Circular 18/2022/TT-NHNN debt purchase and sale by credit institutions and foreign bank branches

CIRCULAR

Amending and supplementing a number of articles of the Governor of the State Bank of Vietnam’ Circular No. 09/2015/TT-NHNN of July 17, 2015, providing for debt purchase and sale by credit institutions and foreign bank branches^[1]

Pursuant to the November 24, 2015 Civil Code;

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

Pursuant to the June 16, 2010 Law on Credit Institutions; and the November 20, 2017 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

Pursuant to the Government’s Decree No. 102/2022/ND-CP of December 12, 2022, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of the Department of Credit for Economic Sectors;

The Governor of the State Bank of Vietnam promulgates the Circular amending and supplementing a number of articles of the Governor of the State Bank of Vietnam’ Circular No. 09/2015/TT-NHNN of July 17, 2015, providing for debt purchase and sale by credit institutions and foreign bank branches.

Article 1. To amend and supplement a number of articles of the Governor of the State Bank of Vietnam’ Circular No. 09/2015/TT-NHNN of July 17, 2015, providing for debt purchase and sale by credit institutions and foreign bank branches (below referred to as Circular No. 09/2015/TT-NHNN)

1. To amend Clause 2, Article 1 as follows:

“2. This Circular does not apply to purchase and sale of non-performing loans between credit institutions and the Vietnam Asset Management Company (VAMC); and purchase and sale of debts arising from borrowing and lending contracts among credit institutions and foreign bank branches.”.

2. To amend Clause 4, and add Clause 7a to, Article 3 as follows:

“4. Debt purchasers are organizations and individuals, including:

a/ Credit institutions and foreign bank branches with their debt purchase activities approved by the State Bank of Vietnam (below referred to as the State Bank);

b/ Other organizations and individuals (including also organizations and individuals being residents and non-residents).”

“7a. On-balance-sheet book value of a purchased and sold debt is the book value of the outstanding balance of principal and interest of such debt and other financial obligations (if any) related to such debt by the time of debt purchase and sale as accounted on the balance sheet.”

3. To amend Clauses 3, 4, 6 and 7, and add Clauses 11 and 12 to, Article 5 as follows:

“3. To be entitled to the State Bank’s consideration and approval of debt purchase, a credit institution or foreign bank branch must, before the time of requesting approval of debt purchase, have its non-performing loan ratio kept at below 3% in the latest classification period in accordance with the State Bank’s regulations on the classification of assets, level and method of making deductions for risk provisions, and use of risk provisions for handling risks in the operations of credit institutions and foreign bank branches, except credit institutions under special control. Debt-selling credit institutions and foreign bank branches are not required to obtain permission from the State Bank.

A credit institution or foreign bank branch may only purchase debts when its debt purchase is approved by the State Bank in the establishment and operation license of the credit institution or the establishment license of the foreign bank branch (below collectively referred to as license) and its non-performing loan ratio is kept at below 3% in the latest classification period before the time of signing the debt purchase contract under the State Bank’s regulations on the classification of assets, level and method of making deductions for risk provisions, and use of risk provisions for handling risks in the operations of credit institutions and foreign bank branches, except the cases specified in Clause 12 of Article.

4. Before conducting the purchase and sale of debts under Clause 3 of this Article, credit institutions and foreign bank branches shall issue their internal regulations on debt purchase and sale (clearly stating the delegated competence based on the principle of division of responsibilities for appraisal of and decision on debt purchase and sale; debt purchase and sale mode; payment mode; debt purchase and sale process; debt valuation process and method; and risk management process for debt purchase and sale activities.” 

“6. Redemption of debts already sold by credit institutions:

a/ A debt seller may not redeem the debt it has sold, except the following cases:

(i) A credit institution redeems the debt it has sold to a credit institution under special control under Point a, Clause 12 of this Article;

(ii) A supporting credit institution redeems the debt it has sold to a credit institution under special control under the approved plan on recovery of the credit institution under special control under Clause 6, Article 148dd of the Law on Credit Institutions;

(iii) A credit institution being the mandatory transferee redeems the debt it has sold to the mandatorily transferred commercial bank under Point c, Clause 12 of this Article.

b/ A credit institution may redeem the sold debt specified at Point a(ii) or a(iii) of this Clause according to its commitment to redeem the debt under the restructuring plan approved by a competent authority in the following cases:

(i) The to-be-redeemed debt is currently used by a credit institution under special control as collateral for a special loan at the State Bank but no longer classified as a standard debt under the State Bank’s regulations and sold as another standard debt for substitution.

(ii) When a special loan is due, a credit institution under special control has not enough money to repay the special loan to the State Bank under the special loan repayment plan.

7. A credit institution may not sell debts to its own subsidiary(ies), except the following cases:

a/ The credit institution sells debts to a debt management and asset operation company under the restructuring plan approved by a competent authority;

b/ The credit institution being the mandatory transferee sells standard debts to the mandatorily transferred commercial bank under the approved plan on mandatory transfer.”

“11. A credit institution or foreign bank branch may not extend credit for clients in order to purchase debts it owns.

12. A credit institution is not required to keep its non-performing loan ratio at below 3% for purchasing debts in the following cases:

a/ A credit institution under special control purchases standard debts under Clause 2, Article 146a of the Law on Credit Institutions;

b/ A credit institution under special control purchases standard debts of a supporting credit institution under the approved plan on recovery of the credit institution under special control under Clause 1, Article148b of the Law on Credit Institutions;

c/ A mandatorily transferred commercial bank purchases standard debts of a credit institution being the mandatory transferee under a plan on mandatory transfer approved by a competent authority;

d/ The cases of debt purchase specified at Points a(ii) and a(iii), Clause 6 of this Article.”

4. To amend Clause 1, Article 7 as follows:

“1. A credit institution or foreign bank branch shall make 1 (one) set of dossier of request for approval of debt purchase under Article 6 of this Circular, and hand-deliver it or send it by post to the State Bank’s head office (the Single-Window Division).”.

5. To amend Clause 2, Article 10 as follows:

“2. Auction: A debt seller shall sign an asset auction service contract with an asset auction organization in accordance with the law on asset auction.”.

6. To add Article 10a as follows:

“Article 10a. Debt purchase and sale in case the debt purchaser has not made full payment for debts

In case the debt purchaser and the debt seller reach an agreement that the debt purchaser may make (partial or full) payment for the debts after the debt purchaser acquires the ownership of the debt from the debt seller, the debt purchaser and the debt seller must meet the following requirements:

1. The time limit for the debt purchaser to complete the payment for the debts to the debt seller is 60 days, counting from the effective date of the debt purchase and sale contract.

2. Except the case specified in Clause 4 of this Article, it is required to secure full payment for the amount not paid by the debt purchaser to the debt seller under the debt purchase and sale contract by liquid assets, including:

a/ Deposits, deposit certificates, promissory notes, and treasury bills in Vietnam dong or foreign currency issued by credit institutions or foreign bank branches;

b/ Gold bullions in accordance with regulations on gold trading;

c/ Government bonds and government-guaranteed bonds;

d/ Corporate bonds rated AA- or higher (by the Standard & Poor’s or Fitch Ratings) or Aa3 or higher (by Moody’s) and listed on the securities market;

dd/ Stocks listed on the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange (except stocks subject to warning, control, suspension, termination, or restriction from trading in accordance with law and the Vietnam Stock Exchange’s regulations at the time of signing the security contract and stocks traded with a volume of under 300,000 stocks/day, calculated in 10 consecutive trading days before the date of signing the security contract).

3. The value of the assets used as security for the amount not paid for the debt as specified in Clause 2 of this Article shall be determined on the principle of determining the value of collateral for making deductions for risk provisions at the time of signing the security contract.

4. In case a credit institution under special control or a mandatorily transferred commercial bank purchases a debt under Point b or c, Clause 12, Article 5 of this Circular and uses such debt as collateral for a special loan at the State Bank, the parties shall reach agreement on security for the amount for which the debt purchaser is entitled to make payment after it acquires the ownership of the debt (if any) from the debt seller in accordance with law.”.

7. To amend Article 11 as follows:

“Article 11. Debt purchase and sale councils

Credit institutions and foreign bank branches shall establish debt purchase and sale councils in accordance with law, their charters and internal regulations on debt purchase and sale. The composition, tasks and powers of debt purchase and sale councils shall be stipulated by credit institutions and foreign bank branches.”.

8. To amend Article 12 as follows:

“Article 12. Valuation of debts

Credit institutions and foreign bank branches purchasing and selling debts shall conduct valuation of debts in order to determine the reserve price in case of debt purchase and sale through auction or the price for conducting negotiations for debt purchase and sale in case of debt purchase and sale under agreement. Credit institutions and foreign bank branches shall consider choosing the valuation of debts according to the following modes:

1. A credit institution or foreign bank branch shall determine the price of a debt by itself based on one or all of the following grounds:

a/ The book value of the debt and interest payable by the debtor at the time of valuation, classification of loan groups, collateral (if any), financial status of the borrower, and other factors (if any) affecting the debt’s value at the time of valuation;

b/ The Ministry of Finance’s regulations and guidance on criteria for debt price appraisal.

2. Credit institutions and foreign bank branches may hire price appraisal enterprises to conduct the valuation of debts to be purchased and sold.”.

9. To amend Clause 1, Article 14 as follows:

“1. The debt purchaser shall become the party taking up the debt seller’s rights and obligations related to the purchased and sold debt from the time the debt purchaser acquires the ownership of the debt from the debt seller as agreed upon in the debt purchase and sale contract”.

10. To add Article 15a as follows:

“Article 15a. Management and monitoring in case of selling part of a debt or selling a debt to more than one purchaser

The management and monitoring in case of selling part of a debt or selling a debt to more than one purchaser under Clause 9, Article 5 of this Circular shall be carried out in adherence to the following principles:

1. In case the debt seller still owns part of the purchased or sold debt, the debt seller shall continue to act as the focal point in managing dossiers, documents, security interests and other issues related to the debt. For the unsold part of the debt, the debt seller shall continue to manage, monitor and classify the debt and make deductions for risk provisions in accordance with law.

In case the debt seller no longer owns the purchased and sold debt and has received the full payment for the debt, the debt seller’s transfer of dossiers, documents, security interests and other issues related to the debt to the debt purchasers must comply with the agreement of the debt purchasers in accordance with law.

2. Rights and obligations of the parties and the handling of arising problems in case the debt seller acts as the focal point in managing dossiers, documents, security interests and other issues related to the debt as specified in Clause 1 of this Article must comply with the agreement of the parties in accordance with law.

3. In case of selling part of a debt or selling a debt to more than one purchaser, the handling of financial issues and other issues related to the purchased and sold part of the debt of the debt purchasers and the debt seller must comply with regulations applicable to the purchase and sale of a debt and Clauses 1 and 2 of this Article.”.

11. To amend Point b, Clause 1 of, and add Clause 2a to, Article 20 as follows:

“b/ For the classification of debts, making of deductions for and use of provisions for handling risks for amounts paid to purchase debts, credit institutions and foreign bank branches shall comply with law.”

“2a. For a debt which has been sold but for which payment has not yet been fully made, the debt-selling credit institution or foreign bank branch shall classify the unpaid debt, and make deductions for and use risk provisions in accordance with law.”.

12. To amend Article 21 as follows:

“Article 21. Handling of financial issues and accounting of purchased and sold debts

1. For a debt-selling credit institution or foreign bank branch

a/ For a debt with its principal currently accounted on the balance sheet

(i) Debt recovery must adhere to the following principle: recovering the debt principal first and the debt interest later;

(ii) In case the sale price is higher than or equal to the on-balance-sheet book value of the purchased and sold debt:

After recovering the debt principal and interest of the sold debt, the credit institution or foreign bank branch shall account the difference (if any) between the sale price and the on-balance-sheet book value of the purchased and sold debt as its income;

(iii) In case the sale price is lower than the on-balance-sheet book value of the purchased and sold debt, in addition to the proceeds from debt sale, the credit institution or foreign bank branch shall use the compensation amount (in case of suffering loss of assets due to subjective reasons and receiving compensation in accordance with the regulations on financial regime applicable to credit institutions and foreign bank branches) and insurance payout (if any) to recover debts. In case the proceeds from debt sale, compensation amount and insurance payout mentioned above are not enough to recover debts, the credit institution or foreign bank branch shall comply with the following provisions:

For the irrecoverable debt principal, the credit institution or foreign bank branch may use the risk provisions deducted from expenses and have the deficit, if any, offset from its financial reserve fund. In case the financial reserve fund is not enough to offset the deficit, the deficit shall be accounted as another expense in the period. After completing the handling of financial issues as mentioned above, the credit institution or foreign bank branch shall account the irrecoverable debt principal off the balance sheet.

For the irrecoverable debt interest: In case the debt interest currently recorded on the balance sheet has been accounted as income, the credit institution or foreign bank branch shall account such interest as reduction in income or as expense in accordance with the regulations on financial regime applicable to credit institutions and foreign bank branches. In case the debt interest is currently recorded off the balance sheet, the credit institution or foreign bank branch shall account the interest of the sold debt off the balance sheet;

b/ For debts currently accounted off the balance sheet

The credit institution or foreign bank branch shall remove the sold debt from the off-balance-sheet account and account the proceeds from debt sale (at the debt’s sale price) as income of the credit institution or foreign bank branch;

c/ For debts already removed from the off-balance-sheet account

The proceeds from debt sale shall be accounted as income of the credit institution or foreign bank branch.

2. For a debt-purchasing credit institution or foreign bank branch

a/ In case the debt’s purchase price is lower than or equal to the debt principal of the purchased debt

For the debt principal recovered under the credit contract for the purchased debt, the credit institution or foreign bank branch shall account it into the amount paid for the debt. In case the amount paid for the debt has been fully recovered, the remaining debt principal (the difference between the debt principal of the purchased debt and the amount paid for the debt) shall be accounted as income.

For the debt interest recovered under the credit contract for the purchased debt, the credit institution or foreign bank branch shall account it as income;

b/ In case the debt’s purchase price is higher than the debt principal of the purchased debt

For the debt principal and debt interest amounts recovered under the credit contract for the purchased debt, the credit institution or foreign bank branch shall account such amounts into the amount paid for the debt. By the time when the remaining amount paid for the debt is lower than or equal to the debt principal of the purchased debt, the credit institution or foreign bank branch shall handle the debt principal and debt interest amounts recovered under the credit contract for the purchased debt under Point a, Clause 2 of this Article.

If unable to fully recover the amount paid for the debt, the credit institution or foreign bank branch shall handle the irrecoverable amount under the regulations on financial regime applicable to credit institutions and foreign bank branches and relevant regulations.

3. For the accounting in debt purchase and sale activities, the handling of the amounts arising as a result of exchange rate differences upon purchasing debts, selling debts and recovering debts of purchased debts, and the handling of asset loss, credit institutions and foreign bank branches shall comply with the regulations on financial and accounting regimes applicable to credit institutions and foreign bank branches and other relevant regulations.

4. Debt-selling credit institutions and foreign bank branches shall monitor, and store information on, sold debts specified at Points a(iii) and b, Clause 1 of this Article to serve inspection and examination upon request.

5. Debt purchasers other than credit institutions or foreign bank branches shall carry out the handling of financial issues and accounting of purchased debts in accordance with law.”.

Article 2. To replace a number of phrases of Circular No. 09/2015/TT-NHNN

1. To replace the phrase “already accounted off the balance sheet” in Clauses 2 and 7, Article 3 with the phrase “already removed from the off-balance-sheet account”.

2. To replace the phrase “secured transactions” in the sentence “The registration of change of the secured party must comply with the law on secured transactions” in Clause 2, Article 14 with the phrase “registration of security interests”.

Article 3. Transitional provisions

For debt purchase and sale contracts established before the effective date of this Circular, debt purchasers, debt sellers and related parties may continue to perform them and implement Circular No. 09/2015/TT-NHNN. In case the parties agree on the modification and supplementation of debt purchase and sale contracts, such modification and supplementation must comply with this Circular.

Article 4. Organization of implementation

The Chief of the Office, the Director of the Department of Credit for Economic Sectors, and heads of units of the State Bank, credit institutions and foreign bank branches shall organize the implementation of this Circular.

Article 5: Implementation provisions

This Circular takes effect on February 9, 2023.-

For the State Bank Governor
Deputy Governor
DAO MINH TU