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This is also confirmed by Mr. Dao Minh Tu, SBV’s Standing Deputy Governor, as chairing the online conference on continuing to enhance the management of the PCFs hosted by the SBV in Hanoi on July 5, 2023. Attending the conference, on behalf of the DIV, there were Mr. Pham Bao Lam - Chairman of the Board of Directors; Mrs. Pham Bao Khanh - Member of the Board of Directors; Mr. Vu Van Long - Deputy General Director in charge of operations; Mr. Nguyen Dinh Hien – Controller; and Directors of regional branches, as well as leaders of several departments and units at the headquarters.
The management of the PCF system has been strengthened, rectified, and supervision has been enhanced
In his opening speech at the conference, Mr. Dao Minh Tu, SBV’s Standing Deputy Governor, stated that the banking sector was currently facing many difficulties due to both domestic and global impacts. There were several issues that need to be addressed, such as promoting credit growth, given the weak capital absorption in the economy, while also controlling inflation and ensuring the safety of the banking system.
Under these curcumstances, the banking industry determines that ensuring safe and sound operations of PCFs is an ongoing and continuous endeavor. The ultimate goal is to enhance the effectiveness of state management, provide proper guidance, and rectify the operations of PCFs to align with the defined objectives and orientations.
In the coming time, it is necessary to effectively carry out management, inspection, and supervision of PCFs to enhance their role in supporting the economic livelihood of members, contributing to economic development, as well as ensuring political stability, social order, and safety at the local level.
Mr. Dao Minh Tu, SBV’s Standing Deputy Governor, assessed that over the past time, the operations of PCFs were basically safe and healthy. There are aslo some faults promptly detected and rectified in several places. Many funds develop properly and stably.
Regarding inspection and examination of the PCF system, it has been getting more attention and focus, going further into specific points, partly due to accrued experience of inspection and examination. The handling of weak PCFs achieved positive results.
In particular, the coordination and exchange of information between SBV’s branches in cities and provinces and relevant state authorities, the DIV, and the Co-op Bank has been strengthened. The DIV and the Co-op Bank have contributed to assisting the SBV in effectively carrying out inspection and examination of PCFs, given the shortage of inspection personnel of the SBV.
Besides obtaining positive results, there still exists limitations and challenges in the management of the PCF system. Some PCFs have problems, including those requiring special control measures. Handling the legal entities of PCFs is a complex and unprecedented task, resulting in a longer-than-expected process. There are some delays in solving difficulties and obstacles happening in the operations of PCFs in some areas.
Regarding the overall activities of the PCF system, Mr. Hoang Viet Dung - Deputy Director of Division III, the SBV Banking Supervision Agency, reported that as of April 30, 2023, there were 1,180 PCFs in total operating in 57 cities and provinces (reducing 01 PCF due to its license revocation in Van Diem, Dong Nai), including 31 PCFs under special control, 6 PCFs subject to early intervention, and 2 PCFs allowed to dissolve voluntarily and liquidate with asset liquidation plans approved by SBV’s provincial branches.
The total assets of the entire PCF system reached VND 170,957.7 billion, an increase of 4% compared to December 31st, 2022. Customer deposits amounted to VND 150,944.8 billion, an increase of 6.2%. Total outstanding loans amounted to VND 131,107.8 billion, a decrease of 1.4%. Shareholders' equity amounted to VND 11,855.5 billion, an increase of 1.2%. The income-expenditure difference was VND 770.4 billion.
Non-performing loans were recorded at VND 877.9 billion, an increase of 3.2% (in 2021 and 2022, non-performing loans increasing by 5.2% and 15% respectively). The non-performing loan ratio was 0.67% while the non-performing loan ratio was 0.64% in both 2021 and 2022. The proportion of Group 2 loans to total outstanding loans was 0.28% (in 2021 and 2022, this proportion was 0.21% and 0.24% respectively). Interest receivable from credit activities amounted to VND 957.3 billion, an increase of 9.6% compared to December 31st, 2022.
In terms of mechanisms and policies, the SBV has issued legal documents related to the organization, operation, and safety of the PCF system, including Circular No. 22/2022/TT-NHNN dated December 30th, 2022, amending and supplementing certain provisions of Circular No. 05/2018/TT-NHNN dated March 12th, 2018, which regulates the dossier, procedures, and approval process for changes, expected lists of personnel elections and appointments of credit cooperatives; Circular No. 01/2023/TT-NHNN dated March 1st, 2023, amending and supplementing certain provisions of Circular No. 04/2015/TT-NHNN dated March 31st, 2015, which regulates the PCFs (Circular No. 04).
The SBV developed a draft of Circular to replace the Decision No. 493/2005/QĐ-NHNN dated April 22nd, 2005, which regulates the classification of debts, provision, and use of provisions to address credit risks in the banking activities of credit institutions (Decision No. 493).
"Some provisions in the amended Decision No. 493 are no longer suitable for the actual operations and development level of credit cooperatives. Furthermore, according to the provisions of the Law on Promulgation of Legal Normative Documents in 2015 (amended), the form of decision by the Minister and Head of a Ministry-level agency is no longer applicable. Therefore, it is necessary to issue a Circular to replace Decision No. 493" - emphasized a representative of the Banking Supervision Agency (SBV).
In addition, the Law on Credit Institutions has been amended. For credit cooperatives, the draft amended Law on Credit Institutions ensures the following contents: addressing certain shortcomings based on practical operations; enhancing the connectivity of the credit cooperative system and affirming the role of the Co-op Bank in supporting the efficient and healthy operations of PCFs, and improving the mechanism for handling weak PCFs.
On May 16th, 2022, the SBV sent the Document No. 3231/NHNN-TTGSNH to its provincial branches requesting a review of the actual activities of PCFs compared to the content of activities stated in their business registration licenses. Based on the reports from the SBV’s provincial branches, on September 27th, 2022, the SBV sent the Document No. 6770/NHNN-TTGSNH requesting its provincial branches to amend and supplement the operating licenses of PCFs, instructing them to terminate activities not permitted by law and establish a timeline for resolving the arising issues related to such activities.
Regarding inspection and examination of PCFs, in 2022, the SBV Banking Supervision Agency (Division III) directly conducted an inspection of one PCF in Moc Chau Town, Son La province. The SBV’s provincial branches have conducted over 333 inspections and examinations of PCFs.
Based on the findings and conclusions, certain limitations and violations in the operations of PCFs have been identified. During the inspection and examination of PCF operations at the locality, the SBV provincial branches have issued administrative penalty decisions for the violations identified by the inspection.
According to the 2023 inspection plan for PCFs, the Banking Supervision Agency (Division III) conducts inspections on 02 large-sized PCFs with their assets exceeding VND 500 billion. Additionally, 48 SBV provincial branches have inspection plans on 365 PCFs.
According to the representative of the SBV Banking Supervision Agency, in the context of complex fluctuations in the monetary and banking market, affecting the operations of credit institutions in general and the PCF system in particular, the SBV has issued many requests to its provincial branches:
Firstly, addressing violations by PCFs regarding safety limits and ratios, and operational regulations.
Secondly, closely monitoring the activities of PCFs, particularly those experiencing rapid fluctuations in lending and mobilization activities, with risks of imbalances between capital sources and utilization.
Thirdly, closely monitoring interest rate fluctuations on a term basis in the areas where PCFs operate to provide timely recommendations and warnings to avoid future interest rate risks in the context of complex interest rate fluctuations. Rectifying cases of abnormal increases in deposit and lending interest rates of PCFs.
Fourthly, closely controlling the credit quality and liquidity of PCFs.
Fifthly, issuing warnings, requesting explanations, or conducting inspections and examination for PCFs with significant and abnormal fluctuations in lending activities, especially for medium and long-term loans. Examining the borrowers' profiles to see whether they are members or non-members of PCFs, thereby taking timely measures to ensure credit safety.
Speaking at the conference, Mr. Vu Van Long – DIV Deputy General Director in charge of administration, stated that for four years of implementing the PCF examination per request by SBV, it has been seen that PCFs have complied well with the regulations regarding savings deposits, management, utilization, and adherence to safety limits in operations and lending activities.
The implementation of the coordination mechanism for providing and exchanging information between SBV, DIV and Co-op Bank branches has been proactively carried out. So far, the Co-op Bank has completed agreements with 57 SBV provincial branches where the PCFs operate while the DIV has completed agreements with 56 out of 57 SBV provincial branches where the PCFs operate and is soon finalizing a coordination agreement with the only remaining branch.
There is an urgent need to study and amend the Law on Deposit Insurance.
During the discussions at the conference, representatives from SBV provincial branches and the Co-op Bank agreed that for nearly 30 years of establishment and development, the PCF system has affirmed its position and role as a new type of cooperative economy in the monetary and credit field. It has played an important role in the overall economy and the financial and banking system in particular, contributing to job creation, poverty reduction, reducing usurious lending, and promoting economic development and structural transformation in rural areas.
Besides the achievements, there are still some deficiencies and limitations in the management of the PCF system. Some weak PCFs exist, including those placed into special control. Handling legal entities of PCFs is a complex and unprecedented task, resulting in more time, difficulties, challenges and delays in addressing PCFs in some areas.
To ensure safe and effective operations of the PCF system in accordance with objectives, operating principles, and legal provisions, Mr. Dao Minh Tu, SBV Standing Deputy Governor suggested that the heads of relevant units consider the rectification and reinforcement of PCFs’ operational safety as a regular and urgent task. It should focus on the guidance, direction, and effective and drastic implementation of measures to ensure the completion of assigned tasks.
The SBV Banking Supervision Agency was required to continue researching and improving the legal framework, focusing resources on implementing the 2023 inspection plan, monitoring and urging the SBV provincial branches, as well as coordinating with relevant units to study the provision of necessary information from inspection conclusions to local authorities for managerial coordination. There should be a focus on urgently addressing existing deficiencies, limitations, difficulties, and challenges.
Regarding the SBV Legal Affairs Department, it is urgent to study and propose amendments and supplements to the Law on the SBV, the Law on Credit Institutions, and the Law on DI. The emphasis should be on regulations regarding the organization and operation of cooperatives in accordance with their principles and objectives. Specific provisions should be made regarding the handling of weak PCFs or PCFs under special control, as well as mechanisms to support credit institutions in participating in the resolution process.
The Information Technology Department (SBV) should promptly complete the project of the information technology system designed for the supervision of PCFs and microfinance organizations. They should provide guidance to the SBV provincial branches on inspecting and examining PCFs to ensure compliance with information security regulations as stipulated in Circular No. 09/2020/TT-NHNN dated October 21, 2020, which regulates information technology system security in banking operations.
The Communication Department (SBV) should coordinate with the SBV provincial branches, Central and local media agencies and newspapers to disseminate information about the nature of the cooperative model and the solutions that link the rights and responsibilities of PCF members.
For the SBV provincial branches, Mr. Dao Minh Tu, SBV Deputy Governor suggested focusing on implementing the 2023 inspection plan for PCFs, especially the cross-inspection plan. It is essential to thoroughly inspect, examine, and monitor the operations of PCFs, particularly those with large-sized operations (over VND 300 billion) that exhibit signs of instability, complexity, and potential risks and are not subjected to inspection or examination for a long time. The emphasis should be on the quality of loan classification and ensuring the effective and proper use of loans, avoiding the exploitation of policies for personal gain. The assigned tasks related to handling weak PCFs and implementing measures to address legal entities of PCFs should be carried out in a timely manner, ensuring the set schedule and roadmap.
The DIV needs to study, make proposals to amend, supplement and complete the Law on DI and other legal documents related to the PCFs; carry out examination of PCFs at the request of the SBV; participate in resolving PCFs, including appointing officers to participate in the administration and governance of the PCFs; strengthen the exchange of information and coordination with the SBV provincial branches in the PCF management.
The Co-op Bank needs to improve financial capacity, modernize and innovate information technology system; develop, approve, and strictly, effectively implement the restructuring plan associated with bad debt settlement in the period of 2021 - 2025; examine PCFs at the SBV’s; strengthen information exchanging and coordination with the SBV provincial branches in the management of PCFs.
The PCF Association should provide guidance and training to enhance the capacity of PCF officers. They should innovate teaching methods, instructors, and training programs for PCFs. Regular quarterly analysis and evaluation of PCF operations, the monetary and banking market conditions should be conducted to recommend appropriate adjustments to PCF operations.
"With the recent achievements and an objective and candid understanding of existing deficiencies and limitations for rectification, I believe that the PCF system will achieve new successes in the coming time, fulfilling the political tasks of the banking industry, thereby ensuring the safety of the credit institution system, contributing to macroeconomic stability, and promoting socio-economic development," said Mr. Dao Minh Tu, SBV Standing Deputy Governor.
Department of Research and International Cooperation
