (PCF) is a type of cooperative credit institution voluntarily established by legal entities, individuals and households to undertake some banking activities, with a main purpose of mutual support for development of production, business and daily life.
Thanks to advantages of this type of cooperative credit institutions, based on experiences of countries over the world and domestic situation, the first PCFs in Vietnam were established in 1993. By the end of December 2017, there were totally 1,177 PCFs throughout the country with nearly 2 million members living mainly in rural areas. The total amount of operational capital gained 101,748 billion dongs, averaging nearly 87 billion dongs per PCF, including 87,161 billion dongs of charter capital, raised capital of 87,161 billion dongs, with 100% of capital raised from the public (market I). The total amount of outstanding debts was 80,291 billion dongs (equivalent to 78.9% of total assets); including overdue debts of 1,032 billion dongs, accounting for 1.3% of the total debts; bad debts of 844.5 billion dongs, accounting for 1.1% of the total debts. The business performance of the whole system by 31/12/2017 was that after-tax profit achieved 680 billion dongs, averaging 0.58 billion dongs per PCF.
Regarding organizational structure, after many adjustments, the system of PCFs has been gradually improved towards a better system including: PCFs, Cooperative Bank of Vietnam and Vietnam’s People’s Credit Funds Association. Among them, PCFs play a fundamental role, the Cooperative Bank plays a central role in coordinating cooperative activities, the Association functions as a representative and orients the overall activities of the whole system. The organizational structure of each component is quite complete, including Members (as both owners and clients of PCFs); Members’ General Meeting (General Meeting of Member Representatives); the Board of Management and Controllers.
After 25 years of operation, the system of credit institutions has affirmed its position and role of new model of cooperative economy in monetary – credit sector, and achieved the objective of establishment and development of cooperative economic model in the sector of credit provision, especially in rural areas. PCFs have made more and more significant contributions to the hunger elimination and poverty reduction like expanding business sectors, creating jobs, reducing usury. Besides, the system of PCFs is an important channel of capital mobilization which has actively contributed to the development of agricultural and rural economy in Vietnam.
However, during operation, the system of PCFs has exposed some shortcomings in human resource management and risk management. Some PCFs have been getting far away from their assigned tasks of supporting their members in production and daily life. They have actually been pursuing profit, extending their loans to external areas, non-members thus causing some risks.
Therefore, to enhance organizational and operational quality as well as safety of the PCFs, the State Bank of Vietnam (SBV) has promulgated policies and taken measures to correct shortcomings in operation, reinforced investigation and supervision over weak and high-risk PCFs. These measures have contributed to enhance and improve effectiveness of maintaining operational safety throughout the whole system of PCFs.
The Deposit Insurance of Vietnam contributes to maintain the stability and safety of the PCF system
As an organization undertaking the policy of deposit insurance (DI) in Vietnam, after over 18 years of operation, the Deposit Insurance of Vietnam (DIV) has step-by-step affirmed its role in protecting legitimate rights and interests of depositors, reinforced and enhanced public confidence, contributing to maintain operational stability and safety of the banking system in general and the PCFs system in particular.
Since the establishment, the DIV has implemented the DI policy completely and timely through such professional activities as: Granting, revoking Certificates of DI participation; Collecting DI premium; Off-site supervision, On-site examination; DI reimbursement; communication,…
According to the Law on Deposit Insurance, the DIV is eligible toreview the application dossier of PCFs for granting them with Certificates of DI participation. At the same time, the DIV is entitled to revoke Certificates of DI participation from PCFs in case their establishment and operation licenses are revoked by the SBV. By 31stDecember 2017, the Cooperative Bank and 1,177 PCFs were granted with Certificates of DI participation by the DIV.
Contributing to maintaining stability and safe, sound development of the PCF system
Through implementing its professional activities, the DIV has contributed to maintain stability of the PCFs system, ensuring safe and sound development of PCFs.
For insured institutions, the DIV collects DI premium, constantly supervises and periodically examines all PCFs. Among them, supervision is focused on analysis, appraisal of situation of PCFs; their compliance with legal regulations on DI or prudential regulations on banking activities; thereby the DIV would warn PCFs about their risks and violations, shortcomings for them to correct and report to and recommend to the SBV for dealing with them in a timely manner. Especially, for problem PCFs, the DIV undertakes intensive supervision to monitor developments of these PCFs, masters the situation and changes of deposits, especially insurable deposits, then actively takes measures or reports to competent agencies for dealing with problem PCFs.
Regarding examination, the DIV examines the compliance with legal regulations on DI, deeply examines insurable deposits at PCFs to detect violations of PCFs in compliance with legal regulations on DI and in raising deposits of clients, and thereby recommends measures of dealing with those violations, contributing to protect legitimate rights of depositors as well as preventing PCFs from DI frauds and abuses.
The reality affirmed that supervision, examination has helped the DIV to detect violations of PCFs in compliance with regulations on prudential banking activities, capital mobilization, accounting, cash flows, account management,… and errors in calculating, paying DI premium. For these violations, the DIV clearly identified causes to recommend right measures to correct them, contributing to ensure safe and sound operation of the whole PCFs system.
Regarding DI payouts, up to now the DIV has made payouts to depositors at 39 PCFs with a total amount of 26.8 billion dongs. The reimbursements were made in a timely, orderly manner, ensuring legitimate rights and interests of depositors, and at the same time public awareness activities were organized before and during the DI payouts. This contributed to maintain confidence of depositors, not resulting in disorders affecting operations of other PCFs in the same region, ensuring social security and political stability at localities.
Besides, the DIV has continuously organized public awareness activities to enhance public understandings about DI policy and legal regulations, facilitating PCFs to raise idle capital from local people, saving capital for development of rural economy.
Actively participating in the PCFs restructuring process
In order to improve the speed and efficiency of the restructuring of credit institutions, which mainly focuses on the settlement of weak credit institutions, the National Assembly passed the Law on amendments to some articles of the Law on Credit Institutions on November 20, 2017 (effective from January 15, 2018), which specifically supplements and amends some regulations on the powers and measures of restructuring weak credit institutions. Especially, by specific provisions, the Law establishes a legal framework for the DIVto participate in the weak credit institutions restructuring process (momentarily focusing on the settlements of PCFs and microfinance institutions) through following specified tasks: to participate in the special control of problem institutions; to join the assessment and implementation of the recovery plans for weak institutions; to provide special loans to institutions placed under special control; to buy long-term bonds issued by credit institutions appointed to assist credit institutions under special control; to participate in asset management and liquidation at credit institutionsas regulated by law.
Over the past years, within the scope of assigned duties and responsibilities, the DIV has actively coordinated with relevant units of the SBV in monitoring, examining and handling these PCFs. Especially, for certain PCFs being put under special control, at the request of the SBV, the DIV would send its staff to join the Special Control Board (SCB). The DIV, in collaboration with the local SCB and SBV branches in cities and provinces, altogether would work on the consolidation or restoration plan for problem PCFs in order to help them come back to normal situation. At the same time, the DIV would develop detailed communication plan for specified circumstances, so that appropriate public communication measures could be adopted when needed.
Besides, on the basis of the Law on the amendments to some articles of the Law on Credit Institutions and the directives from the SBV Governor, the DIV actively conducted studies and co-ordinated with relevant agencies to work on a set of specific measures in resolving weak credit institutions. The DIV has also actively proposed to the SBV for approval of the issuance of internal regulatory documents on the DIV’s special lending to credit institutions; the purchase of long-term bonds of credit institutions assisting credit institutions under special control; guiding documents on the exemption of DI premiums for credit institutions under special control in order to effectively implement the Law in practice and effectively participate in the restructuring process of PCFs system.
Enhancing policies for PCFs
Through its professional activities, the DIV regularly reviews and makes recommendations on appropriate policies for the PCFs with an aim to enhanceits management of the PCFs, at the same time to create good conditions for PCFs to develop safely and sustainably.
The DIV also works closely with the SBV’s branches in cities and provinces, Cooperative Bank of Vietnam and local authorities in conducting its professional activities, at the same time, exchanging information, effectively coordinating and timely handling situations occurring at PCFs. As a result, the state management of PCFs is ensured, contributing to promote the advantages of cooperative business model in rural areas.
DIV accompanies PCFs: some solutions for sustainable development
In future, with an aim to support PCFs to develop sustainably, the DIV will implement some following solutions:
First, improve the effectiveness of supervision and early warning of the PCFs system in order to timely detect and propose to the SBV to handle violations of banking regulations, violations of legal regulations on deposit insurance and systematic risks. Study and apply appropriate methods of risk analysis and early warning in accordance with international experiences and practical conditions of Vietnam to assess risks of insured institutions.
Second, improve the effectiveness of on-site examination activities on compliance of the law on deposit insurance, in-depth examination of insurable deposits, accounting and management of insurable deposits at PCFs. Weak and problem PCFs will be examined based on off-site supervision results.
Third, promote communication activities to disseminate DI policy to the PCFs and depositors in rural areas where people may lack access to information on finance - banking - deposit insurance.
Fourth, closely cooperate with the SBV before, during and after the special control process in order to ensure the rights and interests of depositors. At the same time, actively participate in the asset liquidation of insured institutions to maximize recovery values.
Fifth, timely and accurately reimburse depositors through improving payout efficiency, diversifying payout methods aimed to minimize payout time, and developing a contingency plan for payout in the shortest time.
Sixth, enhance financial capacity through premium assessment and collection as regulated, preserve capital and effectively invest temporarily idle capital. Identify appropriate capital growth targets to improve financial capacity and ensure liquidity, therefore facilitating prompt implementation of DI policy.
Seventh, review the Law on Deposit Insurance to make recommendations on strengthening the DIV’s role and create a legal basis for the DIV to participate more deeply in the risk control of credit institutions as well as in the restructuring of weak credit institutions and bad debts resolution.
Eighth, make further studies and consult with the SBV in promulgating documents on guiding the implementation of the Law on the amendments to some articles of the Law on Credit Institutions, specifically the contents related to the role and duties of the DIV. On that basis, review and study for issuing relevant internal regulations as well as to develop appropriate policies on training and public communication. Be prepared to play a role in the special control and special lending to PCFs under special control, buying long-term bonds from credit institutions assisting PCFs under special control./.