Circular No. 09/2014/TT-NHNN dated March 18, 2014 of the Vietnam State Bank amending, supplementing a number of Articles of the Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the State Bank of Vietnam on classification of assets, levels and methods of setting up of risk provisions, and use of provisions against credit risk in the banking activity of credit institutions, foreign banks’ branches

CIRCULAR

Amending and supplementing a number of articles of the State Bank Governor’s Circular No. 02/2013/TT-NHNN of January 21, 2013, providing the classification of assets, risk provisioning levels and methods and use of provisions for handling risks in operations of credit institutions and foreign bank branches[1]

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

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

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

At the proposal of the Chief Bank Inspector and Supervisor;

The State Bank Governor promulgates the Circular amending and supplementing a number of articles of the State Bank Governor’s Circular No. 02/2013/TT-NHNN of January 21, 2013, providing the classification of assets, risk provisioning levels and methods and use of provisions for handling risks in operations of credit institutions and foreign bank branches (below referred to as Circular No. 02).

Article 1. To amend and supplement a number of articles of Circular No. 02 as follows:

1. To add Clause 4 to Article 1 as follows:

“4. The setting aside and use of risk provisions for special bonds issued by the Asset Management Company of Vietnamese credit institutions to purchase non-performing loans of credit institutions must comply with the  State Bank Governor’s Circular No. 19/2013/TT-NHNN of September 6, 2013, providing the purchase, sale and handling of non-performing loans by the Asset Management Company of Vietnamese credit institutions (below referred to as Circular No. 19) and documents amending or replacing Circular No. 19 (if any).”

2. To amend and supplement Point h, Clause 2 of Article 6 as follows:

“h/ Having regulations on self-valuation of security assets, stipulating the principle, period, method and process of self-valuation and responsibility of each unit or individual involved in the self-valuation in accordance with law in order to ensure the value of security assets corresponding to market price upon calculation of a specific provision under this Circular;”

3. To amend and supplement Clauses 9 and 10 of Article 9 as follows:

“9. A credit institution or foreign bank branch shall classify a loan granted or credit facility provided under approval or direction of the Government or Prime Minister and set aside and use a provision for handling risks of such loan under a decision of the State Bank Governor on a case-by-case basis.

10. For the violating loans specified at Point c (iv), Clause 1, Article 10 of this Circular, immediately after detecting the violation, a credit institution or foreign bank branch shall issue a decision to recover the outstanding violating loans.

For loans that must be recovered under inspection conclusions, a credit institution or foreign bank branch shall issue a decision to recover the outstanding loans according to the inspection conclusion.

For the violating loans specified at Point c (iv), Clause 1, Article 10 of this Circular and loans that must be recovered according to inspection conclusions, a credit institution or foreign bank branch may not reschedule their repayment terms. Pending the recovery, the credit institution or foreign bank branch shall classify such loans and set aside provisions under this Circular.”

4. To add Clause 10a to Article 9 as follows:

“If a violating loan specified at Point c (iv), d (iv) or dd (v), Clause 1, Article 10 of this Circular or a loan to be recovered according to an inspection conclusion specified at Point c (v), d (v) or dd (vi), Clause 1, Article 10 of this Circular can be classified into different groups with different risk levels, a credit institution or foreign bank branch shall classify such loan into a group with the highest risk level.”

5. To amend and supplement Points c (iv) and c (v), Clause 1 of Article 10 as follows:

“(iv) Loans in one of the following cases which have not yet been recovered less than 30 days after recovery decisions are issued:

- Loans in violation of Clause 1, 3, 4, 5 or 6, Article 126 of the Law on Credit Institutions;

- Loans in violation of Clause 1, 2, 3 or 4, Article 127 of the Law on Credit Institutions;

- Loans in violation of Clause 1, 2 or 5, Article 128 of the Law on Credit Institutions;

 (v) Loans that are within the recovery term under inspection conclusions;”

6. To add Point c (vii) to Clause 1 of Article 10 as follows:

“(vii) Loans that must be classified into group 3 under Clause 11, Article 9 of this Circular.”

7. To amend and supplement Points d (iv) and d (v), Clause 1 of Article 10 as follows:

“(iv) Loans that are specified at Point c (iv), Clause 1 of this Article and have not been yet recovered between 30 days and 60 days after recovery decisions are issued;

(v) Loans that must be recovered but have not yet been recovered up to 60 days past the recovery deadline under inspection conclusions;”

8. To add Point d (vii) to Clause 1 of Article 10 as follows:

“(vii) Loans that must be classified into group 4 under Clause 11, Article 9 of this Circular.”

9. To amend and supplement Points dd (v) and dd (vi), Clause 1 of Article 10 as follows:

“(v) Loans that are specified at Point c (iv), Clause 1 of this Article and have not yet been recovered more than 60 days after recovery decisions are issued;

(vi) Loans that must be recovered but have not yet been recovered more than 60 days past the recovery deadline under inspection conclusions;”

10. To add Point dd (ix), Clause 1 of Article 10 as follows:

“(ix) Loans that must be classified into group 5 under Clause 11, Article 9 of this Circular.”

11. To add Clause 3a to Article 10 as follows:

“3a. Rescheduling loan repayment terms and keeping loan groups unchanged:

a/ A credit institution or foreign bank branch may consider and reschedule repayment terms and keep unchanged the groups of loans already classified before rescheduling their repayment terms when the following conditions are satisfied:

(i) The credit extension for such loans does not violate regulations;

(ii) Rescheduling of the loan repayment term is conformable with the purpose of the project indicated in the credit contract;

(iii) Customers have used loans for proper purposes;

(iv) Rescheduling of loan repayment terms and keeping of loan groups unchanged may be effected only when customers are unable to repay loan principals and/or interests within the lending duration or unable to fully repay loan principals and/or interests within the lending duration agreed in the credit contracts, and have feasible loan repayment plans conformable with production and business or service provision conditions;

 (v) When rescheduling loan repayment terms and keeping loan groups unchanged, credit institutions and foreign bank branches must satisfy the State Bank’s regulations on prudential limits and ratios applicable to credit institutions and foreign bank branches, including the maximum rate of short-term capital sources used for granting medium-term and long-term loans in case of rescheduling short-term loans into medium-term or long-term loans.

b/ Credit institutions or foreign bank branches rescheduling loan repayment terms and keeping loan groups unchanged under Point a of this Clause must satisfy the following requirements:

(i) They have issued internal regulations on rescheduling loan repayment terms and keeping loan groups unchanged for uniform implementation in the whole system; apply an internal control mechanism for rescheduling loan repayment terms and keeping loan groups unchanged to ensure strict control and safety, prevent and stop the abuse of rescheduling of loan repayment terms and the keeping of loan groups unchanged to incorrectly reflect the credit quality;

 (ii) They shall control the contents of and reasons for rescheduling loan repayment terms and keeping loan groups unchanged for each loan. The State Bank may, when necessary, request credit institutions or foreign bank branches to report specifically on the contents of and reasons for rescheduling loan repayment terms and keeping loan groups unchanged for each loan;

(iii) They shall proactively make their own decisions on rescheduling of loan repayment terms and keeping of loan groups unchanged, and take responsibility for such decisions in accordance with this Circular;

(iv) The rescheduling of loan repayment terms and keeping of loan groups unchanged specified at Point a of this Clause for a loan must be applied only once;

(v) Credit institutions and foreign bank branches shall regularly review and assess loan repayment capacity of customers after the repayment terms of their loans have been rescheduled and the classified groups of these loans have been kept unchanged. After the repayment terms of loans have been rescheduled and the classified loan groups have been kept unchanged under this Circular, if customers are still unable to repay the loans within the rescheduled loan repayment term, the credit institution or foreign bank branch may not continue to keep the loan groups unchanged and shall classify such loans into corresponding groups under Articles 10 and 11 of this Circular;

(vi) Within the first 5 (five) days of each month, or upon request of the State Bank, credit institutions and foreign bank branches shall send reports on rescheduling of loan repayment terms and keeping of loan groups unchanged, made according to the form provided in Appendix 1 to this Circular, to the State Bank (the Bank Inspection and Supervision Agency).”

12. To amend and supplement Point d, Clause 3 of Article 12 as follows:

“d/ Security assets specified at Point d, Clause 5 of this Article must be valued by an organization with the valuation function as defined by law in the following cases:

(i) They are valued at VND 50 billion or more, for loans of customers being affiliated persons of the credit institution or foreign bank branch and subject to credit extension limits specified in Article 127 of the Law on Credit Institutions.

(ii) They are valued at VND 200 billion or more, except the cases specified at Point d (i) of this Clause.

Valuation organizations’ security asset valuation results may be used by credit institutions or foreign bank branches to determine the deductible value of such security assets upon calculation of a specific provision, and are valid for 12 months from the date the valuation organization signs the valuation document.

In case the organization with the valuation function is unable to value security assets or there is no organization with the function of valuing security assets specified at Point d (i) or d (ii) of this Clause, the credit institution or foreign bank branch may conduct the valuation under its internal regulations mentioned at Point h, Clause 2, Article 6 of this Circular.

In case security assets fail to fully satisfy the conditions specified at Points a, b, c and d of this Clause, the deductible value of such security assets must be regarded as zero.”

13. To add Article 24a as follows:

“To amend and supplement Clause 1, Article 1 of the Regulation on classification of debts, setting aside and use of provisions for handling credit risks in their banking operations, promulgated together with the State Bank Governor’s Decision No. 493/2005/QD-NHNN of April 22, 2005, as follows:

“1. Cooperative banks and people’s credit funds (below referred to as credit institutions) shall classify loans, set aside and use provisions for handling risks in banking activities under this Regulation.” 

14. To amend and supplement Article 25 as follows:

“1. This Circular takes effect on June 1, 2014, except Clauses 2 and 3 of this Article.

2. Clause 3a, Article 10 of this Circular takes effect on March 20, 2014, and ceases to be effective on April 1, 2015.

3. Clause 3, Article 8 and Clause 1, Article 9 of this Circular take effect on January 1, 2015.

4. The State Bank Governor’s Directive No. 05/2005/CT-NHNN of April 26, 2005, on the classification of loans and risk provisioning under the State Bank Governor’s Decision No. 493/2005/QD-NHNN of April 22, 2005, ceases to be effective on June 1, 2014.

5. The Director of the Office, the Chief Bank Inspector and Supervisor and heads of the units of the State Bank, directors of provincial-level State Bank branches, chairpersons of Boards of Directors, Members’ Councils and directors general (directors) of credit institutions and foreign bank branches shall implement this Circular.”

Article 2. Effect

1. This Circular takes effect on March 20, 2014.

2. To annual the following documents:

- The State Bank Governor’s Directive No. 04/CT-NHNN of September 17, 2013, on the classification of loans with rescheduled repayment terms and handling of non-performing loans.

- The State Bank Governor’s Circular No. 12/2013/TT-NHNN of May 27, 2013, amending a number of articles of Circular No. 02.

- The State Bank Governor’s Decision No. 780/QD-NHNN of April 23, 2012, on the classification of loans with rescheduled or extended repayment terms.

Article 3. Implementation responsibilities

The Director of the Office, the Chief Bank Inspector and Supervisor and heads of the units of the State Bank, directors of provincial-level State Bank branches, chairpersons of Boards of Directors, Members’ Councils and directors general (directors) of credit institutions and foreign bank branches shall implement this Circular.-

For the State Bank Governor
Deputy Governor
DANG THANH BINH