Công văn 1039/CV-KTTC2

The Governor of the State Bank of Vietnam has issued on February 8th, 1999 the Decision No.48/1999/QD-NHNN5 on "Regulation on Assets classification and provisions for risks arising from the banking activities of Credit Institutions". For the consistency of accounting and the use of provisions, the State Bank of Vietnam promulgates the following guidelines:

I. FOR ASSETS CLASSIFICATION AND RATIO FOR PROVISIONING:

The classification of assets and the ratio for provisioning shall be implemented in accordance with the provisions stated in Article 5, Article 6 of the regulation issued in conjunction with the Decision No. 48/1999/QD-NHNN5 as follows:

1. For credit activities:

- For the assets of the group 1, including:

+ Current loans (including the re-scheduled period).

+ Discount and rediscount of commercial papers and other short-term valuable papers prior to the due date.

+ Finance leases prior to the due date the risk provision ratio is 0%

- For the assets of the group 2, including:

+ Secured loans that are overdue less than 180 days; unsecured loans that are overdue less than 90 days.

+ The discount and rediscount of commercial papers and other short-term valuable papers that are overdue for a period of less than 30 days.

+ The guaranteed sum paid in lieu of the guaranteed person that have not been recovered for a period of less than 30 days.

+ Finance leases that are overdue for a period of less than 180 days the risk provision ratio is 20%

- For assets of the group 3, including:

+ Secured loans that are overdue for a period from 180 days to less than 360 days; unsecured loans that are overdue for a period from 90 days to less than 180 days.

+ The discount and rediscount of commercial papers and other short-term valuable papers that are overdue for a period from 30 days to less than 90 days.

+ The guaranteed sum paid in lieu of the guaranteed person that have not been recovered for a period from 30 days to less than 90 days.

+ Finance leases that are overdue for a period from 180 days to less than 360 days the risk provision ratio is 50%

- For assets of the Group 4, including:

+ Secured loans that are overdue for a period of 360 days or more; unsecured loans that are overdue for a period of 180 days or more.

+ The discount and rediscount of commercial papers and other short-term valuable papers that are overdue for a period of 90 days or more.

+ The guaranteed sum paid in lieu of the guaranteed person that have not been recovered for a period of 90 days or more.

+ Finance leases that are overdue for a period of 360 days or more the risk provision ratio is 100%.

2. For payment services:

The following services shall be subject to 0.1% for risk provisioning:

- Checks secured by banks but customers are not required to deduct from their account the amount of the check to deposit at a credit institution as a security for the payment.

- Debit card that does not require a deposit at the credit institution as a security for the payment (according to the card line).

- The guarantees for payment (recorded at the account No. 9212, 9215,9216....)

- Payment made for customers and other credit institutions but has not yet been recovered (such as payment for traveling checks, etc.).

3. For the accrual of interest income:

In the event that a credit institution records the interest income on the accrual basis of accounting and the financial regime does not require the adjustment by the end of the year as well as the provisions for the interest income, if there is evidence of non- recovery of any income, the credit institution shall review and make provision for this interest income (the ratio is applied in accordance with the financial regime). In this case, the provision shall be made on the basis of the documents used for recording accrual interest and on those interests that are not recoverable.

II. ACCOUNTING PROCEDURES:

1. Accounting procedures for provisioning:

- Within a stipulated period of provisioning, credit institutions shall classify assets and, on the basis of assets and the ratio of risk provision as provided at the Decision 48/1999/QD-NHNN5 make provisions and prepare complete accounting documents.

- Accounting documents shall include the list of assets classified by each group, the ratio and provisions made for each group with signatures of all the related persons.

- Recording:

Debit to Account No. 8722- "Expenditure for risk provisions"

Credit to Account "Risk provision"

2. Accounting procedures for the use of provisions:

- Prior to the use of provisions to deal with risks arising from its activities, credit institution shall have to take all possible measures to recover the loan, even assign responsibilities to related persons of the credit institution if risks have arisen due to subjective reasons.

- The use of risk provisions shall be conducted in accordance with provisions of Articles 10, 11 and 12 of the Decision No. 48/1999/QD-NHNN5 On the basis of the current provisions and the decision of the risk solution Committee, the accountant of the credit institution shall record as follows:

Debit to Accounts - "Risk provisions"

Credit to appropriate Account (loan, payment in lieu of customer, etc.)

At the same time the accountant shall record the loans which have been written off to the off-balance sheet account for monitoring while seeking all means to recover the loans.

Record to Account " loans written off "(for a purpose of monitoring, sub- account for each customer to be set up).

3. Accounting procedures for recovering the unused provisions:

- By Dec. 31, credit institutions shall have to review the provisioning during the year, the provision used, the unused provision that are not used shall be recorded as follows:

Debit to Account "Risk provision"

Credit to account: "Irregular income"

4. In the event that a credit institution recovers a whole or a portion of a loan which has been written off, the remaining shall, after deducting related expenses and taxes, be recorded as follow:

Debit to Account "Cash" or appropriate account

Credit to Account "Irregular income"

At the same time, record:

Deduction from the Account "Loans written off"

5. For unused risk provisions of the State-owned banks that have been earmarked prior to 1998 under approval by the State Bank of Vietnam and Ministry of Finance, banks are permitted to retain for use the remaining under the guidance of the Ministry of Finance.

Credit institutions have to review and to make provisions and use the provisions in accordance with the prevailing regulation and perform the accounting in accordance with the guidance in this dispatch.