Thông tư 23/2021/TT-NHNN

CIRCULAR

AMENDMENTS TO CIRCULAR NO. 52/2018/TT-NHNN DATED DECEMBER 31, 2018 OF GOVERNOR OF STATE BANK OF VIETNAM PRESCRIBING CREDIT RATING OF CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

Pursuant to the Law on the State bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law on amendments to the Law on Credit Institutions dated November 20, 2017;  

Pursuant to the Government's Decree No. 16/2017/ND-CP dated February 17, 2017 prescribing functions, tasks, powers and organizational structure of the State bank of Vietnam;

And at the request of the Head of the SBV Banking Supervision Agency;

The Governor of the State Bank of Vietnam (SBV) promulgates a Circular providing amendments to the Circular No. 52/2018/TT-NHNN dated December 31, 2018 of the Governor of the State Bank of Vietnam prescribing credit rating of credit institutions and foreign bank branches.

Article 1. Amendments to Circular No. 52/2018/TT-NHNN

1. Article 3 is amended as follows:

a) Clauses 1, 2, 3, 4, 5 Article 3 are amended as follows:

“1. Capital adequacy ratio means an indicator that is calculated according to SBV’s regulations on prudential limits and ratios for operations of credit institutions and foreign bank branches (hereinafter referred to as “FBB”).

 2. Tier 1 capital ratio means an indicator calculated according to the following provisions:

a) If a credit institution or FBB applies the capital adequacy ratio defined according to SBV’s regulations on prudential limits and ratios for operations of credit institutions and FBBs (excluding the Circular No. 41/2016/TT-NHNN dated December 30, 2016 and its amending and superseding documents (if any)), its tier 1 capital ratio shall be calculated adopting the following formula:

Standalone tier 1 capital and total standalone risk-weighted assets shall be calculated according to SBV’s regulations on prudential limits and ratios for operations of credit institutions and FBBs;

b) If a credit institution or FBB applies the capital adequacy ratio defined according to the Circular No. 41/2016/TT-NHNN, its tier 1 capital ratio shall be calculated adopting the following formula:

Where:

- RWA: Total credit risk-weighted assets

- K_OR: Capital required for operational risks

- K_MR: Capital required for market risks

Tier 1 capital, RWA, K_OR, K_MR shall be calculated according to the Circular No. 41/2016/TT-NHNN.

3. Debt restructured as potentially bad debt means the balance of debt which is not written off as bad debt at a credit institution or FBB as it is rescheduled or its interest is exempted or reduced and classification group to which it belongs remains unchanged.

4. Debts sold to VAMC as bad debts yet to be disposed of means bad debts which have been purchased using special bonds by VAMC (Vietnam Asset Management Company) and have yet to be disposed or recovered.

5. Customer with a large outstanding balance means a customer (except credit institutions and FBBs) having the outstanding balance making up at least 5% of the equity of a credit institution or FBB.  With regard to cooperative banks, customers with large outstanding balances include people’s credit funds that are their members.”.

b) The second dash of Clause 10 Article 3 is amended as follows:

“- Average earning assets mean all accounts and entries of deposits at SBV, deposits at other credit institutions and loans granted to other credit institutions (excluding risk provisions), loans granted to customers (excluding risk provisions), debt purchases (excluding risk provisions), and investing securities (excluding risk provisions, provisions for depreciation and bonds of VAMC), which are recorded on a balance sheet in accordance with regulations of law on financial reporting regime applied to credit institutions and FBBs, and averaged over quarters of a year.”.

c) The second dash of Clause 15 Article 3 is amended as follows:

“- Interest sensitive liabilities mean total on-balance sheet liabilities sensitive to interest rates (excluding non-interest-bearing liabilities) which are recorded in the explanatory notes to financial statements in accordance with regulations of law on financial reporting regime applied to credit institutions and FBBs.”.

d) Clause 16 Article 3 is amended as follows:

“16. Average fine for a violation means the average value of the maximum fine and the minimum fine in the fine bracket applied to violations committed by organizations as provided for in a Decree prescribing penalties for administrative violations in the money and banking sectors in force as at December 31 of the rating year (in case of periodical rating) or as at the last day of the quarter preceding the rating date (in the rating case specified in Clause 3 Article 21 of this Circular).”.

2. Article 5 is amended as follows:

a) Point a1 is added to Clause 1 Article 5 as follows:

“a1) Information and data included in financial statements of credit institutions or FBBs which have been audited by independent audit firms in accordance with regulations of law;”.

b) Point c Clause 2 Article 5 is amended as follows:

“c) In case where the credit rating is performed according to Clause 3 Article 21 of this Circular, SBV’s Governor shall issue a decision on the scope f each material, information or datum that may be used for credit rating of credit institutions and FBBs.”.

3. Article 8 is amended as follows:

a) Point g Clause 1 is amended as follows:

“g) Ratio of outstanding credit balances for real estate investment and business to total outstanding balances (excluding outstanding credit balances owed to other credit institutions and FBBs);”.

b) Point a Clause 2 is amended as follows:

“a) Compliance with regulations of law on credit extensions;”.

4. Point dd is added to Clause 1 Article 13 as follows:

“dd) If the gross operating income is negative upon determination of the quantitative indicator prescribed in Clause 1 Article 9 or the profit before tax and average equity are negative upon determination of the quantitative indicator prescribed in Point a Clause 1 Article 10, the score of each of these quantitative indicators shall be 1.”.

5. Article 14 is amended as follows:

a) The ordinal numbers 1.1 and 1.2 Article 14 are amended and the ordinal numbers 1.1a and 1.2a are added to Article 14 as follows:

b) The ordinal numbers 2.1 and 2.2 are amended as follows:

c) The ordinal number 2.7 is amended as follows:

6. Article 15 is amended as follows:

a) The ordinal number 2.1 is amended as follows:

b) The ordinal number 2.3 is amended as follows:

c) The ordinal number 2.4 is amended as follows:

d) The ordinal number 2.7 is amended as follows:

7. Article 16 is amended as follows:

“Article 16. Scoring of subgroups of qualitative indicators

1. The score given to a subgroup of qualitative indicators in each rating criterion may be determined on the basis of evaluating the degree of compliance with laws of a credit institution or FBB, and will be 1, 2, 3, 4 or 5. The lower the score is given, the lower the degree of compliance with laws is evaluated.

2. Violations committed by credit institutions and FBBs may be used for scoring of subgroup of qualitative indicators in each rating criterion specified in Articles 7, 8, 9, 10, 11, 12 of this Circular may be determined according to the following 02 (two) criteria:

a) Time for determination of violations:

(i) Violations have been detected within 04 (four) years preceding the rating year but have not been corrected yet;

(ii) Violations have been detected within the rating year;

b) Methods of determination of violations:

(i) Violations are specified in reports on results of surveillance, inspection, assessment and audit of competent regulatory authorities under laws (including SBV, other state regulatory authorities and independent audit firms), or decisions to impose administrative penalties of competent regulatory authorities;  

(ii) Violations are detected and reported by credit institutions and FBBs of their own accord, and have not been corrected yet.

3. The score of subgroup of qualitative indicators in each rating criterion shall be calculated as follows:

a) As regards violations specified in decisions to impose administrative penalties of competent regulatory authorities and/or violations specified in a Decree prescribing penalties for administrative violations in the money and banking sectors, the score of subgroup of qualitative indicators shall be determined based on the value comparison between the subgroup of qualitative indicators prescribed in Clause 4 of this Article and the corresponding benchmark prescribed in Article 16a of this Circular. To be specific:

(i) The score will be 5 if the value of the subgroup of qualitative indicators is lower than or equal to benchmark of 1;

(ii) The score will be 4 if the value of the subgroup of qualitative indicators is lower than or equal to benchmark of 2 and higher than benchmark of 1;

(iii) The score will be 3 if the value of the subgroup of qualitative indicators is lower than or equal to benchmark of 3 and higher than benchmark of 2;

(iv) The score will be 2 if the value of the subgroup of qualitative indicators is lower than or equal to benchmark of 4 and higher than benchmark of 3;

(v) The score will be 1 if the value of the subgroup of qualitative indicators is higher than benchmark of 4;

b) As regards violations other than those specified in Point a of this Clause, credit institutions or FBBs will be given the score of 4;

c) If a credit institution or FBB is eligible for the score given according to Point a of this Clause and that given according to Point b of this Clause, the score of the subgroup of qualitative indicators given to that credit institution or FBB shall be the lowest score amongst the above-mentioned scores;

4. The value of subgroup of qualitative indicators reflects the severity level of violations against regulations on money and banking committed by a credit institution or FBB while taking into accounts the scope of that credit institution or FBB in each rating criterion. The value of subgroup of qualitative indicators shall be calculated adopting the following formula:

Where:

- Total fines mean total fines for violations against indicators included in the subgroup of qualitative indicators in a rating criterion.  Total fines shall be the sum of the fines specified in decisions to impose administrative penalties of competent regulatory authorities and the average fines for violations committed by the credit institution or FBB specified in a Decree prescribing penalties for administrative violations in the money and banking sectors. With regard to violations for which warnings are imposed, the fines constituting total fines shall be 0.

- Standalone equity shall be determined according to SBV’s regulations on prudential limits and ratios for operations of credit institutions and FBBs.

5. After determination of the score of subgroup of qualitative indicators in each rating criterion according to the provisions of Clause 3 of this Article, credit institutions and FBBs will be subject to the further score deduction on conditions that the subtrahend point is not greater than 0,9 according to the following principles:

a) If the credit institution or FBB commits more than 02 (two) violations in the same subgroup of qualitative indicators in each rating criterion, it will get 0,1 point deducted from total score given to that subgroup of qualitative indicators as a penalty for each violation (applicable to the second or subsequent violation), except the case specified in Point b of this Clause;

b) With regard to violations which have been detected and reported by the credit institution or FBB of their own accord but have not been corrected yet, it will get 0,05 point deducted from total score given to that subgroup of qualitative indicators as a penalty for each violation (applicable to the second or subsequent violation).

6. If a credit institution or FBB fails to fully implement the remedial plan, recommendations and cautions given by SBV in terms of organizational structure, management and administration, unless such failure is a result of a force majeure event, the score of the subgroup of qualitative indicators specified in Clause 2 Article 9 of this Circular after it is determined according to Clauses 3, 5 of this Article shall be subject to the further score deduction according to the following principles:

a) If the score of the subgroup of qualitative indicators is greater than 1, the credit institution or FBB will get 1 point deducted from the score given to that subgroup of qualitative indicators;

b) If the score of the subgroup of qualitative indicators is lower than or equal to 1, the score given to that subgroup of qualitative indicators of the credit institution or FBB will be deducted and will be 0,1 point.

7. In case where credit institutions or FBBs have yet to be or are not subject to one or more indicators in the subgroup of qualitative indicators in accordance with regulations of law on money and banking, scoring of such an indicator or indicators will be delayed or cancelled.".

 8. Article 16a is added as follows:

“Article 16a. Benchmark for scoring of each subgroup of qualitative indicators

The higher the value of the benchmark 1, benchmark 2, benchmark 3 and benchmark 4 of each subgroup of qualitative indicators is given, the lower the degree of compliance with laws of the credit institution or FBB is evaluated. These benchmarks are provided for as follows:

9. Clause 7 Article 20 is amended, and Clause 8 is added to Article 20 as follows:

“7. Notwithstanding provisions of Clause 5 Article 20 of this Circular, a credit institution and FBB shall be ranked (E) if it falls into one of the following cases:

a) It has lost or is likely to lose solvency according to SBV’s regulations;

b) Its accrued loss exceeds 50% of charter capital and reserve funds;

c) It fails to maintain the capital adequacy ratio specified in Point b Clause 1 Article 130 of the Law on Credit Institutions for 12 consecutive months or its capital adequacy ratio is below 4% for 06 consecutive months.

8. Total rating score will be rounded to the nearest hundredth according to the following principles:

a) The digit in the hundredths place will be increased by 0,01, if the value of the thousandths place is 6 through 9;

b) The digit in the hundredths place will remain unchanged, if the value of the thousandths place is 0 through 5”.

10. Clause 3 Article 21 is amended as follows:

“3. In case where a credit institution or FBB is following procedures for obtaining a competent authority’s approval for its restructuring, consolidation or merger plan under the Scheme “Restructuring of system of credit institutions associated with settlement of bad debts” approved by the Prime Minister, based on state management requirements laid down in each specific case, SBV’s Governor shall decide the deadlines other than those prescribed in Clause 1 and Clause 2 of this Article.”.

11. Clause 2 Article 22 is amended as follows:

“2. Contents of a notice of credit rating results:

a) The notice sent to a credit institution or FBB shall specify its credit rating results (including its rank, total rating scores and the score of each subgroup of indicators specified in Articles 7, 8, 9, 10, 11, 12 of this Circular);

b) The notice sent to a SBV’s provincial branch shall specify credit rating results of credit institutions and FBBs located in that province or city (including their ranks, total rating scores and the score of each subgroup of indicators specified in Articles 7, 8, 9, 10, 11, 12 of this Circular)”.

12. Clause 1 Article 23 is amended as follows:

“1. Credit institutions and FBBs shall not be allowed to provide credit rating results for any third party in any form (except the case where an FBB provides credit rating results for its parent bank after this parent bank undertakes in writing not to provide these credit rating results for any third party)".

Article 2. Abrogation of some Points, Clauses and Articles of Circular No. 52/2018/TT-NHNN

Point dd Clause 1 Article 8, Clause 3 Article 13, the ordinal numbers 2.5 Article 14, and the ordinal numbers 2.5 Article 15 are abrogated.

Article 3. Implementation  

The Chief of SBV’s Office, head of SBV Banking Supervision Agency, Directors of SBV’s provincial branches, heads of SBV’s affiliates concerned, credit institutions and FBBs are responsible for the implementation of this Circular.

Article 4. Effect

This Circular comes into force from February 15, 2022 and shall begin to be applied to the credit rating of credit institutions and FBBs in 2021./.