Công văn 1166/CV-KTTC2

To: The Credit Institutions

Recently, a number of credit institutions (CIs) have proposed the State Bank of Vietnam (SBV) to issue specific guidelines the accounting of entrustment and taking-entrustment of lending by Credit Institutions according to Decision No.742/QD-NHNN of July 17, 2002 of the Governor of the State Bank on issuance of regulations on entrustment and taking-entrustment of lending by credit institutions. In this regard, the State Bank guides as follows:

1. Accounting principles of entrustment and taking-entrustment of lending between the Credit Institutions: according to the current regulations, the risks due to objective reasons and subjective causes from customers so they may not pay debts (principal and interest) taken responsibility for handling by the entrustment party, thus, in relation of entrustment and taking-entrustment of lending between the credit Institutions, the accounting is implemented as follows:

- Lending entrustment CI must account for the amount entrusted to lend transferred to the taking-entrustment CI such as the receivable amounts; timely account the amount that the taking-entrustment CI lent (disbursed) the customer into the appropriate lending account and appropriate, use for risk provisions for the loans in accordance with current regulations;

- The lending taking-entrustment CI must account for the amount entrusted and to lend received from the entrustment CI such as the payable amounts; account the amounts lent (disbursed) customers defined as the receivable amount from the lending entrustment CI (not accounted into the lending account of its organization) and account contingent GL in details the amounts of lending, debt collection following each customer borrowing entrustment capital (open lending monitoring book following each customer).

- Entrustment CI and taking-entrustment CI of lending are entitled to agree on periodic cross-check, confirmation and payment of receivable and payable accounts on the entrustment and taking-entrustment to lend, but must ensure to pay promptly and fully to each other before formulation of the annual financial statements according to regulations (receivable and payable accounts on the activities of entrustment and taking-entrustment to lend must be up the balance).

2. Accounting for entrustment and taking-entrustment of lending of the CIs:

2.1. Where the lending entrustment party as CI:

a. In the lending entrustment CI:

- When transferring money to the lending taking-entrustment CI, accounts:

- Debit - Account 2004 "Lending entrustment Capital"

- Credit - Appropriate Account (cash, deposits ...)

- Upon receiving (lists of amounts lent the borrowers, the proceeds from debt and risk incurred in lending (if any), together with the vouchers and documents as specified in the entrustment contract transferred by the taking-entrustment CI, after controlling for consistency, accuracy and the lending entrustment CI handles and accounts:

+ For the money the taking-entrustment CI lent customers

- Debit - Appropriate lending account

- Credit - Account 204 "Capital entrusted to lend"

+ For the risks caused by the objective and subjective causes from customers not pay debts (principal and interest) taken responsibility for handling by the entrustment CI: Implement immediately the provision for loan with risk in accordance with current regulations of the Governor of State Bank.

The money the taking-entrustment CI collects from borrowers, accounts:

Debit - Account 204 "Capital entrusted to lend": If there is an agreement permitting the taking-entrustment CI to be used the proceeds to re-lend (turning over loans).

Or Debit - Appropriate Account (cash, deposits ...): If there is an agreement to return immediately.

Credit - Appropriate lending account.

b. At the taking-entrustment CI to lend capital:

- Upon receipt of the money entrusted to lend capital, accounts:

Debit - Appropriate Account (cash and deposits)

Credit - Account 469 "Other amounts pending for payment"

- When lending, debt collection of the customers defined, accounts:

+ When lending (disbursements), state:

Debit - Account 369 "Other receivable amounts" (Note: open account for each lending entrustment CI to facilitate the cross-check and payment).

Credit - Appropriate Account (cash or deposit of customer ...)

+ When collecting debt, state:

Debit- Appropriate Account of customer paying debt

Credit -Account 469 "Other amounts pending payment"

Taking-entrustment CI must account contingent GL in details the loans, debt collection by each customer borrowing entrustment capital (open monitoring book by each borrower), make and keep all documents, books of lending accounting in accordance with current regulations to monitor the process of lending, debt collection, interest and other risks arising as a basis for comparison, payments with the lending entrustment CI as agreed upon in lending entrustment contract.

- When paying to entrustment CI the money lent to the borrowers or the repaying lending entrustment capital, accounts:

Debit - Account 469 "Other amounts pending payment"

Credit - Account 369 "Other receivable amounts": If it is the payment of amount lent to the customers or credit - the appropriate accounts (cash, deposits): If it is the repayment of lending entrustment capital.

2.2. Where the lending entrustment party is the government, economic organizations, political - social organizations, domestic and abroad individuals:

a. The lending entrustment party to loan will perform the tracking, monitoring and accounting lending entrustment capital and the use of the capital (loans) as prescribed by law.

b. At the lending taking-entrustment CI:

If the lending entrustment contract contains provisions on the lending taking-entrustment CI must bear all risks associated with the lending customers and must return the lending entrustment party all lending capital after a specified time period shall be handled as follows:

- Upon receipt of lending entrustment capital, accounts:

Debit – Appropriate Account (Cash, deposits ...)

Credit - Account 45 "Capital financed, entrusted investment"

- When lending customers, accounts:

Debit – Appropriate Account lending customers

Credit - Appropriate Account (cash, deposits ...)

Taking-entrustment CI must make the transfer of overdue debt as well as the appropriation and use of reserves to handle the risks incurred in lending customers in accordance with current regulations of the State Bank Governor.

- Upon the due date for repayment of lending entrustment capital to the entrustment party, accounts:

Debit – Account 45 "Capital financed, entrusted investment"

Credit - Appropriate Account (cash, deposits ...)

If the lending entrustment contract contains provisions on the lending taking-entrustment CI not subject to the risks associated with lending customers (the risks shall be taken responsibility for handling by the entrustment party), the accounting of receipt of lending entrustment money and lending, debt collection to specified customers is made under the guidance at point b, 2.1 of this document. In particular, the payment to the entrustment party on the amount lent the customers, the lending risk and concerned revenues, expenses, shall comply with the agreement with the lending entrustment party in accordance with the provisions of the current law.

3. Regarding to accounting of lending entrustment charges:

- When paying entrustment charges to the lending taking-entrustment CI, the lending entrustment CI uses account 829 "Expenses on other activities" for accounting.

- Upon receipt of the entrustment charges paid by the entrustment CI, the lending taking-entrustment CI uses the account 724 "Income from entrustment operations and agent" for accounting.

In the course of implementation, should any problems arise, the CIs reflect to the Vietnam State Bank (Department of Accounting - Finance) for guidance, and timely settlement.