Circular 11/2021/TT-NHNN classification of assets, risk provisioning levels, use of provisions for handling risks

CIRCULAR

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

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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; the Law amending and supplementing a number of 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, on the financial regime applicable to credit institutions and foreign bank branches, and financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% state-owned charter capital and credit institutions with state capital;

After reaching agreement with the Ministry of Finance;

At the proposal of the Chief of Banking Inspection and Supervision;

The State Bank Governor promulgates the Circular 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.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Circular provides the classification of assets, risk provisioning levels and methods and use of provisions for handling credit risks in banking operations regarding the assets (hereinafter referred to as loans) arising from the following activities:

a) Lending;

b) Financial leasing;

c) Discounting and rediscounting negotiable instruments and other valuable papers;

d) Factoring;

dd) Offering credit facilities in the form of issuance of credit cards;

e) Paying on customer behalf according to off-balance sheet commitments;

g) Purchasing and entrusting to purchase corporate bonds (including bonds issued by other credit institutions) unlisted on the securities market or unregistered for trading on the Upcom trading system (hereinafter referred to as unlisted bonds), excluding entrusted capital sources for purchase of unlisted bonds whereby the entrusting parties bear risks;

h) Entrusting to offer credit facilities;

i) Depositing money (except deposits for payment and deposits at the Vietnam Bank for Social Policies in accordance with the regulations of the State Bank of Vietnam (hereinafter referred to as the State Bank) on the State credit institutions’ maintenance of deposit balances at the Vietnam Bank for Social Policies) at credit institutions and foreign bank branches as prescribed by law, and at credit institutions;

k) Purchasing and selling loans in accordance with the State Bank’s regulations on loan purchase and sale;

l) Conducting government bond repos on the securities market in accordance with the law on the issuance, registration, depositing, listing and trading of government debt instruments on the securities market;

m) Purchasing promissory notes, bills, deposit certificates issued by other credit institutions or foreign bank branches.

2. Guarantees, payment acceptance, irrevocable lending commitments and other commitments involved in credit risks (below collectively referred to as off-balance sheet commitments) must be classified in accordance with this Circular for management and supervision of the quality of credit extension activities of credit institutions and foreign bank branches.

3. The setting aside and use of provisions for devaluation of stocks, provisions for loss of financial investments and provisions for loss of bad receivable loans, except the amounts specified in Clause 1 of this Article, must comply with the law provisions on the setting aside and handling of provisions for devaluation of stocks, loss of investments, bad loans and warranty on products, goods, services and construction works at enterprises.

4. The setting aside and use of risk provisions for special bonds issued by the Asset Management Company of Vietnam credit institutions to purchase non-performing loans of credit institutions must comply with the State Bank Governor’s regulations the purchase, sale and handling of non-performing loans by the Asset Management Company of Vietnamese credit institutions.

5. With regard to loans for which the Government or the Prime Minister promulgates specific regulations on the classification of loans, setting aside of risk provisions and handling of risks other than those prescribed in this Circular, credit institutions and foreign bank branches shall comply with such specific regulations.

Article 2. Subjects of application

1. This Circular applies to:

a) Credit institutions, including commercial banks and non-bank credit institutions, except credit institutions placed under special control in accordance with law provisions on special control of credit institutions;

b) Foreign bank branches.

2. Foreign bank branches that apply risk provisioning policies of their foreign banks in the classification of loans and off-balance sheet commitments, setting aside and use of risk provisions must obtain approval of the State Bank on the condition that such risk provisioning policies are more advanced and better than those specified in Article 10 of this Circular. Dossiers, order and procedures for obtaining the State Bank’s approval of application of risk provisioning policies of foreign banks are specified in Clauses 3 and 4, Article 11 of this Circular.

3. Foreign bank branches that have obtained the State Bank’s approval of application of risk provisioning policies of their foreign banks before the effective date of this Circular and those obtain the State Bank’s approval of application of risk provisioning policies of their foreign banks under Clause 2 of this Article shall implement regulations of these foreign banks. In the course of inspection and supervision, if the State Bank assesses that risk provisioning policies of a foreign bank cannot fully reflect the level of credit risks in practical banking activities in Vietnam, the State Bank may request its branch to classify loans and off-balance sheet commitments, set aside and use risk provisions in accordance with this Circular.

Article 3. Interpretation of terms

In this Circular, the terms and expressions below are construed as follows:

1. Credit risk in banking activities (hereinafter referred to as risk) means the possibility of loss of loans of a credit institution or foreign bank branch due to its customers’ inability to repay part or the whole of their loans under a contract or agreement (hereinafter referred to as an agreement) with a credit institution or foreign bank branch.

2. Loan means a sum of money deposited and disbursed in installments by a credit institution or foreign bank branch (in cases where each disbursement has a different due date or repayment period) or a sum of money disbursed by a credit institution or foreign bank branch under agreements (in cases where various disbursements have the same due date or repayment period) on loans that the customers have not yet repaid.

3. Risk provision means a sum of money set aside and accounted as operation expense to offset the possible risks to loans of a credit institution or foreign bank branch. Risk provisions include specific provision and general provision.

4. Specific provision means a sum of money set aside to offset the possible risks to a specific loan.

5. General provision means a sum of money set aside to offset the risks that are possible but cannot be identified yet when setting aside specific provisions.

6. Overdue loan means a loan that a customer is unable to repay part or the whole of the principal and/or interest on time as agreed with a credit institution or foreign bank branch. With regard to a credit facility in the form of issuance of a credit card, overdue loan means a loan that a card user is unable to fulfill his/her repayment obligation on the due date under the agreement on issuance, use, payment of credit cards with a credit institution or foreign bank branch.

7. Rescheduled loan means a loan which has its repayment period rescheduled in accordance with the State Bank’s regulations.

8. Non-performing loan (NPL) means a bad loan on the balance sheet, including a loan in group 3, 4 or 5.

9. Non-performing loan ratio means the ratio of non-performing loans to total loans in groups 1 thru 5.

10. Bad credit facility ratio means the ratio of total non-performing loans and off-balance sheet commitments in groups 3 thru 5 to total loans and off-balance sheet commitments in groups 1 thru 5.

11. Customer means an institution (credit institution or foreign bank branch), an individual or another entity as prescribed by civil law that has obligations or may have obligations to repay loans or make payment to the credit institution or foreign bank branch under an agreement.

12. Use of risk provisions includes use of provisions to handle risks and use of provisions to handle losses of assets for loans, specifically:

a) Use of provisions to handle risks means the transfer by a credit institution or foreign bank branch of a loan for which risks have been handled to the balance sheet account for further monitoring and application of measures to fully recover the loan under an agreement signed with the customer as specified in Article 16 of this Circular;

b) Use of provisions to handle losses of assets for loans as specified in Article 18 of this Circular.

Article 4. Collection of customer data and information and information technology

1. A credit institution or foreign bank branch shall take measures and regularly collect and use information and data on its customers, including information from the National Credit Information Center of Vietnam (CIC) and credit information companies in accordance with law, in order to:

a) Build, amend and supplement the internal credit-rating system and internal regulations on credit extension, loan management and risk provisioning policy;

b) Monitor and evaluate the financial situation and the ability of its customers to repay loans after rating them according to the internal credit-rating system, and take appropriate measures to manage risks and credit quality;

c) Carry out the self-classification of loans, off-balance sheet commitments, setting aside and use of risk provisions in accordance with this Circular.

2. A credit institution or foreign bank branch shall build an information technology system in its entire system to meet requirements of management of customer data and information, operation and management of the internal credit-rating system, management of risks, classification of loans and off-balance sheet commitments, and setting aside and use of risk provisions.

Article 5. Internal credit-rating system

1. An internal credit-rating system is a system consisting of:

a) Sets of financial and non-financial indicators, processes for qualitatively and quantitatively assessing customers’ repayment and solvency ability in terms of finance, business operation, governance and prestige;

b) Methods of assessment and rating for each group of different customers, including those subject to credit extension limits and their affiliated persons.

2. An internal credit-rating system must be built according to the following principles:

a) It must be based on data and information of all customers collected within at least 1 (one) year before it is built;

b) At least once a year, it must be reviewed, modified and supplemented on the basis of customer data and information collected in the year;

c) It sets different ratings corresponding to risk levels from low to high;

d) It is approved by the Board of Directors (for joint-stock credit institutions), Members’ Council (for limited liability credit institutions) or Director General or Director (for foreign bank branches).

3. A credit institution or foreign bank branch shall build an internal credit-rating system to rate its customers on a periodical basis or when necessary, which serves as a basis for consideration and approval of credit facilities, management of credit quality and formulation of risk provisioning policies suitable to its scope of operation, customers and actual situation

Non-bank credit institutions are not required to have an internal credit-rating system.

4. Within a period of 10 (ten) days after issuing, modifying or supplementing its internal credit-rating system, a credit institution or foreign bank branch shall send the following documents directly or by post or via electronic means to the State Bank as prescribed in Clause 5 of this Article:

a) With regard to the issuance of a new system:

(i) A written report on the issuance and application of an internal credit-rating system;

(ii) The internal credit-rating system, documents describing the internal credit-rating system, process of collecting customer data and information, and the rating of customers;

(iii) Instructions for use of the internal credit-rating system, including the decentralization and authorization of the collection of customer data and information and rating of customers.

b) With regard to the modification or supplementation of an existing system:

(i) A written report on the modification or supplementation of the internal credit-rating system, clearly stating the reason for modification or supplementation;

(ii) Documents modifying or supplementing the internal credit-rating system and its use instructions.

5. A credit institution or foreign bank branch shall send reports to the State Bank as prescribed in Clause 4 of this Article as follows:

a) A credit institution or foreign bank branch shall send reports to the State Bank (the Bank Inspection and Supervision Agency), except the cases specified at Point b of this Clause;

b) A foreign bank branch subject to micro-safety inspection and supervision by provincial or centrally-run State Bank branches shall send reports to such provincial or centrally-run State Bank branches.

Article 6. Internal regulations on credit extension, loan management and risk provisioning policy

1. A credit institution or foreign bank branch shall issue internal regulations on credit extension, loan management and risk provisioning policy.

2. Internal regulations on credit extension and loan management must at least satisfy the following requirements:

a) They are based on collected customer information and data and results of customer rating according to the internal credit-rating system;

b) They are used uniformly in the entire system and serve as a basis for appraisal and approval of credit extension and management of loans for specific customers;

c) They establish credit policies toward customers, including conditions for credit extension, credit extension limits, interest rates, and dossier, order, procedures and process of appraisal and approval of credit extension and management of loans;

d) They have provisions on management to assure compliance with the State Bank’s regulations on prudential ratios in operations of credit institutions and foreign bank branches;

dd) They define responsibilities and powers of units and individuals in the appraisal and approval of credit extension, management of credit quality and management of security assets;

e) They establish the process and contents of inspection and control before, during and after the grant of credit;

g) They specify security measures, appraisal and management of security assets;

h) They specify the valuation of security assets, including principles, periods, methods, processes and responsibilities of each unit or individual involved in the valuation of security assets in accordance with the law to ensure that the value of security assets is consistent with the market value upon the calculation of a specific provision as prescribed in this Circular;

i) They specify measures to recover loans.

3. The risk provisioning policy must at least satisfy the following requirements:

a) It is compliant with the laws on accounting, finance, statement and statistics;

b) It provides a process of collecting customer information and data, assuring proper classification of loans and off-balance sheet commitments, management of non-performing loans and bad credit extension balance and setting aside of sufficient provisions in accordance with regulations;

c) It specifies the classification of loans and off-balance sheet commitments, levels and methods of setting aside risk provisions and the use of risk provisions in operations for each customer on a periodical or irregular basis;

d) It defines powers and responsibilities of units and individuals in the classification of loans and off-balance sheet commitments, setting aside and use of risk provisions in operations;

dd) It establishes mechanisms for inspection and supervision of and reporting on the contents specified at Points a thru d of this Clause.

Article 7. Reports on internal regulations on credit extension, loan management and risk provisioning policy

1. Within a period of 10 (ten) days after the issuance, amendment or supplementation of its internal regulations on credit extension, loan management and risk provisioning policy, a credit institution or foreign bank branch shall send 01 set of dossier directly or by post or via electronic means to the State Bank in accordance with Clause 2 of this Article. The dossier shall comprise the following documents:

a) With regard to newly issued regulations:

(i) A written report on the issuance of internal regulations on credit extension, loan management and risk provisioning policy;

(ii) Internal regulations on credit extension, loan management and risk provisioning policy.

b) With regard to amended or supplemented regulations:

(i) A written report on the amendment or supplementation of internal regulations on credit extension, loan management and risk provisioning policy, clearly stating the reason for amendment or supplementation;

(ii) Documents amending or supplementing internal regulations on credit extension, loan management and risk provisioning policy.

2. A credit institution or foreign bank branch shall send reports to the State Bank as prescribed in Clause 1 of this Article as follows:

a) A credit institution or foreign bank branch shall send reports to the State Bank (the Bank Inspection and Supervision Agency), except the cases specified at Point b of this Clause;

b) A foreign bank branch subject to micro-safety inspection and supervision by the provincial or centrally-run State Bank branches shall send reports to such provincial or centrally-run State Bank branches.

Article 8. Time and order of classification of loans and off-balance sheet commitments and setting aside 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 classify by itself loans and off-balance sheet commitments by the end of the last day of the preceding month, set aside risk provisions according to results of the self-classification of loans and off-balance sheet commitments in accordance with Clause 5 Article 1, Article 9, Article 10, Article 11, Article 12 and Article 13 of this Circular, and send the results of the self-classification of loans and off-balance sheet commitments to the CIC.

In addition to the above time of classification, a credit institution or foreign bank branch may self-classify loans and off-balance sheet commitments in accordance with its internal regulations.

2. Within a period of 03 (three) days after receiving results of the self-classification of loans and off-balance sheet commitments of credit institutions and foreign bank branches as prescribed in Clause 1 of this Article, the CIC shall summarize a list of customers according to loan groups with the highest risk level as classified by such credit institutions and foreign bank branches and may provide it to the credit institutions and foreign bank branches.

3. Within a period of 03 (three) days after receiving a list of customers provided by the CIC as prescribed in Clause 2 of this Article, a credit institution or foreign bank branch shall:

a) Adjust the loan group according to the loan group of the customer list provided by the CIC.

In cases where the results of self-classification of customer loans and off-balance sheet commitments as prescribed in Clause 1 of this Article are lower than that of the loan group on the customer list provided by the CIC, the credit institution or foreign bank branch shall classify its customer loans and off-balance sheet commitments into the group of loans provided by the CIC;

b) Adjust the amount of risk provisions of the last month of the quarter based on the results of adjustment of the loan group at Point a of this Clause.

4. Based on inspection and supervision results and relevant credit information, the State Bank may request credit institutions and foreign bank branches to re-evaluate and re-classify specific loans and set aside sufficient provisions commensurate to the risk level of such loans.

Chapter II

SPECIFIC PROVISIONS

Section 1

CLASSIFICATION OF LOANS AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Principles of self-classification

1. All loans and balances of off-balance sheet commitments of a customer at a credit institution or foreign bank branch must be classified into the same group of loans. With regard to a customer that has two or more loans and/or off-balance sheet commitments at a credit institution or foreign bank branch, any of which is classified into a group with a risk level higher than that of other loans or off-balance sheet commitments, the credit institution or foreign bank branch shall classify the remaining loans or off-balance sheet commitments of such customer into a group with the highest risk level.

2. With regard to a syndicated credit facility, each credit institution or foreign bank branch involved shall assume the responsibility for notifying other credit institutions or foreign bank branches engaged in such syndicated credit facility of the results of loan self-classification in accordance with Clause 1, Article 8 of this Circular.

3. With regard to an entrusted credit facility in which the entrusted party has not fully disbursed the entrusted amount under the entrustment contract, the entrusting credit institution or foreign bank branch shall classify the entrusted amount not yet disbursed as a loan for the entrusted party. The overdue time is determined from the time when the entrusted party fails to disburse within the set time limit as specified in the entrustment contract.

4. With regard to a sold loan (except for loans that have been used as provisions to handle risks) with the payment money not yet collected, the credit institution or foreign bank branch involved in loan sale shall classify the uncollected payment as an unsold loan.

5. With regard to a purchased loan, the credit institution or foreign bank branch involved in loan purchase shall classify the payments already made for the purchase at the time of purchase into a group of loans with a risk level not lower than that of the group of loans into which such loans are classified at the time of the latest loan classification before being purchased, and continue to classify the payments for loan purchase as loans at the credit institution or foreign bank branch.

6. A credit institution or foreign bank branch shall classify payments for purchase or entrusted purchase (possibly by another credit institution or foreign bank branch) of corporate bonds of an unlisted business as an unsecured loan for the bond issuer, unless such bonds are secured with assets.

7. With regard to a discount on negotiable instruments and other valuable papers:

a) In the form of termed purchase: a credit institution or foreign bank branch shall classify the discount as a loan for the beneficiary;

b) In the form of purchase with the right to recourse: a credit institution or foreign bank branch shall classify the discount as a loan for the issuer (except valuable papers that are government bonds, government-guaranteed bonds and local government bonds). In cases of exercising the right to recourse, the credit institution or foreign bank branch shall classify the discount as a loan for the beneficiary.

8. With regard to violating loans specified at Point c(iv) Clause 1, Article 10 of this Circular, at the time of detecting violations, a credit institution or foreign bank branch must immediately issue a decision on recovery in accordance with the law.

With regard to loans subject to recovery under inspection and examination conclusions, a credit institution or foreign bank branch must issue a decision on recovery according to inspection and examination conclusions.

With regard to violating loans specified at Point c(iv) Clause 1, Article 10 of this Circular and loans subject to recovery under inspection and examination conclusions, a credit institution or foreign bank branch may not reschedule their due dates. Pending the recovery, the credit institution or foreign bank branch shall classify loans and set aside risk provisions in accordance with this Circular.

9. With regard to loans in the form of factoring, a credit institution or foreign bank branch shall classify the factoring as a loan for the purchaser within the factoring period. In cases of exercising the right to recourse, the credit institution or foreign bank branch shall classify such loan as a loan for the seller.

10. With regard to loans and deposits of supporting credit institutions at credit institutions that are under special control as specified in Clause 9, Article 148dd of the Law on Credit Institutions (amended and supplemented), such supporting credit institutions shall be classified into the loan group of pass (group 1) and not be required to adjust the loan group according to the customer list provided by the CIC as prescribed in Clause 3, Article 8 of this Circular (if any).

11. With regard to government bond repos, a credit institution or foreign bank branch shall classify the payment made for the purchase as a loan for the seller in the purchase transaction (the 1^st transaction) in accordance with the law on the registration, depositing, listing, trading and payment of government debt instruments, government-guaranteed bonds issued by policy banks and local government bonds.

12. With regard to payments made for the purchase of promissory notes, bills and deposit certificates issued by other credit institutions or foreign bank branches, a credit institution or foreign bank branch shall classify the payments as loans for issuing credit institutions or foreign bank branches.

Article 10. Classification of loans and off-balance sheet commitments by the quantitative method

1. A credit institution or foreign bank branch shall classify loans (excluding amounts to be paid under off-balance sheet commitments) into the following 5 groups:

a) Group 1 (Pass) including:

(i) Loans that are not due and assessed as fully recoverable (both principal and interests) on their due dates;

(ii) Loans that are overdue for less than 10 days and assessed as fully recoverable (overdue and due principals and interests);

(iii) Loans that are classified into group 1 in accordance with Clause 2 of this Article.

b) Group 2 (Special mention) including:

(i) Loans that are overdue for up to 90 days, excluding the loans specified at Point a (ii) of this Clause and Clause 3 of this Article;

(ii) Loans that have had their due dates rescheduled for the first time and are not overdue yet, excluding the loans specified at Point b, Clause 2 and Clause 3 of this Article;

(iii) Loans that are classified into group 2 in accordance with Clauses 2 and 3 of this Article.

c) Group 3 (Sub-standard) including:

(i) Loans that are overdue for a period of between 91 days and 180 days, excluding the loans specified in Clause 3 of this Article;

(ii) Loans that have had their repayment period prolonged for the first time and are not overdue yet, excluding the loans specified at Point b Clause 2 and Clause 3 of this Article;

(iii) Loans with no or reduced interests because customers are unable to fully pay interests under agreements, excluding the loans specified in Clause 3 of this Article;

(iv) Loans in one of the following cases have not been recovered within a period of less than 30 days from the date of issuance of the decision on recovery:

- Loans violating the provisions of Clauses 1, 3, 4, 5, 6, Article 126 of the Law on Credit Institutions (amended and supplemented);

- Loans violating the provisions of Clauses 1, 2, 3, 4, Article 127 of the Law on Credit Institutions (amended and supplemented);

- Loans violating the provisions of Clauses 1, 2, 5, Article 128 of the Law on Credit Institutions (amended and supplemented);

(v) Loans that are being recovered under inspection and examination conclusions;

(vi) Loans subject to recovery under a credit institution or foreign bank branch’s decision on loan recovery ahead of the date of maturity due to customers breaching agreements with the credit institution or foreign bank branch, which have not yet been recovered within a period of less than 30 days from the date of issuance of the decision on recovery;

(vii) Loans that are classified into group 3 in accordance with Clauses 2 and 3 of this Article;

(viii) Loans that must be classified into group 3 in accordance with Clause 4, Article 8 of this Circular.

d) Group 4 (Doubtful) including:

(i) Loans that are overdue for a period of between 181 days and 360 days, excluding the loans specified in Clause 3 of this Article;

(ii) Loans that have had their due dates rescheduled for the first time and are overdue for up to 90 days according to the first-time rescheduled payment period, excluding the loans specified in Clause 3 of this Article;

(iii) Loans that have had their due dates rescheduled for the second time and are not overdue yet, excluding the loans specified at Point b Clause 2, and Clause 3 of this Article;

(iv) Loans that are specified at Point c(iv), Clause 1 of this Article and overdue for a period of between 30 days and 60 days from the date of issuance of the decision on recovery;

(v) Loans that must be recovered under inspection and examination conclusions but remain unrecovered up to 60 days past the recovery deadline;

 (vi) Loans subject to recovery under a credit institution or foreign bank branch’s decision on loan recovery ahead of the date of maturity due to customers breaching agreements with the credit institution or foreign bank branch, which have not yet been recovered within a period of between 30 days and 60 days from the date of issuance of the decision on recovery;

(vii) Loans that are classified into group 4 in accordance with Clauses 2 and 3 of this Article;

(viii) Loans that must be classified into group 4 in accordance with Clause 4, Article 8 of this Circular.

dd) Group 5 (Potential loss) including:

(i) Loans that are overdue for more than 360 days;

(ii) Loans that have had their due dates rescheduled for the first time and are overdue for 91 days or more according to the first-time rescheduled payment period;

(iii) Loans that have had their due dates rescheduled for the second time and are overdue according to the second-time rescheduled payment period;

(iv) Loans that have had their due dates rescheduled for the third time on, excluding the loans specified at Point b, Clause 2 of this Article;

(v) Loans that are specified at Point c(iv), Clause 1 of this Article and overdue for more than 60 days from the date of issuance of the decision on recovery;

(vi) Loans that must be recovered under inspection and examination conclusions but remain unrecovered more than 60 days past the recovery deadline;

(vii) Loans subject to recovery under a credit institution or foreign bank branch’s decision on loan recovery ahead of the date of maturity due to customers breaching agreements with the credit institution or foreign bank branch, which have not yet been recovered for more than 60 days from the date of issuance of the decision on recovery;

(viii) Loans of customers being credit institutions that are placed under special control or foreign bank branches that have their capital and assets frozen;

(ix) Loans that are classified into group 5 in accordance with Clause 3 of this Article;

(x) Loans that must be classified into group 5 in accordance with Clause 4, Article 8 of this Circular.

2. Loans shall be classified into groups with lower risk levels in the following cases:

a) With regard to overdue loans, a credit institution or foreign bank branch shall re-classify such loans into groups with lower risk levels (including group 1) when the following conditions are satisfied:

(i) Its customers have fully paid the overdue principals and interests (including interests on overdue principals) and the principals and interests for subsequent loan payment periods within 03 (three) months, for medium and long-term loans, or 01 (one) month, for short-term loans, from the date of starting the full payment of the overdue principals and interests;

(ii) It has documents evidencing the payment of loans by customers;

(iii) The credit institution or foreign bank branch has sufficient information and documents to assess that customers are able to fully pay remaining principals and interests on time.

 b) With regard to rescheduled loans, a credit institution or foreign bank branch shall re-classify rescheduled loans into groups with lower risk levels (including group 1) when the following conditions are satisfied:

(i) Its customers have fully paid the principals and interests in the rescheduled payment periods within 03 (three) months, for medium- and long-term loans, or 01 (one) month, for short-term loans, from the date of starting the full payment of principals and interests in the rescheduled payment periods;

(ii) It has documents evidencing the payment of loans by customers;

(iii) It has sufficient information and documents to assess that customers are able to fully pay remaining principals and interests in the rescheduled payment periods.

3. Loans shall be classified into groups with higher risk levels in the following cases:

 a) Indicators of profitability, solvency, loan-to-capital ratio, cash flow and loan payment ability of customers have constantly declined after 03 consecutive times of loan assessment and classification;

b) Customers fail to supply sufficient, timely and truthful information at the request of credit institutions or foreign bank branches for assessment of their loan payment ability;

c) These loans have been classified into group 2, 3 or 4 according to Points a and b of this Clause for 01 (one) year or more but still lack conditions for being classified into groups with lower risk levels;

d) Loans resulted from acts of credit extension which have been administratively sanctioned in accordance with the law.

4. Classification of off-balance sheet commitments and amounts paid under off-balance sheet commitments:

a) Classification of off-balance sheet commitments:

(i) Off-balance sheet commitments will be classified into group 1 if credit institutions and foreign bank branches assess that their customers are able to fulfill committed obligations;

(ii) Off-balance sheet commitments will be classified into group 2 if credit institutions and foreign bank branches assess that their customers are unable to fulfill committed obligations;

(iii) Off-balance sheet commitments will be classified into group 3 if they fall into one of the cases specified at Point c (iv), Clause 1 of this Article.

b) Classification of amounts paid under off-balance sheet commitments:

(i) The number of overdue days will be counted right from the date a credit institution or foreign bank branch performs the committed obligation;

(ii) Amounts paid under off-balance sheet commitments are classified as follows:

- They are classified into group 3 if they are overdue for under 30 days;

- They are classified into group 4 if they are overdue for between 30 and under 90 days;

- They are classified into group 5 if they are overdue for 90 days or more.

In cases where an amount to be paid is classified into a group with a risk level lower than that of the group into which the off-balance sheet commitment of payment on customer behalf has been classified under Point a (ii) or (iii) of this Clause, such amount must be transferred to the group into which the off-balance sheet commitment has been classified.

 Article 11. Classification of loans and off-balance sheet commitments by the qualitative method

1. A credit institution or foreign bank branch shall classify loans and off-balance sheet commitments into the following 5 groups:

a) Group 1 (Pass) including:

Loans that are assessed by the credit institution or foreign bank branch as fully recoverable (both principal and interest) on their due dates.

Off-balance sheet commitments that are assessed by the credit institution or foreign bank branch as having been made by customers that are able to fulfill committed obligations.

b) Group 2 (Special mention) including:

Loans that are assessed by the credit institution or foreign bank branch as fully recoverable (both principal and interest) there are signs that customers’ loan payment ability is declining.

Off-balance sheet commitments that are assessed by the credit institution or foreign bank branch as having been made by customers that are able to fulfill committed obligations but there are signs of their declining ability to fulfill such commitments.

c) Group 3 (Sub-standard) including:

Loans that are assessed by the credit institution or foreign bank branch as irrecoverable (both principal and interest) on their due dates. These loans are assessed by the credit institution or foreign bank branch as possible losses.

Off-balance sheet commitments that are assessed by the credit institution or foreign bank branch as having been made by customers that are unable to fulfill committed obligations.

Loans that must be classified into group 3 in accordance with Clause 4, Article 8 of this Circular.

d) Group 4 (Doubtful) including:

Loans that are assessed by the credit institution or foreign bank branch as highly possible losses.

Off-balance sheet commitments made by customers whose inability to fulfill committed obligations is very high.

Loans that must be classified into group 4 in accordance with Clause 4, Article 8 of this Circular.

dd) Group 5 (Possible loss) including:

Loans that are assessed by the credit institution or foreign bank branch as irrecoverable and likely to be lost.

Off-balance sheet commitments made by customers that are unable to fulfill committed obligations.

Loans that must be classified into group 5 in accordance with Clause 4, Article 8 of this Circular.

2. A credit institution or foreign bank branch that classifies loans and off-balance sheet commitments as prescribed in Clause 1 of this Article must fully satisfy the following requirements:

a) Having an internal credit-rating system suitable to its business operations, customers and types of risk of loans, and having tested this system for at least 01 (one) year;

b) Having a risk provisioning policy as prescribed in Clause 3, Article 6 of this Circular;

c) Having a credit risk management policy, credit risk supervision model, credit risk identifying and measuring methods (including methods of assessing the loan payment ability of customers under credit contracts, security assets and loan recoverability), and loan management methods;

d) Having clearly defined responsibilities and powers of the Board of Directors, Members Council and Director General (Director) for approving, operating and inspecting the operation of its internal credit-rating system and risk provisioning policy, and independence of risk management sections.

3. A credit institution or foreign bank branch shall submit directly or send via postal service to the head office of the State Bank (the single-window section) 01 (one) set of dossier of request for the latter’s approval of the loan classification under Clause 1 of this Article and Clause 2, Article 2 of this Circular, which comprises:

a) A written request of the foreign bank branch for the State Bank’s permission for application of its risk provisioning policy under Clause 2, Article 2 of this Circular; or a written request of the credit institution or foreign bank branch for the State Bank’s approval of the classification of loans and off-balance sheet commitments by the qualitative method specified in Clause 1 of this Article, which must prove the satisfaction of the conditions specified in Clause 2 of this Article;

b) A copy of the risk provisioning policy of the foreign bank in the case specified in Clause 2, Article 2 of this Circular; a copy of the internal credit-rating system, risk provisioning policy and credit risk management policy, and draft documents guiding the classification of loans and off-balance sheet commitments and setting aside of risk provisions of the credit institution or foreign bank branch in the case specified in Clause 2 of this Article.

4. Within a period of 30 (thirty) days after receiving a complete and valid dossier specified in Clause 3 of this Article, the State Bank shall issue a written approval to the credit institution or foreign bank branch. In cases of disapproval, the State Bank shall reply in writing, clearly stating the reasons.

5. On an annual basis, a credit institution or foreign bank branch shall re-assess its internal credit-rating system, risk provisioning policy and credit risk management policy in accordance with the Circular and the State Bank’s regulations on the internal control system of commercial banks and foreign bank branches.

6. A credit institution or foreign bank branch that has its classification of loans and off-balance sheet commitments approved under Clause 1 of this Article shall at the same time classify loans and off-balance sheet commitments under Article 10 of this Circular. In cases where the results of classification of a loan or an off-balance sheet commitment under Article 10 of this Circular and Clause 1 of this Article are different, such loan or off-balance sheet commitment must be classified into a group with a higher risk level. The minimum period for classification of loans and off-balance sheet commitments under both Articles 10 and 11 of this Circular is 05 (five) years after the State Bank’s approval is obtained.

Section 2

PROVISIONING

Article 12. Specific provisioning ratios

1. A specific provision amount to be set aside for each customer shall be calculated according to the following formula:

In which:

- R: Total specific provision amount to be set aside for each customer;

- : Total specific provision amount for each customer from the balance of loan number 1 to the balance of loan number n

Ri: Specific provision amount to be set aside for each customer for the principal balance of loan number i. Ri shall be determined according to the following formula:

Ri = (Ai - Ci) x r

In which:

Ai: Principal balance of loan number i;

Ci: Deductible value of security assets, financial leasing assets, negotiable instruments, other valuable papers in discounting, government bond repos (below commonly referred to as security assets) of loan number i;

r: Specific provisioning ratio by group as specified in Clause 2 of this Article.

In case Ci > Ai, Ri shall be equal to 0 (zero).

2. Specific provisioning ratios for different groups of loans shall be as follows:

a) Group 1: 0%;

b) Group 2: 5%;

c) Group 3: 20%;

d) Group 4: 50%;

dd) Group 5: 100%.

3. Security assets to be deducted upon calculation of a specific provision amount (R) specified in Clause 1 of this Article must fully satisfy the following conditions:

a) Credit institutions or foreign bank branches shall have the right to dispose of security assets under the security contracts and in accordance with law regulations when customers fail to fulfill their committed obligations;

b) The projected duration for disposal of security assets shall not exceed 01 (one) year, for security assets other than immovables, or 2 (two) years, for security assets being immovables, from the date on which the credit institution or foreign bank branch has the right to dispose of such security assets;

c) Security assets must comply with law regulations on secured transactions and other relevant law regulations;

d) For security assets which fails to comply with conditions specified at Point a, b, c of this Clause, the deductible value of such security assets must be 0 (zero).

4. The deductible value of security assets shall be determined by the value of such security asset as specified in Clause 5 of this Article multiplied by the deduction ratio for each type of security asset specified in Clause 6 of this Article.

Credit institutions or foreign bank branches shall determine by themselves the deduction ratio for each type of security asset on the basis of assessment of recoverability upon the disposal of such security assets, provided such ratio does not exceed the maximum deduction ratio set for each type of security asset specified in Clause 6 of this Article.

5. The value of security assets shall be determined as follows:

a) For gold bars: Purchase price at the head office of the business or credit institution that owns the brand of gold bars at the end of the day preceding the date of setting aside a specific provision;

b) For securities listed on a stock exchange (including shares, fund certificates, derivative securities, listed covered warrants): Closing price on the day preceding the date of setting aside a specific provision. In cases where securities have been listed on the market without trading within 30 (thirty) days prior to the date of provisioning and in cases where at the date of provisioning, the securities are delisted or temporarily suspended from trading or suspended from trading, the credit institution, foreign bank branch shall determine the value of security assets in accordance with the provisions of Point e of this Clause;

c) For shares having been registered for trading on the Upcom trading system: Reference price at the nearest trading day preceding the date of setting aside a specific provision announced by the Stock Exchange. In cases where shares of a joint stock company having been registered for trading on the Upcom trading system but they have not performed any trading within 30 (thirty) days before the specific provisioning date and in cases where at the provisioning date, the shares are delisted or temporarily suspended from trading or suspended from trading, the credit institution, foreign bank branch shall determine the value of security assets in accordance with the provisions of Point e of this Clause;

d) Government bonds listed on a Stock Exchange: The average price of transaction prices in the price offering with firm commitment 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 documents amending, supplementing or replacing (if any). In cases where there is no transaction price in the above-mentioned price offering with firm commitment, the bond price for deduction shall be the average of the transaction prices on the secondary market within the last 10 (ten) working days preceding the date of setting aside a provision. In cases where there is no transaction within the last 10 (ten) working days up to the time of setting asides a provision, credit institutions, foreign bank branches shall determine the value of security assets at par value;

dd) Local government bonds, government-guaranteed bonds and corporate bonds (including credit institutions) listed and registered for trading: The average price of transaction prices on the secondary market within the nearest 10 (ten) working days before the date of risk provisioning announced by the Stock Exchange. In cases where there is no transaction within 10 (ten) days up to the specific provisioning date, the credit institutions, foreign bank branches shall determine the value of security assets at par value;

e) Securities not yet listed on a Stock Exchange, promissory notes, bills, deposit certificates issued by issued enterprises (including credit institutions, foreign bank branches): par value.

In cases where at the date of setting asides a specific provision, the equity value is lower than the actual investment value of the owners at the issuing organization, the security assets value shall be determined as follows:

The par value of securities and valuable papers shall multiplied (x) by the equity of the issuing organization divided (:) by the actual investment capital of the owners at the issuing organization.

In which: The actual investment capital of the owners at the issuing organization and the equity of the issuing organization shall be determined on the Balance sheet of the latest period before the specific provisioning date in accordance with the regulations of the Ministry of Finance providing guidelines on the accounting system for enterprises.

In case the equity of the issuing organization is negative, the value of security assets to be deducted (Ci) must be 0 (zero);

g) Financial leasing assets: The value of financial leasing assets shall be determined in accordance with the provisions of Point h of this Clause or the residual value of financial leasing assets over the leasing period shall be calculated according to the following formula:

The value of financial leasing assets shall be divided (:) by the lease term under the contract multiplied (x) by the remaining lease term under the contract;

h) The determination of the value of security assets for deduction when calculating the specific provision amount for movables, immovables and other types of security assets, except for the assets specified at Points a, b, c, d, dd, e of this Clause shall be done as follows:

(i) Credit institutions, foreign bank branches must hire an organization with the valuation function in accordance with the law to determine the value of security assets to be deducted when calculating the specific provision amount at the end of the financial year in the following cases :

Security assets that credit institutions, foreign bank branches evaluate from VND 50 billion or more, for debts of customers who are related persons of credit institutions, foreign bank branches and other subjects with credit restrictions as prescribed at Article 127 of the Law on Credit institutions (having been amended and supplemented); security assets that credit institutions, foreign bank branches evaluate from VND 200 billion or more.

The results of the evaluation of security assets of an organization with the valuation function in accordance with the law shall be used by credit institutions, foreign bank branches to determine the value of security assets to be deducted when calculating a specific provision amount.

In cases where an organization with the valuation function cannot or fails to have an organization with the valuation function to value security assets, credit institutions, foreign bank branches shall use the evaluation results in accordance with internal regulations specified at Point h, Clause 2, Article 6 of this Circular. In cases where there is no legal document prescribing the evaluation of security assets of the evaluation organization and the value of security assets cannot be determined in accordance with internal regulations, the value of security assets for deduction must be 0 (zero);

 (ii) Except for cases specified at Point h(i) of this Clause, credit institutions, foreign bank branches shall determine the value of security assets to be deducted when calculating a specific provision amount in accordance with internal regulations at Point h, Clause 2, this Article 6 of this Circular.

6. Credit institutions, foreign bank branches shall determine the specific deduction ratio of each type of security assets on the principle that the lower the liquidity, the greater the price volatility, the lower the deduction ratio security assets. In which, the maximum deduction ratio for security assets shall be determined as follows:

a) Deposit balances, deposit certificates of customers by Viet Nam Dong at credit institutions, foreign bank branches: 100%;

b) Government bonds, gold bars in accordance with the law on gold business; customer's deposit balances, deposit certificates issued by foreign currency at credit institutions, foreign bank branches: 95%;

c) Local government bonds, government-guaranteed bonds; negotiable instruments, promissory notes, bills, bonds issued by credit institutions; deposit balances, deposit certificates, promissory notes, bills issued by other credit institutions, foreign bank branches:

- With the remaining term of under 1 year: 95%;

- With the remaining term of between 1 year and 5 years: 85%;

- With the remaining term of over 5 years: 80%.

d) Securities issued by other credit institutions listed on a Stock Exchange: 70%;

dd) Securities issued by enterprises (except for credit institutions) listed on a Stock Exchange: 65%;

e) Securities not yet listed on a Stock Exchange, valuable papers, except for the items specified at Point c of this Clause, issued by other credit institutions that have registered to list securities on a Stock Exchange: 50%;

Securities not yet listed on a Stock Exchange, valuable papers, except for the items specified at Point c of this Clause, issued by other credit institutions that have not registered to list securities on the Stock Exchange: 30%;

g) Securities not yet listed on a Stock Exchange, valuable papers issued by enterprises that have registered to list securities on a Stock Exchange: 30%;

Securities not yet listed on a Stock Exchange, valuable papers issued by enterprises that have not registered to list securities on the Stock Exchange: 10%;

h) Immovables: 50%;

i) Other types of security assets: 30%.

7. Credit institutions which during the implementation of the plan to restructure, consolidate or merge under the Scheme on restructuring credit institutions together with settling bad debts approved by the Prime Minister have financial difficulties shall report to the State Bank for consideration and decision on risk provisioning; in cases where the risk provision amount is larger than the difference between revenue and expenditure from annual business results (excluding the amount of provision for risks temporarily deducted in the year), the risk provision level shall be at least equal to the difference between revenue and expenditure and such credit institutions must monitor the amount subject to risk provisioning in accordance with this Circular.

Article 13. General provisioning ratios

A general provision amount to be set aside shall be equal to 0.75% of the total balance of loans in groups 1 thru 4, except the following:

1. Deposits at credit institutions, foreign bank branches as required by the law and deposits at credit institutions abroad.

2. Loans and valuable papers purchased for a definite term from other credit institutions and foreign bank branches in Vietnam.

3. Purchases of promissory notes, bills, deposit certificates, bonds issued by other credit institutions, foreign bank branches in the country.

4. Government bond repos as prescribed at Point l, Clause 1, Article 1 of this Circular.

Article 14. Provision addition and reversion

1. In cases where the remaining specific provision and general provision amounts of the previous accounting period are smaller than the specific and general provision amounts which must be set aside in the accounting period, the credit institution or foreign bank branch shall additionally set aside the deficit.

2. In cases where the remaining specific provision and general provision amounts of the previous accounting period are larger than the specific and general provision amounts which must be set aside in the accounting period, the credit institution or foreign bank branch shall reverse the surplus.

Section 3

USE OF RISK PROVISIONS

Article 15. Risk handling council

1. Composition of a risk handling council:

a) A commercial bank shall set up a risk handling council which is composed of one member of the Board of Directors or Members’ Council as its chairman; one member of the Risk Management Board as its member; the Director General (Director) as its member, and at least 02 other members decided by the Board of Directors or Members’ Council.

b) A foreign bank branch, non-bank credit institution shall set up a risk handling council which is composed of the Director General (Director) as its chairman and at least 02 other members decided by the Director General (Director).

2. Responsibilities of a risk handling council:

a) Approving general reports of the entire system on results of recovery of loans for which provisions have been used to handle risks, including results of disposal of security assets and clearly state the grounds for approval;

b) Deciding or approving the classification of loans and off-balance sheet commitments, setting aside and using provisions to handle risks in the entire system;

c) Deciding or approving measures to recover loans for which provisions have been used to handle risks in the entire system, including the disposal of security assets.

Article 16. Risk handling principles and dossiers

1. Credit institutions or foreign bank branches shall use risk provisions to handle risks in the following cases:

a) Its institutional customers are dissolved or go bankrupt under law or its individual customers are dead or missing;

b) Loans are classified into group 5.

2. Credit institutions or foreign bank branches shall use risk provisions to handle risks on the following principles:

a) In cases where credit institutions, foreign bank branches have handled security assets to recover debts as agreed by the parties, in accordance with the provisions of the law, credit institutions, foreign bank branches shall use specific provisions to handle risks for the remaining outstanding balance of the debt; in cases where the specific provision is not enough to cover the risks of the debt, the general provision must be used to handle risks;

b) In cases where credit institutions, foreign bank branches have not yet handled security assets to recover debts, credit institutions, foreign bank branches shall use provisions to handle risks in accordance with the following principles:

(i) Use of specific provisions set aside in accordance with Article 12 of this Circular to handle risks for loans specified in such Clause;

(ii) Expeditiously handle security assets in accordance with the agreements with its customers and in accordance with law provisions for recovering such loans;

(iii) In cases where the specific provisions and proceeds from the public sale of security assets are not enough to offset the risks of loans, the general provision may be used to handle the risks;

c) Credit institutions or foreign bank branches shall do the off-balance sheet account of the loan balance for which the general provisions and the specific provisions have been used to handle risks specified at Point a, b of this Clause.

3. The use of provisions to handle risks is a form of changing account for debts, transferring the debts that have been handle with to off-balance sheet accounts; such activity shall be the internal affairs of credit institutions, foreign bank branches; shall not change the debt repayment obligation of the customers for the debt that uses provision to handle risks and liabilities of organizations and individuals related to the debt. Credit institutions, foreign bank branches must not notify customers that the debt has used the provision for risk settlement. After handling the risks, credit institutions and foreign bank branches must monitor and take adequate and thorough debt recovery measures for the risk-resolved debt, except for the cases where the debt, after being handled, is sold by credit institutions, foreign bank branches to organizations and individuals, and the debt sales are fully collected in accordance with the debt purchase and sale contract.

4. A risk handling dossier shall include:

a) Dossier for credit extension and dossier for recovery of loans for which risks have been handled;

b) Dossier of security assets and other relevant documents;

c) Decision or approval of the risk handling council on results of classification of loans and setting aside of provisions to handle risks;

d) Decision or approval of the risk handling council on using provision to handle risks;

dd) For customers being bankrupt or dissolved institutions or businesses, in addition to the documents specified at Points a, b, c and d of this Clause, there must be the original version or a certified copy of the court decision on bankruptcy declaration or the decision on business dissolution in accordance with law provisions;

e) For individual customers who are dead or missing, in addition to the documents specified at Points a, b, c and d of this Clause, there must be the original version or a certified copy of the death certificate, or a written verification of the commune-level authority that the customer is dead in cases where there is no death certificate, or the decision on declaration of missing in accordance with law provisions.

Article 17. Monitoring loans for which risks have been handled and removing from the off-balance sheet

1. After a minimum period of 5 (five) years, from the date of using provisions to handle risks and after taking all measures to recover unrecoverable debts, credit institutions, foreign bank branches shall be allowed to decide to release the risk-handled debt off the off-balance sheet.

Debts that are released off the off-balance sheet must be monitored in the management system of credit institutions, foreign bank branches in accordance with law regulations on setting up and handling provisions for devaluation of inventories and loss of investments, bad debts and warranties for products, goods and services of construction works at enterprises for a minimum period of 10 (ten) years from the date on which the decision to release the risk-handled debt off the off-balance sheet is issued, except for the debts that the customer being an organization which has gone bankrupt, dissolved in accordance with law provisions and after liquidating and handling all assets or the customer being an individual who is died, declared missing in accordance with the court decision and has finished handling this individual’s estate and obligations in accordance with law provisions.

2. For state-owned commercial banks and joint-stock commercial banks in which the State owns more than 50% of the charter capital, the release of debt off the off-balance sheet specified in Clause 1 of this Article shall be made only when satisfying the meet the following conditions:

a) There are dossiers and documents proving that all debt recovery measures have been taken but the debt cannot be collected;

b) Must be approved in writing by the State Bank after consulting the Ministry of Finance.

3. For credit institutions that are joint-stock companies, the release of debt off the off-balance sheet specified in Clause 1 of this Article shall only be made when satisfying the meet the following conditions:

a) There are dossiers and documents proving that all debt recovery measures have been taken but the debt cannot be collected;

b) Must be approved by the General Meeting of Shareholders.

4. For credit institutions that are limited liability companies, the release of debt off the off-balance sheet specified in Clause 1 of this Article shall only be made when satisfying the meet the following conditions:

a) There are dossiers and documents proving that all debt recovery measures have been taken but the debt cannot be collected;

b) Must be approved by the Members' Council.

5. For foreign bank branches, the release of debt off the off-balance sheet specified in Clause 1 of this Article shall only be made when satisfying the meet the following conditions:

a) There are dossiers and documents proving that all debt recovery measures have been taken but the debt cannot be collected;

b) Must be approved by such foreign bank.

6. Dossier for the release of debt off the off-balance sheet specified in Clause 1 of this Article shall include:

a) The dossier of risk handling specified in Clause 4, Article 16 of this Circular;

b) The decision or approval of credit institutions, foreign bank branches on the release off the off-balance sheet for loans for which risks have been handled;

c) Decision or approval of debt recovery measures for debts that have use provisions for risk handling;

d) Documents proving that all measures have been taken to recover the debt but cannot be recovered, in accordance with actual facts and relevant law provisions.

The dossiers for the release of debt off the off-balance sheet must be stored by credit institutions, foreign bank branches in accordance with law provisions.

Article 18. Principles of handling in case there is firm evidence on the loss of property for the debt

In the course of operation, including the case specified in Article 16, Article 17 of this Circular, in cases where there is firm evidence on the loss of property for the debt, credit institutions, foreign bank branches shall handle in accordance with the following principles:

1. Handling security assets as agreed by the parties in accordance with law provisions, except for the case specified at Point a, Clause 2, Article 16 of this Circular.

2. Determining causes, responsibilities and handling as follows:

a) In cases of subjective reasons, the person causing the damage must compensate. The competence to decide the level of compensation shall comply with the Charter of credit institutions, foreign bank branches. The handling of liability of the person causing the loss shall comply with the provisions of law;

b) If the property has been insured, it shall be handled in accordance with the insurance contract;

c) Using the provisions set asides in the expenditure to offset in accordance with law provisions, except for the case specified in Clause 2, Article 16 of this Circular;

d) The loss value after being compensated by individuals, collectives or insurance organizations or by means of provisions set asides in the expenditure, in case of being insufficient, shall be compensated by the financial reserve fund of credit institutions, foreign bank branches. In case the financial reserve fund is not enough to compensate, the shortfall shall be recorded into other expenses in the same accounting period.

Article 19. Handling of amounts recovered from loans for which risks have been handled

Amounts recovered from loans for which risks have been handled, including proceeds from the disposal of security assets, shall be regarded as revenue in the accounting period of credit institutions or foreign bank branches.

Section 4

MANAGEMENT OF LOANS AND OFF-BALANCE SHEET COMMITMENTS, SETTING ASIDE AND USE OF RISK PROVISIONS

Article 20. Management of loans and off-balance sheet commitments, setting aside and use of risk provisions

1. Credit institutions or foreign bank branches must have a section in charge of management of loans and off-balance sheet commitments (a division, department or an equivalent unit) at its head office to manage the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in the entire system.

2. Responsibilities of the section in charge of management of loans and off-balance sheet commitments:

a) To elaborate and submit to the Director General (Director) for submission to the Board of Directors or Members’ Council (for credit institutions) or to Director General (Director) (for foreign bank branches) for issuance:

(i) Its internal credit-rating system, amendments and supplements to this system; regulations on management and operation of the internal credit-rating system, the collection and addition of customer data and information;

(ii) Its risk provisioning policy and amendments and supplements to this policy.

b) To manage and operate the internal credit-rating system;

c) To summarize and report to the risk handling council on results of the classification of loans and off-balance sheet commitments, the setting aside and use of provisions to handle risks, and the loan recovery after using provisions to handle risks of the previous month in the entire system; to propose the risk handling council the classification of loans and off-balance sheet commitments, the setting aside and use of provisions to handle risks and measures to manage non-performing loans and thoroughly recover loans;

d) To manage and monitor units and individuals in the compliance with regulations of Point dd, Clause 3, Article 6 of this Circular;

dd) To provide information to, and coordinate with, functional units at its head office in elaborating and submitting to the Director General (Director) for submission to the Board of Directors or Members’ Council (for credit institutions) or to Director General (Director) (for foreign bank branches) for issuance or amendment and supplementation of the internal regulations on credit extension and management of loans of such credit institutions or foreign bank branches.

e) To perform other tasks as prescribed by the credit institutions or foreign bank branches.

Section 5

ACCOUNTING AND REPORTING

          Article 20. Accounting

          Credit institutions and foreign bank branches shall account money amounts set aside and used as, added to, or charged off from, their specific and general provisions in accordance with law provisions on the accounting mechanism of credit institutions, foreign bank branches.

Article 21. Reporting

1. Credit institutions and foreign bank branches shall report results of the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in accordance with law provisions issued by the State Bank on reporting and statistical mechanism applicable to credit institutions and foreign bank branches.

2. Credit institutions and foreign bank branches shall be responsible for provide information to the CIC in accordance with the State Bank’s regulations on credit information activities and in accordance with regulations in this Circular.

3. Credit institutions and foreign bank branches shall report on results of the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks and results of loan recovery to the Tax General Department and provincial-level Tax Departments of localities where their head offices are located in accordance with law regulations on tax reports.

4. Every year, credit institutions, foreign bank branches must report to the General Meeting of Shareholders (for credit institutions which are joint-stock companies), and the owners (for credit institutions which are single-member limited liability companies), capital contributors (for credit institutions that are limited liability companies with two or more members) on the results of debt classification, off-balance sheet commitments, risk provisioning, results of use of risk provisions and results of handling losses.

Chapter III

RESPONSIBILITIES OF THE STATE BANK AND HANDLING OF VIOLATIONS

Article 22. Responsibilities of the State Bank

1. The Bank Inspection and Supervision Agency shall be responsible for:

a) Receiving internal regulations on credit extension, debt management, risk provisions policy of credit institutions, foreign bank branches as prescribed in Article 6 of this Circular for micro-prudential supervision and inspection;

b) Supervising and inspecting the implementation of internal regulations on b on credit extension, debt management, and policy on risk provisions of credit institutions and foreign bank branches;

c) Supervising and inspecting the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks by credit institutions and foreign bank branches;

d) To handle violations of credit institutions and foreign bank branches under Article 24 of this Circular;

          dd) Processing the dossier for approval of the request of the foreign bank branch to apply the risk provision policy of the foreign bank and the request of the credit institution, foreign bank branch to approve the debt classification, off-balance sheet commitments by qualitative method.

2. The Department for Monetary Forecasts and Statistics shall work with relevant units to elaborate and submit to the State Bank Governor for promulgation of regulations on statistical reporting on the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in operations of credit institutions and foreign bank branches.

3. The Finance and Accounting Department shall base itself on this Circular to elaborate and submit to the State Bank Governor for promulgation of documents guiding the relevant accounting regime in accordance with law provisions

4. The Credit Information Center shall summarize and provide lists of their customers involved in the group of loans with the highest risk level for credit institutions and foreign bank branches in accordance with Clause 2, Article 8 of this Circular.

5. The municipal and provincial State Bank branches shall be responsible for:

a) Receiving internal regulations on credit extension, debt management, risk provisions policy of credit institutions, foreign bank branches as prescribed in Article 6 of this Circular for micro-prudential supervision and inspection;

b) Supervising and inspecting the implementation of internal regulations on credit extension, debt management, policies of credit institution branches, foreign bank branches in their locality which are subject to micro-prudential supervision and inspection;

c) Supervising and inspecting the implementation of debt classification, off-balance sheet commitments, setting up and use of risk provisions of branches of credit institutions, branches of foreign banks in their locality which are subject to micro-prudential supervision and inspection;

d) Handling violations of branches of credit institutions, branches of foreign banks in their locality which are subject to micro-prudential supervision and inspection as prescribed in Article 24 of this Circular in accordance with their competence.

Article 24. Handling of violations

Apart from classifying loans and off-balance sheet commitments, setting aside and using provisions to handle loan risks in accordance with regulations of this Circular, credit institutions and foreign bank branches and their affiliated persons that violate the provisions of this Circular shall, depending on the nature and severity of their violations, be handled under regulations on sanctioning of administrative violations in the monetary and banking fields.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 25. Transitional provisions

1. Credit institutions that have been approved by the Governor of the State Bank of Vietnam with specific measures on debt classification, off-balance sheet commitments, setting up and use of provisions to deal with risks before the date on which this Circular takes effect shall comply with such decision of the Governor of the State Bank.

2. Credit institutions, foreign bank branches approved by the State Bank to conduct the classification of debts and off-balance sheet commitments by the qualitative method before date on which this Circular takes effect shall continue to comply with such written approval of the State Bank.

Article 26. Implementation provisions

1. This Circular takes effect from October 01, 2021.

2. The following regulations shall cease to take effect from the date on which this Circular takes effect:

a) Circular No. 02/2013/TT-NHNN of January 21, 2013 of the Governor of the State Bank 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.

b) The Circular No. 09/2014/TT-NHNN dated March 18, 2014 of the Governor of the 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.

Article 27. Organization of implementation

The Chief of the Office, Chief Bank Inspector-Supervisor, heads of the units under the State Bank, credit institutions and foreign bank branches shall be responsible for implementing this Circular./.

For the Governor

The Deputy Governor

Doan Thai Son