Circular No. 06/2016/TT-NHNN dated May 27, 2016 of the State Bank of Vietnam on amending and supplementing a number of Articles of the Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the State Bank of Vietnam providing for prudential ratios and limits for operations of credit institution and foreign bank branches

THE STATE BANK OF VIETNAM

Circular No.06/2016/TT-NHNN dated May 27, 2016 of the State Bank of Vietnam on amending and supplementing a number of Articles of the Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the State Bank of Vietnam providing for prudential ratios and limits for operations of credit institution and foreign bank branches

Pursuant to the Law on the State Bank of Vietnam No.46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Institutions No. 47/2010/QH12 dated June 16, 2010;

Pursuant to the Government s Decree No. 156/2013/ND-CP dated November 11, 2013 on defining the functions, tasks, entitlements and organizational structure of the State Bank of Vietnam;

At the request of the Chief Inspector of Banks;

The Governor of the State Bank of Vietnam hereby adopts the Circular to amend and supplement certain articles of the Circular 36/2014/TT-NHNN dated November 20, 2014 of the State Bank’s Governor on providing for prudential ratios and limits for operations of credit institutions and foreign bank branches (hereinafter referred to as the Circular No. 36/2014/TT-NHNN).

Article 1. To amend and supplement a number of articles of the Circular No. 36/2014/TT-NHNN by:

1. To add the following sub-points to Point a Clause 15 Article 3:

“(xi) A credit enterprise or institution in which this organization owns at least 5% of its authorized capital or voting shares;

(xii) A credit enterprise or institution of which this organization exercises its authority to appoint managers or members of the Control Board therein;

(xiii) A credit enterprise or institution of which this organization exercises its authority to appoint managers or members of the Control Board in a parent company thereof.”

2. To add the Point i to Clause 18 Article 3 as follows:

“i) Granting a lease of or offer a discount on valuable papers to clients who entrust other natural or legal entities with the purchase of stocks.”

3. To add Clauses 19, 20, 21, 22, 23 and 24 to Article 3 as follows:

“19. Credit institution, foreign bank branch refers to credit institutions or foreign bank branches established and operated within the territory of Vietnam in accordance with its laws and regulations. 

20. State-run commercial bank refers to commercial banks established and operated in the form of a single-member limited liability company of which the authorized capital is wholly owned by the State.

21. Financial institutions shall be referred to in the anti-money laundering laws.

22. Financial institutions abroad refer to financial institutions established abroad in accordance with laws of host countries.

23. Average short-term fund of a month is calculated by total short-term fund balance at the end of each day in such month divided by total days in such month.

24. Forward purchase or sale of valuable papers refers to the transaction in which valuable papers are acquired or sold in accordance with conditions attached thereto for transfer of ownership of these valuable papers that have not reached maturity and commitments to buy- or sell-back thereof after a specified period.”

4. To amend and supplement Clause 2 Article 11 as follows:

“2. Credit institutions and foreign bank branches shall not be permitted to extend credit to customers for the purpose of their investments and trades in unlisted corporate bonds.”

5. To amend and supplement Point a Clause 1 Article 12 as follows:

“a) Auditing organizations (including auditing enterprises, branches of foreign auditing enterprises in the territory of Vietnam), auditors  (including auditors of auditing organizations and public auditors) that currently render auditing services at credit institutions and branches of foreign banks; inspectors that currently provide inspecting services for credit institutions and branches of foreign banks.”

6. To amend and supplement Point c Clause 3 Article 13 as follows:

“c) Loans fully secured in terms of maturity and value by personal deposits at the lending time;”

7. To amend and supplement Point h Clause 3 Article 13 as follows:

“h) Guarantees and guarantee issuance commitments made in the form of letters of credit fully secured in terms of maturity and value by VND deposits, foreign currencies, gold, or government bonds of the obligor and/or the third party, at the date upon which a line of credit and/or commitment is granted.   Credit institutions, foreign bank branches shall determine the specific value of the asset put up as collateral but restrict its maximum value under the following rules:

(i) VND deposit: 100% of such deposit put up as collateral for the said guarantees and guarantee commitments;

(ii) Foreign currency deposit: 95% of such deposit put up as collateral for the said guarantees and guarantee commitments;

(iii) Gold bullion, except as referred to in paragraph (iv) of this Point: 95% of its value calculated based on the buying price quoted at the main head office of credit enterprises or institutions legally owning the trademark of such gold bullion at the end of the day immediately prior to the value determination; 

(iv) Gold bullion of which the buying price is not quoted or other gold: 30% of its value calculated based on the price determined by a competent valuation organization at the latest date preceding the date upon which value of the collateralized asset is determined, or based on the price determined under internal rules of the credit institutions or foreign bank branches unless otherwise determined by a competent valuation organization;

(v) Government bond: 95% of value of the government bond of which the remaining maturity period is less than 1 year, or 85% of value of the government bond of which the remaining maturity period ranges from 1 year to under 5 years, or 80% of value of the government bond of which the remaining maturity period is at least 5 years. The value of a government bond is its par value published on the value determination date."

8. To amend and supplement Clause 4 Article 14 as follows:

“4. Commercial banks are not entitled to extend credit to or entrust their subsidiaries and associate companies to:

a) Invest and trade stocks;

b) Offer loans for the purpose of investments and trades in stocks.”

9. To amend and supplement Clause 6 Article 14 as follows:

“6. Commercial banks are not entitled to extend credit to customers to serve their stock investment and trading purposes, except to the extent that state-owned commercial banks grant loans to their employees to purchase IPO stocks upon the transformation of such state-owned commercial banks into joint-stock commercial banks.”

10. To amend and supplement Point b Clause 2 Article 15 as follows:

“b) The calculation of liquid reserve ratio is based on the following formula:

Where:

(i) Highly liquid assets are determined according to the Appendix 3 hereof;

(ii) Total liability denotes total liability entries on a balance sheet minus loans made by the State Bank (including forward sale of valuable papers through open market operations; discount on and pledging of valuable papers, overnight borrowing in interbank electronic payment system) and loans made by other credit institutions or foreign bank branches in the form of discount or re-discount on valuable papers used in the State Bank s trading transactions.

11. To amend and supplement Point d Clause 2 Article 15 as follows:

“d) Credit institutions, foreign bank branches must maintain the statutory liquidity reserve ratios as follows:

(i) Commercial banks: 10%; 

(ii) Foreign bank branches: 10%;

(iii) Non-bank credit institutions: 1%;

(iv) Cooperative banks: 10%.”

12. To amend and supplement Point b, Point c, Point d Clause 3 Article 15 as follows:

“b) The 30-day solvency ratio shall be calculated according to the following formula:

Where:

(i) Assets of high liquidity are referred to in the Appendix 3 hereof;

(ii) Net cash outflow within 30 successive days refers to the difference between the cash outflow within 30 successive days after the following day and the cash inflow within 30 successive days after the following day as stated in Appendix 3 hereof.

c) Where their net VND cash outflow within 30 successive days is positive, credit institutions or foreign bank branches are required to maintain the statutory VND solvency ratio within these 30 days as stated in Point b of this Clause as follows:

(i) Commercial banks: 50%; 

(ii) Foreign bank branches: 50%;

(iii) Non-bank credit institutions: 20%;

(iv) Cooperative banks: 50%.”

d) Where their net foreign-currency cash outflow within 30 successive days is positive, credit institutions or foreign bank branches are required to maintain the statutory foreign-currency solvency ratio within these 30 days as stated in Point b of this Clause as follows:

(i) Commercial banks: 10%; 

(ii) Foreign bank branches: 5%;

(iii) Non-bank credit institutions: 5%;

(iv) Cooperative banks: 5%.”

13. To amend and supplement Clause 2 Article 16 as follows:

“2. Where the result of calculation of 30-day solvency ratio of credit institutions or foreign bank branches in the following day does not conform to regulations laid down in Point c, Point d Clause 3 Article 15 hereof, the State Bank must consider or impose stipulated penalties for administrative violations in the currency and banking sector and supervise their solvency. Credit institutions and foreign bank branches must take their own remedial actions, including taking out loans from other credit institutions or foreign bank branches, foreign financial organizations or entering into irrevocable time deposit agreements and other measures with other credit institutions or foreign bank branches, foreign financial organizations to meet the statutory solvency ratio.  Where credit institutions and foreign bank branches are obliged to take the aforesaid remedial actions at the rate of at least 20% of assets of high liquidity, the State Bank shall apply additional supervisory measures and impose additional penalties whenever necessary in accordance with laws and regulations.”

14. To amend and supplement Clause 2 Article 17 as follows:

“2. Total outstanding medium and long term debt shall be composed of the followings:

a) The following debts for which the remaining repayment period is more than 01 (one) year:

(i) Loans and financial leases (including those granted to other credit institutions and foreign bank branches in Vietnam), except for outstanding debts incurred from loans or financial leases made by the entrusted fund of the Government, other individuals and organizations (including other credit institutions and foreign bank branches in Vietnam; parent banks, parent banks’ overseas branches) with which risks associated shall be incurred by such Government, individuals and organizations; 

(ii) Entrustments used as loans or financial leases of other credit institutions or foreign bank branches whereby the risk associated therewith shall be incurred by the entrusting credit institutions or foreign bank branches;

(iii) Purchases of or investments in valuable papers, except those used in the State Bank s transactions (exclusive of bonds issued by Vietnam Asset Management Companies (VAMC) of credit institutions).”    

b) Outstanding debts resulting from loans, financial leases, the excess amount of purchases of and investments in medium and long-term valuable papers of which the maturity period has expired.”

15. To amend and supplement Clause 3 Article 17 as follows:

“3. Medium and long-term fund comprises the excess amount of the followings of which the maturity period is more than 01 (one) year:

a) Deposits made by foreign and domestic entities, except the followings:

(i) All types of the State Treasury’s deposits;

(ii) Deposits of other credit institutions or foreign bank branches in Vietnam;

b) Borrowings obtained from domestic and foreign financial institutions (exclusive of borrowings obtained from other credit institutions or foreign bank branches in Vietnam); 

c) Personal deposits;

d) Funds raised from the issuance of promissory notes, treasury bills, certificates of deposit and bonds;

dd) Authorized capital, allocated fund, reserve fund for authorized capital complementation, investment fund for professional development, and the remaining amount of financial reserve fund from which the original value of purchases of or investments in fixed assets, or equity participations or share acquisitions have been taken away in accordance with laws and regulations; 

e) Share premiums and undistributed profits remaining after purchase of treasury stocks;

g) Deposits or borrowings obtained from other credit institutions or foreign bank branches in Vietnam with respect to non-bank credit institutions;

h) Deposits of people s credit funds with respect to cooperative banks.”

16. To amend and supplement Clause 4 Article 17 as follows:

“4. Short-term source of finance includes the excess amount of the followings of which the maturity period is up to 01 (one) year (including demand deposits):

a) Deposits made by foreign and domestic entities, except the followings:

(i) All types of the State Treasury’s deposits;

(ii) Deposits of other credit institutions or foreign bank branches in Vietnam;

(iii) Margin and special deposits of customers.

b) Borrowings obtained from domestic and foreign financial institutions (exclusive of borrowings obtained from other credit institutions or foreign bank branches in Vietnam); 

c) Personal deposits other than margin and special deposits;

d) Funds raised from the issuance of promissory notes, treasury bills, certificates of deposit and bonds;

dd) Deposits or borrowings obtained from other credit institutions or foreign bank branches in Vietnam with respect to non-bank credit institutions;

e) Deposits of people s credit funds with respect to cooperative banks.”

17. To amend and supplement Clause 5 Article 17 as follows:

“5. Credit institutions, foreign bank branches are entitled to use short-term capital sources as medium and long term loans under the following maximum rate schedule: 

a) From July 1, 2016 to December 31, 2016:

(i) Commercial banks: 60%; 

(ii) Foreign bank branches: 60%;

(iii) Non-bank credit institutions: 100%;

(iv) Cooperative banks: 60%;

b) From January 1, 2017 to December 31, 2017:

(i) Commercial banks: 50%; 

(ii) Foreign bank branches: 50%;

(iii) Non-bank credit institutions: 90%;

(iv) Cooperative banks: 50%;

c) From January 01, 2018:

i) Commercial banks: 40%; 

ii) Foreign bank branches: 40%;

iii) Non-bank credit institutions: 80%;

iv) Cooperative banks: 40%.”

18. To amend and supplement Clause 6 Article 17 as follows:

“6. Credit institutions and foreign bank branches may purchase and invest in Government bonds in comparison to their average short-term funds of the immediately preceding month as follows:

a) The ratio thereof is restricted to:

(i) State-owned commercial banks: 25%;

(ii) Joint-stock commercial banks, joint venture banks and wholly foreign-owned banks: 35%;

(iii) Foreign bank branches: 35%;

(iv) Non-bank credit institutions: 5%;

(v) Cooperative banks: 35%.

b) The excess amount of purchases of or investments in Government bonds for determination of the maximum ratios referred to in Point a of this Clause includes that of Government bonds owned by credit institutions or foreign bank branches, and entrustments to other organizations to purchase and invest in Government bonds, but excludes purchases of or investments in Government bonds financed by entrusted funds of other individuals or organizations to which any risk is not incurred by such credit institutions or foreign bank branches;

c) Short-term funds are defined in Clause 4 of this Article;

d) Credit institutions and foreign bank branches which do not have short-term funds may purchase or invest in Government bonds by conforming to the respective maximum ratios stipulated in Point a of this Clause of such Government bonds to their authorized capital or allocated funds.”

19. To amend and supplement Point a, b Clause 4 Article 21 as follows:

“a) Deposits made by foreign and domestic entities, except the followings:

(i) All types of the State Treasury’s deposits;

(ii) Margin and special deposits of customers;

b) Personal deposits other than margin and special deposits.”

Article 2. To annulClause 5 Article 16 of the Circular No. 36/2014/TT-NHNN.

Article 3.To replace the Appendices attached tothe Circular No. 36/2014/TT-NHNN by Appendix 1, Appendix 2 and Appendix 3 hereto.

Article 4. Transition provisions

1. General transition provisions:

a) As at the effective dateof this Circular, credit institutions and foreign bank branches that have yet to comply with the prudential ratios and limits stated in the Circular No. 36/2014/TT-NHNN on grounds of any amendment or supplementation of provisions of Appendix 2, Point a Clause 15, Point i Clause 18 Article 3, Clause 2, Clause 5, and Clause 6 Article 17 of the Circular No. 36/2014/TT-NHNN, must develop treatment plans and take initiative in applying controlling measures to ensure the compliance with laws and regulations;

b) Within a maximum of 30 days from the effective dateof this Circular, credit institutions and foreign bank branches must send their treatment plans, as referred to in Point a of this Clause, directly or by post to the State Bank (Bank Supervision and Inspection Agency).

In case the State Bank makes requests for revision, supplementation or adjustment of such treatment plans, plan execution schedule or time limit, credit institutions and foreign bank branches must be responsible for making necessary arrangements for complying with these requests;

c) Credit institutions and foreign bank branches shall take responsibility for further providing other treatment plans as referred to in Clause a, b of this Clause and plan execution schedule for restructuring of organization and operation thereof (wherever applicable) in order to ensure consistency in execution of such plans upon the State Bank’s request.

2. Transition provisions applied to the prudential ratio

Transitional treatment plans applied to the prudential ratio must include at least the following contents:

a) Specific ratios which are in breach of regulations;

b) Treatment measures and plans that ensure compliance by January 01, 2017.

3. Transitional provisions applied to extension of a line of credit

a) As at the effective date of this Circular, credit institutions and foreign bank branches whose credit source extended to a customer and associated person fails to stay within the statutory limits on credit extension under Article 13 of the Circular No. 36/2014/TT-NHNN on grounds of any amendment to Point a Clause 15 Article 3 of the Circular No. 36/2014/TT-NHNN, credit institutions or foreign bank branches and customers may continue to keep to agreements in the contract that they have signed till this contract expires. Any modification, supplementation or renewal of the above-mentioned contract shall be allowed only to the extent that such amendment, supplementation or renewal conforms to regulations set out in Article 13 of the Circular No. 36/2014/TT-NHNN and applicable laws and regulations;

b) As at the effective dateof this Circular, commercial banks or foreign bank branches whose credit source extended for customers’ investments or trades in stocks is in violation of regulations on conditions and ratios stated in Article 14 of the Circular No. 36/2014/TT-NHNN on grounds of the amendment to or supplementation of Point a Clause 15 and Point I Clause 18 Article 3 of the Circular No. 36/2014/TT-NHNN shall not be allowed to extend any additional credit source for investments or trades in stocks as long as they meet all conditions referred to in Clause 1 Article 14, undertake to comply with the ratios stated in Clause 3 Article 14 of the Circular No. 36/2014/TT-NHNN, and must develop treatment plans in which at least the following contents must be included:

(i) List of customers and outstanding debts for single customer’s investments and trades in stocks; failure to adhere to predetermined limits;

(ii) Detailed treatment measures and plans, including the debt recovery, increase in the authorized capital or allocated funds.

4. Transition provisions applied to the prudential ratio of short-term capital sources used for granting medium and long-term loans

a) As at the effect date of this Circular, credit institutions or foreign bank branches of which the maximum ratio of short-term financing source used for granting medium and long-term loans to customers is in violation of regulations set out in Clause 17 Article 1 of this Circular on grounds of the amendment to or supplementation of Clause 2 Article 17 of the Circular No. 36/2014/TT-NHNN shall not be allowed to extend any additional medium and long-term credit products as long as they meet the statutory ratios referred to in Clause 5 Article 17 of the Circular No. 36/2014/TT-NHNN, and must develop treatment plans in which at least the followings must be included:

(i) Specific ratio that does not conform to regulations;

(ii) Treatment measures and plans that ensure compliance with laws and regulations after a maximum of 3 months from the effective dateof this Circular.

b) As at the effective date of this Circular, non-bank credit institutions of which the maximum ratio of short-term financing source used as medium and short-term loans does not meet regulations set out in Clause 5 Article 17 of the Circular No. 36/2014/TT-NHNN shall not be allowed to extend any additional medium and long-term credit products as long as they meet the statutory ratios, and must develop treatment plans in which at least the followings must be included:

(i) Specific ratio that does not conform to regulations;

(ii) Treatment measures and plans that ensure compliance with laws and regulations after a maximum of 3 months from the effective dateof this Circular.

5. Transition provisions applied to the ratio of investments in Government bonds to short-term capital sources

As at the effective date of this Circular, credit institutions or foreign bank branches of which the ratio of investments in Government bonds to short-term funds does not meet regulations set out in Clause 6 Article 17 of the Circular No. 36/2014/TT-NHNN shall not be allowed to further purchase or invest in Government bonds as long as they meet the statutory ratios referred to in Clause 6 Article 17 of the Circular No. 36/2014/TT-NHNN, and must develop treatment plans in which at least the followings must be included:

a) Specific ratios which are in breach of regulations;

b) Treatment measures and plans that ensure compliance with laws and regulations after a maximum of 3 months from the effective dateof this Circular.

6. Post-transitional treatment

After the maximum period of transition included in treatment plans referred to in Clause 2 and 4 of this Article, credit institutions or foreign bank branches fail to remedy violations, the State Bank shall, by taking into consideration the severity and impact of risks, apply necessary treatment measures, including legitimate restructuring or revocation of their licenses.

Article 5. Implementation provisions

This Circular takes effect on July 1, 2016.

Article 6. Implementation

The Chief of the Office, Chief Inspector and Supervisor of banks, Heads of affiliated entities of the State Bank, Directors of the State Bank branches located at centrally-affiliated cities and provinces, Chairpersons of the Board of Directors, Chairpersons of the Board of Members, and General Director (Director) of credit institutions and foreign bank branches, shall be responsible for implementing this Circular./.

For the Governor

The Deputy Governor

Nguyen Phuoc Thanh

* All apppendices are not translated herein