Nội dung toàn văn Circular 11/2021/TT-NHNN management of risks arising from operations of credit institutions
STATE BANK OF VIETNAM | SOCIALIST REPUBLIC OF VIETNAM |
No. 11/2021/TT-NHNN | Hanoi, July 30, 2021 |
CIRCULAR
PRESCRIBING CLASSIFICATION OF ASSETS, AMOUNTS AND METHODS OF SETTING UP RISK PROVISIONS AND USE OF PROVISIONS FOR CONTROL AND MANAGEMENT OF RISKS ARISING FROM OPERATIONS OF CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES
Pursuant to the Law on State Bank of Vietnam dated June 16, 2010;
Pursuant to the Law on Credit Institutions dated June 16, 2010; the Law on Amending and Supplementing certain Articles of the Law on Credit Institutions dated November 20, 2017;
Pursuant to the Government's Decree No. 16/2017/ND-CP dated February 17, 2017, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;
Pursuant to the Government’s Decree No. 93/2017/ND-CP dated August 7, 2017 prescribing the financial regime for credit institutions and foreign bank branches, the financial supervision and assessment of efficiency of investment of state capital in wholly state-owned or state-invested credit institutions;
After reaching an agreement with the Ministry of Finance;
Upon the request of the Chief of Banking Inspection and Supervision Agency;
The Governor of the State Bank of Vietnam promulgates the Circular prescribing the classification of assets, rates and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and foreign bank branches.
Chapter I
GENERAL REGULATIONS
Article 1. Scope
1. This Circular prescribes the classification, rates and methods for setting up risk provisions and use of provisions for handling of credit risk to assets (hereinafter referred to as loan or debt for short) arising from the following banking operations:
a) Lending;
b) Finance leasing;
c) Discounting, rediscounting of negotiable instruments and other securities;
d) Factoring;
dd) Credit extension by issuance of credit cards;
e) On-behalf payments under off-balance sheet commitments;
g) Purchase and trusted purchase of corporate bonds (including bonds issued by other credit institutions) which have not yet been listed on stock exchanges or have not yet been registered for trading on the Upcom trading system (hereinafter referred to as unlisted bonds), excluding the purchase of unlisted bonds with trusted funds to which the trustee bears the risk;
h) Entrustment for credit granting;
i) Making deposits (except for checking deposits and deposits made at social policy banks in accordance with the regulations of the State Bank of Vietnam (hereinafter referred to as SBV) on state credit institutions’ maintenance of balance of deposits at social policy banks) at credit institutions and foreign bank branches as prescribed by law, and making deposits at overseas credit institutions;
k) Buying and selling debts according to the State Bank's regulations on debt sale and purchase;
l) Repos of government bonds in the stock market in accordance with law on issuance, registration, safekeeping, listing and trading of government debt securities in the stock market;
m) Purchases of promissory notes, treasury bills and certificates of deposit issued by other credit institutions and foreign bank branches.
2. Guarantees, payment acceptances, irrevocable loan commitments and other commitments that give rise to credit risks (hereinafter referred to as off-balance sheet commitments) must be classified according to the provisions of this Circular for management and supervision of the quality of credit granting activities of credit institutions and foreign bank branches.
3. Setting up and using the provision for devaluation of inventories, the provision for losses from financial investments, and the provision for losses from bad debts, except for those specified in Clause 1 of this Article, shall be subject to law on setting up and treatment of provisions for devaluation of inventories, losses from investments, bad debts and warranties of products, goods, services or construction works at an enterprise.
4. Setting up and using risk provisions for special bonds issued by Vietnam Asset Management Company to buy bad debts of credit institutions shall be subject to the Governor's regulations on the purchase, sale, disposal, handling or management of bad debts of the Asset Management Company.
5. If debts are governed by specific regulations of the Government or the Prime Minister on classification of debts, provisioning for risks and disposal or management of risks other than the regulations laid down in this Circular, credit institutions and foreign bank branches shall comply with the former.
Article 2. Subjects of application
1. This Circular shall apply to the followings:
a) Credit institutions, including commercial banks and non-bank credit institutions, except credit institutions put under special control in accordance with law on special control of credit institutions;
b) Foreign bank branches.
2. Foreign bank branches’ request for application of risk provision policies of foreign banks for classification of debts, off-balance sheet commitments, setting up and use of risk provisions must be approved by SBV on condition that these policies are proved to be more progressive and better than those specified in Article 10 of this Circular. Documentation and application requirements and procedures for SBV's approval of the request for application of risk provision policies of foreign banks are referred to in Clause 3 and 4 of Article 11 herein.
3. Foreign bank branches that obtain SBV’s approval of application of risk provision policies of foreign banks before the effective date of this Circular, and those that obtain SBV’s approval of application of risk provision policies of foreign banks under clause 2 of this Article, must be bound by regulations imposed by foreign banks. During the inspection and supervision process, if SBV judges that any risk provision policy of a foreign bank does not fully cover all levels of credit risk from banking operations in reality in Vietnam, SBV may request foreign bank branches to classify their debts, off-balance sheet commitments, set up and use risk provisions in accordance with this Circular.
Article 3. Interpretation
For the purposes of this Circular, terms used herein shall be construed as follows:
1. Credit risk from banking activities (hereinafter referred to as risk) refers to the possibility of loss resulting from a borrower’s failure to partially or fully repay debts to a credit institution or foreign bank branch under a contract or agreement that the borrower enters into with that credit institution or foreign bank branch.
2. Debt/loan refers to an amount of money that a credit institution or foreign bank branch deposits, transfers, remits, pays, settles or disburses in installment (in case the repayment term or due date varies with each disbursement), or an amount of money that a credit institution or foreign bank branch already disburses under a contract (in case the repayment term does not vary with multiple disbursements) with respect to the loan that a borrower does not repay yet.
3. Risk provision refers to an amount of money that is set aside and accounted for as operating costs to provide against potential risks to debts of a credit institution or foreign bank branch. Risk provisions are classified into specific and general provisions.
4. Specific provision refers to an amount of money that is set aside to provide against potential risks to each debt.
5. General provision refers to an amount of money that is set aside to provide against potential risks that are not determined yet when a specific provision is set up.
6. Overdue debt/loan refers to a part or the whole of loan principal and/or interest that a borrower fails to pay by the due date as agreed upon with a credit institution or foreign bank branch. As for loans granted in the form of a credit card, an overdue loan is a debt incurred when a cardholder fails to pay his/her debt obligations by the due date specified in an agreement on issuance, use and payment of that credit card with a credit institution or foreign bank branch.
7. Rescheduled debt/loan refers to a debt of which the period of repayment is changed according to SBV’s regulations.
8. Nonperforming loan (NPL) refers to a bad debt on the balance sheet which is classified into group 3, 4 or 5.
9. Nonperforming loan ratio refers to the ratio of the amount of nonperforming loans to the total amount of outstanding loans from group 1 to group 5.
10. Bad debt ratio refers to the ratio of the total amount of nonperforming loans and off-balance sheet commitments from group 3 to group 5 to the total amount of loans and off-balance sheet commitments from group 1 to group 5.
11. Borrower refers to an organization (including credit institutions, foreign bank branches), individual or any other entity bound by the civil legislation to incur or give rise to agreed-upon repayment or payment obligations to a credit institution or foreign bank branch.
12. Use of provisions for risks involves use of loan risk and loss provisions, specifically including:
a) Use of loan risk provisions refers to the act of reporting loans from which risks are treated by credit institutions or foreign bank branches as their off-balance sheet items, continuously keeping track of them and taking action to recover them in full as agreed upon with borrowers under the provisions of Article 16 herein.
b) Use of loan loss provisions shall be required for loans or debts prescribed in Article 18 herein.
Article 4. Collection of data and information about borrowers and information technology
1. Credit institutions or foreign bank branches shall take measures to regularly collect and exploit information and data about borrowers, including information from the National Credit Information Center of Vietnam (CIC) and credit information companies, in accordance with laws to:
a) Set up, revise and update their intracorporate credit rating systems, internal rules and regulations on credit extension, management of debts/loans and risk provisioning policies;
b) Monitor and evaluate the financial situation and solvency of customers after being ranked according to their intracorporate credit rating systems, take appropriate risk management and credit quality management measures;
c) Have the option of classifying debts, off-balance sheet commitments, make provision for risks and use risk provisions in accordance with this Circular.
2. Each credit institution and foreign bank branch must set up an information technology system available for use throughout their entire operations to meet the requirements for management of data and information related to customers, operate and manage their internal credit rating system, manage risks, classify debts, off-balance sheet commitments, set up and use risk provisions.
Article 5. Intracorporate credit rating systems
1. An intracorporate credit rating system involves:
a) Sets of financial and non-financial indicators, processes for evaluation of solvency and payment ability of borrowers based on qualitative and quantitative analysis of finance, business, governance and reputation borrowers;
b) Methods of assessment and rating applied to specific groups of borrowers, including those constrained from credit lines and their related persons.
2. An intracorporate credit rating system must be built according to the following principles:
a) It should be developed based on data and information of all borrowers collected during at least 01 (one) year immediately preceding the year of establishment of the intracorporate credit rating system;
b) At least once a year, the intracorporate credit rating system must be reviewed, revised and updated on the basis of data and information of borrowers collected during the entire year;
c) There are regulations for rating levels corresponding to the levels of risk that are from low to high;
d) It must be approved for use by the Governing Board (if it is used by a credit institution that is registered as a joint-stock company), the Board of Directors (if it is used by a credit institution that is a limited liability company), the General Director or the Director (if it is used by a foreign bank branch).
3. Credit institutions and foreign bank branches must develop intracorporate credit rating systems to rank their borrowers periodically or when necessary, serving as a basis to consider credit extension, manage credit quality, develop risk provisioning policies suitable to their scope of operations, borrowers and actual condition.
Non-bank credit institutions are not bound to set up intracorporate credit rating systems.
4. Within 10 (ten) days from the date of introduction, revision or update of an intracorporate credit rating system, a credit institution or foreign bank branch must send the State Bank directly or by post or electronic means as prescribed in Clause 5 of this Article the following written documents:
a) In case of introduction of a new one:
(i) Written report on release and application of that credit rating system;
(ii) Written description of the intracorporate credit rating system, processes for collection of information and data about borrowers and ratings of borrowers;
(iii) Instructions for use of the intracorporate credit rating system, including decentralization or authorization for collection of information and data about borrowers and ratings of borrowers.
b) In case of revision or update of the existing one:
(i) Written report on revision or update of that credit rating system, clarifying reasons for such revision or update;
(ii) Written documents stating such revision or update of that credit rating system and instructions for use of that credit rating system.
5. Credit institutions and foreign bank branches shall submit their reports to SBV according to clause 4 of this Article as follows:
a) Credit institutions and foreign bank branches shall submit their reports to SBV (via Bank Supervision and Inspection Agency), unless otherwise prescribed in point b of this clause;
b) Foreign bank branches subject to microprudential inspection and supervision by SBV's branches in provinces and centrally-run cities shall submit their reports to SBV’s branches in these provinces and centrally-run cities.
Article 6. Internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies
1. Credit institutions and foreign bank branches shall issue internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies.
2. Internal rules and regulations on credit extension and management of loans/debts must include, but not limited to, the following requirements:
a) They should be formulated based on data and information of all borrowers collected, ratings that borrowers are given according to the intracorporate credit rating system;
b) They should be implemented consistently throughout the entire system as a basis for review and approval of credit granting and loan management for specific borrowers.
c) They must include regulations of credit policies applied to borrowers, including those related to credit granting conditions, credit limits, interest rates, application and documentation requirements and procedures for review and approval of credit granting and loan management;
d) They must include management regulations to ensure compliance with SBV's regulations on prudential ratios for the operations of credit institutions and foreign bank branches;
dd) They must include regulations on responsibilities and powers of their departments, affiliates and individuals in the review and approval of credit granting, credit quality management and security property management;
e) They must include regulations on procedures for inspection and control before, during and after credit extension;
g) They must encompass regulations on measures for provision of security, review and management of security property;
h) They must cover regulations on valuation of security property, including principles, periods, methods, processes and responsibilities of each department, affiliate or individual involved in the valuation of security property in accordance with the provisions of law to ensure that the value of security property corresponds to the market value when calculating the amounts set aside for specific provisions under this Circular;
i) They must comprise regulations on debt recovery measures.
3. A risk provisioning policy must include, but not limited to, the following requirements:
a) It must be in line with regulations of laws on accounting, financial, reporting and statistical regimes;
b) It must comprise procedures for collection of information and data about borrowers, ensure accurate classification of debts, off-balance sheet commitments, management of NPLs, management of bad credit balances and risk provisions that are duly set up in full;
c) It must include specific regulations on classification of debts, off-balance sheet commitments, amounts and methods of setting up risk provisions and use of provisions against risks arising from their operations towards specific borrowers in a regular or irregular manner.
d) It must include regulations on powers and responsibilities of their affiliates and individuals involved in classification of debts, off-balance sheet commitments, setting up and use of provisions for risks arising from their operations.
dd) It must cover the mechanism for inspection, supervision and reporting of implementation of activities prescribed in point a through point d of this clause.
Article 7. Reporting of implementation of internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies
1. Within 10 (ten) days from the date of introduction, revision or update of internal rules and regulations regarding credit extension, management of loans/debts and risk provisioning policies, credit institutions and foreign bank branches must send the State Bank directly or by post or electronic means as prescribed in Clause 5 of this Article 01 set of documents, including the followings:
a) In case of introduction of new ones:
(i) Written report on introduction of internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies;
(ii) The full text of internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies.
b) In case of revision or update of the existing ones:
(i) Written report on revision and update of internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies, clearly stating reasons for such revision and update;
(ii) The full text of the revised or updated version of internal rules and regulations on credit extension, management of loans/debts and risk provisioning policies.
2. Credit institutions and foreign bank branches shall submit their reports to SBV according to clause 1 of this Article as follows:
a) Credit institutions and foreign bank branches shall submit their reports to SBV (via Bank Supervision and Inspection Agency), unless otherwise prescribed in point b of this clause;
b) Foreign bank branches subject to microprudential inspection and supervision by SBV's branches in provinces and centrally-run cities shall submit their reports to SBV’s branches in these provinces and centrally-run cities.
Article 8. Time and procedures for debt classification and setting up of risk provisions
1. At least once a month, within the first 07 (seven) days of the month, a credit institution or foreign bank branch shall consult Clause 5 of Article 1, Article 9, Article 10, Article 11, Article 12 and Article 13 of this Circular shall self-classify loans and off-balance sheet commitments by the end of the last day of the preceding month, set up risk provisions according to the results of self-classification of debts, off-balance sheet commitments, and send results of self-classification of debts and off-balance sheet commitments to CIC.
Apart from the above classification time, credit institutions and foreign bank branches shall be allowed to self-classify debts and off-balance sheet commitments according to internal rules and regulations.
2. Within 03 (three) days from the date of receipt of results of self-classification of debts and off-balance sheet commitments of credit institutions, foreign bank branches as specified in Clause 1 of this Article, CIC shall compile lists of borrowers self-classified according to their debt groups with the highest risk level by credit institutions and foreign bank branches, and provide these lists to credit institutions and foreign bank branches.
3. Within 03 (three) days from the date of receipt of lists of borrowers provided by CIC according to clause 2 of this Article, credit institutions and foreign bank branches:
a) Adjusting debt groups to those defined in the list of borrowers provided by CIC.
If results of self-classification of debts and off-balance sheet commitments of borrowers as prescribed in Clause 1 of this Article are lower than the debt groups defined in the list of borrowers provided by CIC, credit institutions or foreign bank branches must adjust the results of classification of debts and off-balance sheet commitments according to debt groups of borrowers provided by CIC;
b) Based on the results of adjustment in a debt group at point a of this Clause, the amount set aside as the provision for risk of the last month of the quarter can be adjusted.
4. Based on inspection and supervision results and relevant credit information, SBV has the right to request credit institutions and foreign bank branches to re-assess or re-classify specific loans and make adequate provisions corresponding to the levels of risk from these debts.
Chapter II
SPECIFIC PROVISIONS
Section 1. CLASSIFICATION OF LOANS/DEBTS AND OFF-BALANCE SHEET COMMITMENTS
Article 9. Asset self-classification principles
1. All outstanding loans and off-balance sheet commitments a borrower owes to a credit institution or foreign bank branch must be classified into the same debt group. For any borrower with two or more debts and/or off-balance-sheet commitments at a credit institution or foreign bank branch, if any debt or off-balance sheet commitment is classified into the group posing higher risk than other off-balance sheet debts or commitments, that credit institution or foreign bank branch must re-classify the borrower's remaining debts and/or off-balance sheet commitments into the group posing the highest level of risk.
2. As for syndicated loans, each credit institution or foreign bank branch involved in the grant of these syndicated loans shall be responsible for notifying the credit institution or foreign bank branch involved in granting these syndicated loans of debt self-classification results according to the provisions of Clause 1 of Article 8 herein.
3. With respect to an entrusted loan, if the trustee has not yet fully disbursed that loan agreed upon in the entrustment contract, the credit institution or foreign bank branch as the trustor must classify the undisbursed loan as a loan granted to the trustee. The period during which the loan is deemed past due starts from the time of the trustee’s failure to disburse the loan by the disbursement deadline specified in the entrustment contract.
4. If proceeds from selling a loan (except for loans from which provisions for risks are used) have not yet been collected in full, the credit institution or foreign bank branch that sells such loan shall classify that amount as an unsold loan.
5. With respect to a purchased loan, at the time of purchase, the credit institution or the foreign bank branch that purchases that loan shall classify that loan into a group of debts with a risk level not lower than the risk level of a group of debts into which it is classified at the latest time before purchase, and further classify it as the debt at the credit institution or foreign bank branch.
6. As for amounts used for purchasing, entrusted to other organizations (including credit institutions or foreign bank branches) to purchase unlisted corporate bonds, credit institutions or foreign bank branches shall classify them as unguaranteed loans taken out by bond issuers, except in case where corporate bonds are guaranteed by property.
7. As for discounts of negotiable instruments and other securities:
a) Existing in the form of buying forward: Credit institutions and foreign bank branches shall classify a discount in this form as a loan granted to a beneficiary;
b) Existing in the form of buying with reservation of the right of recourse: Credit institutions and foreign bank branches shall classify a discount in this form as a loan granted to an issuer (except security instruments such as Government bonds, Government-guaranteed bonds and municipal bonds). In case of exercising the right of recourse, credit institutions and foreign bank branches shall classify a discount offered in this case as a loan granted to the beneficiary.
8. As for loans involved in the violation referred to in c(iv), clause 1, Article 10 herein, at the time of discovery of this violation, credit institutions or foreign bank branches must make decisions on recovery of these loans in accordance with regulations of laws.
As for loans that need to be recovered according to inspection and examination conclusions, credit institutions or foreign bank branches must issue decisions on recovery under these conclusions.
As for loans involved in the violation referred to in c(iv), clause 1, Article 10 herein; loans that need to be recovered according to inspection and examination conclusions, credit institutions or foreign bank branches shall not be allowed to reschedule debt repayment and, pending the recovery of loans according to recovery decisions, shall classify and provide for any risks resulting in loss of loans in accordance with this Circular.
9. As for factoring loans, credit institutions and foreign bank branches shall classify them as loans granted to goods sellers within factoring terms. In case of exercising the right of recourse, credit institutions or foreign bank branches shall classify these loans as those granted to sellers.
10. As for loans and deposits that credit institutions credit institutions provide as support to those put under special control according to the provisions of Clause 9 Article 148d of the Law on Credit Institutions (amended and supplemented), the supporting credit institutions may classify them into the group of standard loans and shall not be required to regroup loans according to the list of customers provided by CIC as prescribed in Clause 3, Article 8 of this Circular (if any).
11. As for repurchased Government bonds, credit institutions or foreign bank branches shall classify the amounts paid for purchase of these bonds as loans granted to sellers in purchase transactions (1st transaction) in accordance with laws on registration, depository, listing, trading of and settlement of trades in government debt instruments, government-guaranteed bonds issued by policy banks, and municipal bonds.
12. As for amounts used for purchasing promissory notes, treasury bills or certificates of deposit issued by other credit institutions and foreign bank branches, credit institutions or foreign bank branches shall classify these amounts as loans granted to issuing credit institutions or foreign bank branches.
Article 10. Classification of loans/debts and off-balance sheet commitments according to the quantitative method
1. Credit institutions and foreign bank branches shall classify debts/loans (except on-behalf payments under off-balance sheet commitments) into the following five groups:
a) Group 1 (Standard debts/loans) including:
(i) Unmatured debts/loans rated likely to be fully recovered in terms of both principal and interest by due dates;
(ii) Debts/loans that are less than 10 days overdue and are rated likely to be fully recovered in terms of delinquent principal and interest, and likely to be fully recovered in terms of the remaining principal and interest by due dates;
(iii) Debts/loans classified into group 1 as provided in clause 2 of this Article.
b) Group 2 (Debts/loans needing attention) including:
(i) Debts/loans which are up to 90 days overdue, except those prescribed in point a (ii) of this clause and clause 3 of this Article;
(ii) Debts/loans with first-time adjusted repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of this Article;
(iii) Debts/loans classified into group 2 as provided in clause 2 and clause 3 of this Article.
c) Group 3 (Sub-standard debts/loans), including:
(i) Debts/loans which are from 91 days to 180 days overdue, except those prescribed in clause 3 of this Article;
(ii) Debts/loans with first-time extended repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of this Article;
(iii) Debts/loans on which interest is exempted or reduced due to the borrower's inability to pay in full as agreed upon, except for those specified in Clause 3 of this Article;
(iv) Debts/loans falling in one of the following cases that have not yet been recovered within less than 30 days from the effective dates of recovery decisions:
- Those violating provisions laid down in clause 1, 3, 4, 5 and 6 of Article 126 in the Law on Credit Institutions (amended);
- Those violating provisions laid down in clause 1, 2, 3 and 4 of Article 127 in the Law on Credit Institutions (amended);
- Those violating provisions laid down in clause 1, 2 and 5 of Article 128 in the Law on Credit Institutions (amended);
(v) Debts/loans falling within the recovery periods under inspection and examination conclusions;
(vi) Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered within a period of less than 30 days from the effective dates of recovery decisions;
(vii) Debts/loans that are classified into group 3 as provided in clause 2 and clause 3 of this Article;
(viii) Debts/loans that are classified into group 3 as provided in clause 4 of Article 8 herein.
d) Group 4 (Doubtful debts/loans), including:
(i) Debts/loans which are from 181 days to 360 days overdue, except those prescribed in clause 3 of this Article;
(ii) Debts/loans with first-time rescheduled repayment terms that are up to 90 days past due from the first-time rescheduled maturity dates, except those specified in clause 3 of this Article;
(iii) Debts/loans with second-time rescheduled repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of this Article;
(iv) Debts/loans referred to in point c(iv) of clause 1 of this Article that are not yet been recovered in 30 and 60 days from the effective dates of recovery decisions.
(v) Debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in up to 60 days after expiry of the recovery deadlines;
(vi) Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in 30 and 60 days from the effective dates of recovery decisions;
(vii) Debts/loans that are classified into group 4 as provided in clause 2 and clause 3 of this Article;
(viii) Debts/loans that are classified into group 4 as provided in clause 4 of Article 8 herein.
dd) Group 5 (Debts/loans likely giving rise to loss), including:
(i) Debts/loans that are more than 360 days past due;
(ii) Debts/loans with first-time rescheduled repayment terms that are at least 91 days past due from the first-time rescheduled maturity dates;
(iii) Debts/loans with second-time rescheduled repayment terms that are past due from the second-time rescheduled maturity dates;
(iv) Debts/loans with third- or more-time rescheduled repayment terms, except those prescribed in point b of clause 2 of this Article;
(v) Debts/loans referred to in point c(iv) of clause 1 of this Article that are not yet been recovered in more than 60 days from the effective dates of recovery decisions;
(vi) Debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in more than 60 days after expiry of the recovery deadlines;
(vii) Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in more than 60 days from the effective dates of recovery decisions;
(viii) Debts/loans of borrowers that are credit institutions put under special control, or foreign bank branches of which capital and assets are frozen;
(ix) Debts/loans classified into group 5 as provided in clause 3 of this Article;
(x) Debts/loans that need to be classified into group 5 as provided in clause 4 of Article 8 herein.
2. Debts/loans may be classified into groups with lower level of risk in the following cases:
a) For overdue debts, credit institutions and foreign bank branches shall reclassify them into groups with lower level of risk (including group 1) when they fully meet the following conditions:
(i) Borrowers have fully paid the overdue principal and interest (including interest on overdue principal), and those in the next repayment terms within at least 03 (three) months with respect to medium-term and long-term debts; 01 (one) month with respect to short-term debts, from the date of full payment of overdue principal and interest;
(ii) Proof of the borrower’s debt repayment is available;
(iii) Credit institutions, foreign bank branches possess sufficient information and documents to evaluate borrowers' ability to fully pay the remaining principal and interest by the predetermined due dates.
b) For debts with rescheduled repayment terms, credit institutions, foreign bank branches shall reclassify them into groups with lower level of risk (including group 1) when they fully meet the following conditions:
(i) Borrowers have fully paid the principal and interest varying according to the rescheduled repayment term in at least 03 (three) months with respect to medium-term and long-term debts; 01 (one) month with respect to short-term debts, from the start date of full repayment of such principal and interest;
(ii) Proof of the borrower’s debt repayment is available;
(iii) Credit institutions, foreign bank branches possess sufficient information and documents to evaluate borrowers' ability to fully pay the remaining principal and interest by the rescheduled due dates.
3. Debts/loans may be classified into groups with higher level of risk in the following cases:
a) The indicators such as profitability, solvency, debt-to-capital ratio, cash flow, debt repayment ability of borrowers decrease progressively after 03 continual debt assessment and classification sessions;
b) Borrowers fail to provide sufficient, timely and truthful information at the request of credit institutions or foreign bank branches so that they can assess borrowers’ debt repayment ability;
c) Debts/loans are classified into group 2, group 3, group 4 according to the provisions of point a and b of this clause for 01 (one) year or more, but are not eligible for being reclassified into groups with lower level of risk;
d) Loans are granted by the act of credit extension subject to administrative penalties prescribed by law.
4. Classification of off-balance sheet commitments and on-behalf payments:
a) Classification of off-balance sheet commitments:
(i) They are classified into group 1 if credit institutions, foreign bank branches judge that borrowers are able to fulfill their obligations according to commitments;
(ii) They are classified into group 2 or the following groups if credit institutions, foreign bank branches judge that borrowers are able to fulfill their obligations according to commitments;
(iii) Those falling in one of the cases stipulated in point c(iv) of clause 1 of this Article are classified into group 3 or the following groups.
b) Classification of on-behalf payments under off-balance sheet commitments:
(i) An overdue date is counted from the date on which a credit institution, foreign bank branch performs their promised obligations;
(ii) On-behalf payments under off-balance sheet commitments are classified into:
- Group 3 if they are less than 30 days overdue;
- Group 4 if they are from 30 days to less than 90 days overdue;
- Group 5 if they are at least 90 days overdue.
If an on-behalf payment is classified into a group with lower level of risk than the group into which off-balance sheet commitments under which the on-behalf payment is made are classified as provided in point a (ii) and a (iii) of this clause, it must be transferred to the latter.
Article 11. Classification of loans/debts and off-balance sheet commitments according to the qualitative method
1. Credit institutions and foreign bank branches shall classify debts/loans and off-balance sheet commitments into the following five groups:
a) Group 1 (Standard debts/loans) including:
Loans/debts rated by credit institutions and foreign bank branches to be recoverable in full in terms of the principal and interest by the maturity dates.
Off-balance sheet commitments with borrowers that are able to fulfill their agreed-upon obligations according to the assessment of credit institutions, foreign bank branches.
b) Group 2 (Debts/loans needing attention), including:
Loans/debts with the principal and interest that are likely to be recovered in full, but borrowers showing signs of reduction in ability to pay according to the assessment of credit institutions, foreign bank branches. .
Off-balance sheet commitments with borrowers that are able to fulfill their agreed obligations, but showing signs of decrease in ability to pay according to the assessment of credit institutions, foreign bank branches.
c) Group 3 (Sub-standard debts/loans), including:
Loans/debts with the principal and interest that are unlikely to be recovered by the maturity dates according to the assessment of credit institutions and foreign bank branches. These loans/debts are rated by credit institutions and foreign bank branches as those likely to cause loss.
Off-balance sheet commitments with borrowers that are unable to fulfill their agreed obligations according to the assessment of credit institutions, foreign bank branches.
Debts/loans that need to be classified into group 3 as provided in clause 4 of Article 8 herein.
d) Group 4 (Doubtful debts/loans), including:
Loans/debts that are rated by credit institutions and foreign bank branches as those posing high risk of causing loss.
Off-balance sheet commitments with high possibility that borrowers fail to fulfill their commitments.
Debts/loans that need to be classified into group 4 as provided in clause 4 of Article 8 herein.
dd) Group 5 (Debts/loans likely giving rise to loss), including:
Loans/debts rated by credit institutions, foreign bank branches as those unlikely to be recovered and posing risk of causing loss.
Off-balance sheet commitments with possibility that borrowers are unable to fulfill their agreed obligations.
Debts/loans that need to be classified into group 5 as provided in clause 4 of Article 8 herein.
2. When classifying debts/loans and off-balance sheet commitments in accordance with clause 1 of this Article, a credit institution and foreign bank branch should fully meet the following requirements:
a) Has an internal credit rating system which is suitable to their business activities, customers and nature of risks in debts, and is tested for a period of at least 01 (one) year;
b) Adopts risk provisioning policies according to clause 3 of Article 6 herein;
c) Implements credit risk management policies, credit risk monitoring models, methods for identification and measurement of credit risk (including approaches for assessment of borrower's ability to repay debts under credit contracts, security property and debt recoverability) and management of debts;
d) Clearly defines the responsibilities and powers of its Governing Board, Board of Directors and General Director (Director) regarding approval, implementation and inspection of the implementation of its internal credit rating system, risk provisioning policies and independence of risk management departments.
3. Credit institutions, foreign bank branches send the SBV’s head office (One-Stop Service Department) 01 (one) set of documents to request the SBV's approval for classification of debt according to Clause 1 of this Article and Clause 2, Article 2 of this Circular, including the following:
a) Written request of a foreign bank branch for the SBV's consent to the foreign bank's risk provisioning policy as prescribed in Clause 2 of Article 2 of this Circular; or written request of a credit institution or foreign bank branch for the SBV's consent to classification of debts and off-balance sheet commitments according to the qualitative method specified in Clause 1 of this Article, which must prove their conformance to all of the conditions specified in Clause 2 of this Article;
b) Copy of the foreign bank's risk provisioning policy required in the case specified in Clause 2 of Article 2 of this Circular; copy of the internal credit rating system, risk provisioning policy, policy on credit risk management and draft manuals for classification of loans/debts, off-balance sheet commitments and setting up of provisions for risks of credit institutions, foreign bank branches in the case specified in Clause 2 of this Article.
4. Within 30 (three) days of receipt of all valid documents prescribed in clause 3 of this Article, SBV shall send their written consent to credit institutions and foreign bank branches. In case of rejection, SBV should give written explanation about clear reasons.
5. The internal credit rating system, risk provision policy and credit risk management policy must be re-evaluated annually by credit institutions, foreign bank branches in accordance with the regulations of this Circular and regulations of the SBV on internal control systems of commercial banks and foreign bank branches.
6. Credit institutions, foreign bank branches obtaining consent to classification of debts and off-balance sheet commitments as prescribed in Clause 1 of this Article must simultaneously classify debts and off-balance sheet commitments as prescribed in Article 10 herein. If the results of classification of debts and off-balance sheet commitments as prescribed in Article 10 of this Circular and Clause 1 of this Article are different, debts and off-balance sheet commitments must be classified into the group with higher level of risk. Minimum time length required for classification of debts and off-balance sheet commitments according to both Articles 10 and 11 of this Circular is 05 (five) years from the date of approval or consent from SBV.
Section 2. SETTING UP PROVISIONS
Article 12. Specific provision amounts
1. The borrower-specific provision amount is calculated according to the following formula:
Where:
- R: Total borrower-specific provision amount;
- 
: refers to total provision amount for the borrower owing the outstanding amounts ranging from 1 to n.
Ri refers to the amount of provision for the outstanding balance of the loan i. Ri is calculated according to the following formula:
Ri = (Ai - Ci) x r
Where:
Ai: The outstanding principal i.
Ci: Deductible value of the security property, financial lease assets, negotiable instruments, other securities used in discounting and resale of Government bonds (hereinafter referred to as collateral) of the debt i.
r: Provisioning rates specific to groups prescribed in clause 2 of this Article.
Where Ci > Ai, Ri is calculated as 0 (zero).
2. Provisioning rates specific to debt groups are as follows:
a) Group 1: 0%;
b) Group 2: 5%;
c) Group 3: 20%;
d) Group 4: 50%;
dd) Group 5: 100%.
3. The collateral or security used as a deduction for calculation of the specific provision amount (R) specified in Clause 1 of this Article must satisfy the following conditions:
a) Credit institutions, foreign bank branches may dispose of security or collateral under guarantee contracts and in accordance with law when borrowers fail to perform their agreed obligations;
b) The expected period of disposition of collateral or security property is not more than 01 (one) year if it is not a real property, and not more than 02 (two) years if it is a real property, and starts from the date on which credit institutions, foreign bank branches have the right to dispose of collateral or security;
c) Collateral or security must conform to laws on secured transactions and other relevant laws;
d) In case where the security or collateral fails to satisfy the conditions specified at point a, b and c of this clause, the deductible value of that security or collateral must be deemed 0 (zero).
4. The deductible value of security property or collateral is determined by multiplying the value of security property or collateral specified in clause 5 of this Article by the deduction rate for each type of security or collateral as provided in Clause 6 of this Article.
Credit institutions, foreign bank branches shall, of their own accord, determine the deduction rate for each type of security or collateral on the basis of the assessment of recoverability when disposing of that security or collateral provided that rate does not exceed the maximum deduction rate applied to specific types of collateral or security property in accordance with clause 6 of this Article.
5. Value of collateral or security property used as a basis to calculate the deduction during the process of setting up a risk provision shall be determined as follows:
a) Gold bars: Their value is determined at the buying price at the head office of an enterprise or credit institution that owns the gold bar brand at the end of the trading day prior to the specific provisioning date;
b) Listed securities (including stocks, fund certificates, derivatives, covered warrants that are already listed): Their value is determined at the closing price quoted on the latest trading day prior to the specific provisioning date. In case where securities already listed on the stock exchange are not traded in 30 (thirty) days before the provisioning date, or are delisted or suspended from trades or cease being traded on the provisioning date, credit institutions, foreign bank branches shall value the collateral or security property in accordance with point e of this clause;
c) Stocks registered for trades on Upcom: Their value is determined at the reference price at the latest trading day promptly before the provisioning date announced by the Stock Exchange. In case where securities already listed on Upcom are not traded in 30 (thirty) days before the specific provisioning date, or are delisted or suspended from trades or cease being traded on the provisioning date, credit institutions, foreign bank branches shall value the collateral or security property in accordance with point e of this clause;
d) Government bonds listed on Stock Exchanges: Their value is determined at the average price by averaging trading prices in the firm-commitment offering session in accordance with the Government's regulations on issuance, registration, depository, listing and trading of Government debt instruments on the stock market; guiding documents of the Ministry of Finance and other amending, supplementing documents or replacement ones (if any). In case where there is no trading price in the above-mentioned firm-commitment offering session, the bond price applied to calculation of the deduction is the average of the trading prices on the secondary market within the last 10 (ten) working days till the date of setting up of the provision for risk. In case where no trade takes place within the last 10 (ten) working days till the date of setting of the provision for risk, credit institutions, foreign bank branches shall use the par value of the collateral or security property;
dd) Municipal bonds, government-guaranteed bonds and corporate bonds (including credit institutions) listed and registered for trades: Their value is determined at the price defined by averaging trading prices on the secondary market within the last 10 (ten) working days before the provisioning date according to the announcement of the Stock Exchange. In case where no trade takes place within the last 10 (ten) working days till the specified provisioning date, credit institutions, foreign bank branches shall use the par value of the collateral or security property;
e) Securities not listed on the Stock Exchanges, promissory notes, bills, certificates of deposit issued by enterprises (including credit institutions, foreign bank branches): Their par value is used.
In case where, on the specific provisioning date, the equity value is lower than the actual investment capital value of the owners at the issuing organization, the value of collateral or security property shall be determined by
Multiplying the par value of stocks or other securities multiplied by (x) the equity of the issuing organization and then divided by (:) the actual investment capital of owners at the issuing organization.
Where: The actual investment capital of the owners at the issuing organization and the equity of the issuing organization are determined on the latest balance sheet prior to the specific provisioning date in accordance with regulations of the Ministry of Finance, providing instructions about the corporate accounting regime.
In case where the equity of the issuing organization is negative, the value of collateral or security property used for deduction (Ci) must be deemed zero (zero);
g) Financially leased assets: Their value uses the value determined according to point h of this clause, or the value of the financially leased asset remaining over lease periods is calculated according to the formula:
Value of financially leased assets divided by (:) the lease period agreed upon under the contract multiplied by (x) the remaining lease term under the contract;
h) The value of collateral or security property used as deduction for calculation of the specific provision for movable assets, real property and other types of security or collateral, except for the assets specified at point a, b, c, d, dd and e of this clause is calculated as follows:
(i) Credit institutions, foreign bank branches must hire legally licensed valuing organizations to value collateral or security property used as deduction for calculation of the specific amount of provision at the end of the financial year in the following cases:
Collateral or security property valued by credit institutions, foreign bank branches at VND 50 billion or more is provided to secure debts of borrowers who are related to credit institutions, foreign bank branches and other persons subject to restrictions on credit extension as prescribed in Article 127 of the Law on Credit Institutions (amended and supplemented); collateral or security property is valued by credit institutions or foreign bank branches at VND 200 billion or more.
Results of valuation of collateral or security property issued by the legally licensed valuing organization are used by credit institutions, foreign bank branches for valuation of collateral or security property used as deduction for calculation of the specific amount of provision.
In case the licensed valuing organization is not capable of valuing, or no other licensed valuing organization values collateral or security property, credit institutions, foreign bank branches shall use the valuation results according to the internal regulations specified at point h of clause 2 of Article 6 herein. If there is no written document on the valuation of the collateral or security property from the valuing organization, and the value of the collateral or security property cannot be determined according to internal rules and regulations, the value of the collateral or security property used as deduction must be deemed 0 (zero);
(ii) Except for the case specified at point h(i) of this clause, credit institutions, foreign bank branches may value the collateral or security property as deduction when calculating the specific amount of provision according to internal rules and regulations laid down at point h of clause 2 of Article 6 in this Circular.
6. Credit institutions, foreign bank branches shall determine the specific deduction rate of each type of collateral or security property according to the principle that the lower the liquidity of the collateral or security property, and the greater the price fluctuation, then the lower the collateral deduction rate. In this principle, the maximum deduction rate of the collateral or security property is calculated as follows:
a) Borrower's deposit balance, certificate of deposit in Vietnam Dong at the lending credit institution, foreign bank branch: 100%;
b) Government bonds, gold bars in accordance with law on gold trading activities; borrower's deposit balance, certificate of deposit in foreign currency at the lending credit institution, foreign bank branch: 95%;
c) Municipal bonds, Government-guaranteed bonds; negotiable instruments, promissory notes, bills, bonds issued by the lending credit institutions; balance of deposits, certificates of deposit, promissory notes, bills issued by other credit institutions, foreign bank branches:
- The time left to maturity of less than 1 year: 95%;
- The time left to maturity of 1 year - 5 years: 85%;
- The time left to maturity of more than 5 year: 80%.
d) Securities issued by other credit institutions and listed on the Stock Exchanges: 70%;
dd) Securities issued by enterprises (except credit institutions) and listed on the Stock Exchanges: 65%;
e) Securities that have not yet been listed on the Stock Exchanges, valuable papers, except those specified at point c of this Clause, issued by other credit institutions that have registered for listing securities on the Stock Exchanges: 50%;
Securities that have not yet been listed on the Stock Exchanges, security instruments, except those specified at point c of this clause, issued by other credit institutions that do not register for listing their securities on the Stock Exchanges: 30%;
g) Securities that have not yet been listed on the Stock Exchanges, security instruments issued by enterprises that register for listing their securities on the Stock Exchanges: 30%;
Securities that have not yet been listed on the Stock Exchanges, security instruments issued by enterprises that do not register for listing their securities on the Stock Exchanges: 10%;
h) Real property: 50%;
i) Others: 30%.
7. If any credit institution is in the process of execution of the plan for restructuring, amalgamation and merger under the proposal for restructuring of credit institutions associated with dealing with bad debts that is approved by the Prime Minister, and have financial difficulties, they should report to SBV to seek its approval decision on setting up of risk provisions; In case where the amount of provision for risk is larger than the difference between income and expenditure from the annual business results (excluding the amount set aside in advance for provision for risk within the year), the minimum amount of provision for risk shall be equal to the difference between revenue and expenditure and the credit institution must monitor the amount set aside as the provision for risk in full in accordance with this Circular.
Article 13. General provision amounts
The general provision amount shall account for 0.75% of total outstanding balance of debts from group 1 to group 4, except the followings:
1. Deposits made at credit institutions, foreign bank branches in accordance with law and at overseas credit institutions.
2. Loans, forwards of securities between credit institutions and foreign bank branches in Vietnam.
3. Purchases of promissory notes, treasury bills, certificates of deposit or bonds issued by credit institutions and foreign bank branches onshore.
4. Repos of government bonds prescribed in point I of clause 1 of Article 1 herein.
Article 14. Replenishment and reversal of provisions
1. In case the residual amounts of specific provisions and general provisions in the previous accounting period is smaller than the amounts to be set aside for the specific provisions and general provisions in the provision accounting period, credit institutions or foreign bank branches must set aside additional amounts to replenish the deficit.
2. In case the residual amounts of specific provisions and general provisions in the previous accounting period is greater than the amounts to be set aside for the specific provisions and general provisions in the provision accounting period, credit institutions or foreign bank branches must make a reversal of the surplus.
Section 3. USE OF RISK PROVISIONS
Article 15. Risk Management Board
1. The Committee is composed of the followings:
a) Commercial banks must establish a Risk Management Board joined by 01 Chair who is a member of the Government Board or the Board of Directors; 01 member of the Risk Management Committee; 01 member who is the General Director (Director) and at least 02 other members decided by the Governing Board or the Board of Directors;
b) Each foreign bank branch or non-banking credit institution must establish its own Risk Management Board consisting of the General Director (Director) holding office as the Committee’s Chair and at least 02 other members decided by the General Director (Director).
2. Committee’s responsibilities:
a) Approve an all-inclusive report on the results of recovery of debts to which risks are controlled by using provisions, including the results of disposal of collateral or security property, and give clear explanations about the bases for grant of approval;
b) Decide or approve the classification of debts, off-balance sheet commitments, make provision for risks and use provisions for risks arising in the entire system;
c) Decide or approve measures for recovery of debts to which risks are treated by using provisions in the entire system, including the disposal of collateral or security property.
Article 16. Principles and documentation requirements for treatment of risks
1. Credit institutions and foreign bank branches may use provisions for treatment of risks in the following cases:
a) Borrowers that are an entity dissolved or bankrupt; individuals that are dead or have gone missing;
b) Debts/loans classified into group 5.
2. Credit institutions and foreign bank branches may use provisions for treatment of risks according to the following principles:
a) In case where they have disposed of collateral or security property to recover debts as agreed upon by the parties, in accordance with the provisions of law, they may use specific provisions to deal with risks from the remaining outstanding balance of debt; In case where the specific provision is not enough to compensate for the risks of debt, the general provision must be used for risk treatment;
b) In case where they have not yet disposed of collateral or security property for recovery of debts, they can use provisions for treatment of risks according to the following principles:
(i) Use the specific provision set up according to Article 12 herein for treatment of risks to these debts;
(ii) Promptly dispose of collateral or security property as agreed upon with the borrower and according to the provisions of law to recover debts;
(iii) In case where the specific provision is used and the proceeds from the disposal of collateral or security property are not enough to compensate for the risks of debts, the general provision shall be used to treat the risks.
c) Credit institutions, foreign bank branches shall record the outstanding debts subject to risk controls by using specific and general provisions as off-balance sheet items or entries as provided in point a and b of this clause.
3. The use of provisions against risks is a way to change accounting for debts, record the debts subject to risk controls as off-balance sheet entries or items; is an internal duty of credit institutions, foreign bank branches; does not change debt repayment obligations of borrowers to the debts to which risks are controlled by using provisions, and a duty of organizations and individuals related to debts. Credit institutions and foreign bank branches are not allowed to inform borrowers of their debts to which risks are controlled by using provisions. After treating risks, credit institutions and foreign bank branches must monitor and take adequate and thorough debt recovery measures for debts subject to risk controls, except for those debts subject risk controls that are sold by credit institutions, foreign bank branches to organizations and individuals to collect proceeds from sale of debts under asset purchase and sale contracts.
4. Documentation requirements for risk treatment, including:
a) Credit extension and debt collection file for debts to which risks are treated by using provisions;
b) Collateral or security property file and other relevant documents (if any);
c) Decision or approval of debt classification and risk provisioning results by Risk Management Committee.
d) Decision or approval of use of risk provisions by Risk Management Committee;
dd) In case where a borrower is an organization or an enterprise that goes bankrupt or is dissolved, in addition to the documents mentioned at point a, b, c and d of this clause, the original or the certified copy or the copy from the master register of the court’s decision on declaration of bankruptcy or the decision on dissolution of the enterprise in accordance with law must be provided;
e) In case where an individual customer is dead or has gone missing, in addition to those specified at point a, b, c and d of this clause, the original or the certified copy or the copy from the original book of the Death Certificate or the written confirmation of the borrower’s death by the commune-level local authority in the absence of the Death Certificate, or the decision that declares that the individual has gone missing in accordance with law, must be provided.
Article 17. Monitoring of debts to which risks are treated by using provisions and charge-off of debts from off-balance sheet commitments
1. After a minimum period of 5 (five) years, from the date of use of risk provisions, and after taking all possible measures to recover debts, in case of failure to recover these debts, credit institutions and foreign bank branches may decide to remove debts already subject to risk controls from the group of off-balance sheet commitments.
Debts that are charged off from the group of off-balance sheet commitments must be monitored in the management systems of credit institutions and foreign bank branches in accordance with regulations on setting up and disposal of provisions for devaluation of inventories and losses of investments, bad debts and warranties for products, goods and construction services at enterprises for a minimum period of 10 (ten) years from the date of decision on charge-off of debts already subject risk controls from the group of off-balance sheet commitments, except for those debts owed by borrowing entities that are bankrupt or dissolved in accordance with law; those debts still outstanding after liquidation or disposal of all assets; or those debts owed by borrowing individuals that have died, declared missing according to the court's decision, and after their estates and obligations have completely disposed of in accordance with law.
2. For state-owned commercial banks and joint-stock commercial banks of which more than 50% of charter capital is owned by the State, the charge-off of debts from the group of off-balance sheet commitments as specified in Clause 1 of this Article can be carried out only when the conditions mentioned hereunder are satisfied:
a) They have records and documents proving that all debt recovery measures have been taken but failed;
b) They must obtain SBV’s written approval of such charge-off after receipt of the Ministry of Finance’s opinions.
3. For credit institutions that are joint-stock companies, the charge-off of debts from the group of off-balance sheet commitments as specified in Clause 1 of this Article can be carried out only when the conditions mentioned hereunder are satisfied:
a) They have records and documents proving that all debt recovery measures have been taken but failed;
b) Such charge-off is ratified by the shareholders’ general meeting.
4. For credit institutions that are limited liability companies, the charge-off of debts from the group of off-balance sheet commitments as specified in Clause 1 of this Article can be carried out only when the conditions mentioned hereunder are satisfied:
a) They have records and documents proving that all debt recovery measures have been taken but failed;
b) Such charge-off is ratified by the Board of Directors.
5. For foreign bank branches, the charge-off of debts from the group of off-balance sheet commitments as specified in Clause 1 of this Article can be carried out only when the conditions mentioned hereunder are satisfied:
a) They have records and documents proving that all debt recovery measures have been taken but failed;
b) Such charge-off is approved by parent foreign banks.
6. Documentation requirements for the charge-off prescribed in clause 1 of this Article shall include:
a) Risk treatment or management file prescribed in clause 4 of Article 16 herein;
b) Decision or approval of the credit institution, foreign bank branch regarding the charge-off of debts to which risks are treated by using provisions from the group of off-balance sheet commitments;
c) Decision or approval of measures for recovery of debts to which risks are treated by using provisions;
d) Proof that all measures have been taken to recover debts, but failed, according to reality and relevant laws.
Documentation on charge-off of debts already subject to risk controls from the group of off-balance sheet commitments must be deposited by credit institutions and foreign bank branches in accordance with law.
Article 18. Remedial principles applied to cases in which firm evidence of physical losses of assets is available
During their operations, including the cases prescribed in Article 16 and 17 herein, if firm evidence of physical losses of assets is available, credit institutions and foreign bank branches shall take remedial actions according to the following principles:
1. Disposing of collateral or security property according to agreements between concerned parties in accordance with law, unless otherwise provided in point a of clause 2 of Article 16 herein.
2. Identifying causes and liabilities and taking the following actions:
a) If any loss is caused due to subjective reasons, the person causing such loss must pay compensation. The authority to decide the compensation rate shall be subject to the charter of a credit institution or foreign bank branch. Imposing sanctions on the person causing loss shall be subject to law.
b) If an asset is covered by an insurance policy, actions must be subject to that insurance policy;
c) The provision set up as an expense shall be used to compensate for loss according to the provisions of law, except for the case specified in Clause 2 of Article 16 of this Circular;
d) If the value of loss determined after such loss has been compensated for by an individual, collective or insurance organization, and by using the provision set up as an expense, is in deficit, the financial reserve fund of each credit institution or foreign bank branch shall be used to make up that deficit. In case the financial reserve fund is not enough to do so, the deficit shall be recorded as other expenses in the same accounting period.
Article 19. Management of amounts collected from debts to which risks are controlled by using provisions
Amounts collected from debts to which risks are controlled by using provisions, even including proceeds from disposal of collateral or security property, shall be deemed as revenues earned within the accounting period of credit institutions and foreign bank branches.
Section 4. MANAGEMENT OF DEBTS, OFF-BALANCE SHEET COMMITMENTS, SETTING UP AND USE OF RISK PROVISIONS
Article 20. Management of debts, off-balance sheet commitments, setting up and use of risk provisions
1. Credit institutions, foreign bank branches must set up departments (others having similar functions) for management of debts and off-balance sheet commitments at the head offices of credit institutions, the offices of the foreign bank branches to supervise the classification of debts, off-balance sheet commitments, setting up and use of risk provisions throughout their entire systems.
2. Responsibilities of departments for management of debts and off-balance sheet commitments:
a) Formulate and advise the General Director (Director) to make representation to the Governing Board, the Board of Directors (for credit institutions) or to the General Director (Director) (for foreign bank branches) to adopt:(i) Internal credit rating systems, supplements or amendments to internal credit rating systems; rules and regulations on management and operation of internal credit rating systems, collection and update of borrowers’ data and information;
(ii) Risk provisioning policies, amendments or supplements thereto.
b) Manage and operate intracorporate credit rating systems;
c) Send comprehensive reports to the Risk Management Committees on the results of classification of debts and off-balance sheet commitments, setting up and use of risk provisions and recovery of debts after using provisions to control risks in the previous month in the entire system; give the Risk Management Committees recommendations about classification of debts and off-balance sheet commitments, setting up and use of risk provisions, measures for management of nonperforming loans, and thorough collection of debts;
d) Manage and supervise conformance of entities and individuals to regulations laid down in point dd of clause 3 of Article 6 herein;
dd) Provide information and cooperate with functional units in head offices in formulating and advising the General Director (Director) to make representation to the Governing Board, the Board of Directors (for credit institutions) or to the General Director (Director) (for foreign bank branches) to adopt, amend or supplement internal rules and regulations on credit extension and debt management of credit institutions and foreign bank branches;
e) Perform other duties regulated by credit institutions and foreign bank branches.
Section 5. ACCOUNTING AND REPORTING
Article 21. Accounting
Credit institutions, foreign bank branches shall keep accounting records of amounts set aside for, use, replenishment and reversal of specific provisions and general provisions according to laws on accounting regimes of credit institutions and foreign bank branches.
Article 22. Reporting
1. Credit institutions, foreign bank branches must report on results of classification of debts/loans or off-balance sheet commitments, setting up and use of risk provisions and treatment of losses in accordance with regulations on statistical reporting regulations applicable to credit institutions, foreign bank branches issued by SBV.
2. Credit institutions and foreign bank branches shall be responsible for providing CIC with information required by regulations on credit information activities of the State Bank and in accordance with this Circular.
3. Credit institutions, foreign bank branches must report on results of classification of debts/loans or off-balance sheet commitments, setting up and use of risk provisions and results of recovery of debts to General Department of Taxation and Tax Departments of the provinces and cities where head offices of credit institutions, foreign bank branches are located in accordance with tax reporting regulations.
4. Every year, credit institutions, foreign bank branches must report to the General Meeting of Shareholders (for credit institutions that are joint-stock companies), owners (for credit institutions that are limited liability companies), capital-contributing members (for credit institutions that are multiple-member limited liability companies) on the results of classification of debts, off-balance sheet commitments, setting up of risk provisions, results of use of risk provisions and results of handling of losses.
Chapter III
RESPONSIBILITIES OF SBV AND SANCTIONING OF VIOLATIONS
Article 23. Responsibilities of SBV
1. Responsibilities of the Banking Supervision and Inspection Agency:
a) Receive internal rules and regulations on credit extension, management of debts/loans and risk provisioning policies from credit institutions, foreign bank branches as provided in Article 6 herein to support microprudential supervision and inspection activities;
b) Examine and inspect compliance of credit institutions and foreign bank branches with internal rules and regulations on credit extension, management of debts/loans and risk provision policies;
c) Examine and inspect classification of debts, off-balance sheet commitments, setting up and use of risk provisions of credit institutions and foreign bank branches;
d) Sanction violations of credit institutions and foreign bank branches according to the provisions of Article 24 herein under its jurisdiction;
dd) Process documentation of foreign banks for approval of requests for consent to application of risk provisioning policies from foreign bank branches and requests from credit institutions and foreign bank branches for consent to classification of debts and off-balance sheet commitments according to the qualitative method.
2. Forecast and Statistics Department shall preside over collaborating with relevant units to solicit SBV's Governor to issue regulations on regimes for statistical reporting of classification of debts/loans, off-balance sheet commitments, setting up and use of risk provisions and treatment of losses arising from operations of credit institutions and foreign bank branches.
3. The Finance and Accounting Department shall, according to the provisions of this Circular, design the instruction manual for implementation of relevant accounting regulations in accordance with law and submit it to SBV's Governor.
4. CIC shall be responsible for compiling and providing a list of borrowers categorized by their debt groups with the highest risk level for use in credit institutions and foreign bank branches as prescribed in clause 2 of Article 8 of this Circular.
5. Responsibilities of SBV's branches in provinces or centrally-affiliated cities:
a) Receive internal rules and regulations on credit extension, management of debts/loans and risk provisioning policies from credit institutions, foreign bank branches as provided in Article 6 herein to support microprudential supervision and inspection activities;
b) Examine and inspect compliance of local branches of credit institutions and foreign bank branches subject to microprudential controls with internal rules and regulations on credit extension, management of debts/loans and risk provision policies;
c) Examine and inspect classification of debts, off-balance sheet commitments, setting up and use of risk provisions of local branches of credit institutions and foreign bank branches subject to microprudential controls;
d) Sanction violations of credit institutions and foreign bank branches subject to microprudential controls according to the provisions of Article 24 herein under their respective jurisdiction.
Article 24. Disciplinary actions
In addition to having to classify debts, off-balance sheet commitments, set up and use risk provisions in accordance with the provisions of this Circular, depending on the nature and seriousness of their violations, credit institutions, foreign bank branches and individuals involved in violations against the provisions of this Circular will be subject to administrative sanctions relating to monetary and banking operations.
Chapter IV
IMPLEMENTATION PROVISIONS
Article 25. Grandfather clause
1. Credit institutions that already obtain decisions from SBV’s Governor on specific measures relating to classification of debts, off-balance sheet commitments, setting up and use of risk provisions before the effective date of this Circular shall comply with these decisions.
2. Credit institutions and foreign bank branches obtaining SBV’s consent to classification of debts/loans and off-balance sheet commitments according to the qualitative method before the effective date of this Circular shall continue to comply with such written consent from SBV.
Article 26. Entry into force
1. This Circular shall enter in force as of October 1, 2021.
2. From the effective date of this Circular, regulations hereunder shall be abolished:
a) The Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the SBV’s Governor, prescribing classification of assets, levels and method of setting up of risk provisions, and use of provisions against credit risks in the banking activity of credit institutions, foreign bank branches.
b) The Circular No. 09/2014/TT-NHNN dated March 18, 2014 of the SBV’s Governor, amending and supplementing a number of Articles of Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the SBV’s Governor on classification of assets, levels and method of setting up of risk provisions, and use of provisions against credit risks in the banking activity of credit institutions, foreign bank branches.
Article 27. Implementation
The Chief of the Office, the Chief of the Banking Inspection and Supervision Agency, Heads of affiliated entities of SBV, credit institutions and foreign bank branches shall be responsible for implementing this Circular./.
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