Circular No. 22/2019/TT-NHNN dated November 15, 2019 of the State Bank of Vietnam on prescribing limits and prudential ratios in operations of banks and foreign bank branches

CIRCULAR

Prescribing limits and prudential ratios in operations
of banks and foreign bank branches^[1]

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

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

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

Pursuant to the Government’s Decree No. 16/2017/ND-CP of February 17, 2017, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Chief of the Banking Supervisory Agency;

The Governor of the State Bank of Vietnam promulgates the Circular prescribing limits and prudential ratios in operations of banks and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

1. This Circular prescribes limits and prudential ratios which banks and foreign bank branches must constantly maintain in their operations, including:

a/ Capital adequacy ratio. This ratio is not applicable to banks and foreign bank branches maintaining the capital adequacy ratio prescribed in Circular No. 41/2016/TT-NHNN of December 30, 2016, of the Governor of State Bank of Vietnam, prescribing capital adequacy ratio of banks and foreign bank branches, and amending, supplementing and replacing documents (if any) (below referred to as Circular No. 41/2016/TT-NHNN);

b/ Credit extension limits;

c/ Solvency ratio;

d/ Maximum ratio of short-term capital sources used to provide medium- and long-term loans;

dd/ Government bond or government-guaranteed bond purchase or investment ratio;

e/ Limits on capital contribution and share purchase;

g/ Loan-to-deposit ratio.

2. Based on results of supervision, inspection and examination by the State Bank of Vietnam (below referred to as the State Bank) of banks and foreign bank branches, in case of necessity to secure prudence in operations of these banks and foreign bank branches and depending on the nature and extent of risks, the State Bank may request banks and foreign bank branches to maintain one or several limit(s) or prudential ratio(s) higher than those prescribed in this Circular.

3. Banks subject to special control shall maintain limits and prudential ratios under Article 146dd of the Law on Credit Institutions, which was amended and supplemented.

4. Banks providing support under approved rehabilitation plans shall maintain government bond and government-guaranteed bond purchase or investment ratio under Clause 8, Article 148dd of the Law on Credit Institutions, which was amended and supplemented.

5. For banks and foreign bank branches financing programs or projects under decisions of the Government or Prime Minister, the consideration of capital sources and debit balance of each program or project upon determining limits and prudential ratios must comply with decisions of the Government or Prime Minister.

Article 2.Subjects of application

1. Banks, including state-run commercial banks, cooperative banks, joint-stock commercial banks, joint-venture banks and wholly foreign-owned banks.

2. Foreign bank branches.

3. Institutions and individuals related to limits and prudential ratios in operations of banks and foreign bank branches.

Article 3.Interpretation of terms

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

1.Receivablesinclude deposits at other credit institutions and foreign bank branches, and deposits at foreign credit institutions; investments in valuable papers; loans; financial leases; factorings; discounts and re-discounts of negotiable instruments and valuable papers; credit facilities issued in the form of credit cards and other credit facilities under regulations of the State Bank; amounts to be provided as loans or used for purchase of corporate bonds under entrustment; and amounts payable on others’ behalf according to off-balance sheet commitments.

2.Clientsin the credit extension relationship with banks and foreign bank branches (below referred to as clients) means institutions (including also credit institutions and foreign bank branches), individuals and other entities as defined by the civil law.

Client means an institution, an individual or another entity as defined by the civil law.

3.Real estate businessmeans the use of capital for investing in, creating, building, repairing, purchasing, receiving the transfer of, hire or hire-purchasing, real estate for sale, transfer, lease, sub-lease or lease-purchase for profits.

4.Derivative productsinclude:

a/ Derivative products specified in Clause 23, Article 4 of the Law on Credit Institutions, including:

(i)Credit derivative products, including credit insurance contracts, credit risk swap contracts, credit risk-weighted investment contracts, and other credit derivative contracts as specified by law;

(ii)Interest rate derivative products, including forward interest rate contracts, one-currency interest rate swap contracts, two-currency interest rate swap contracts or cross-currency swap contracts, interest rate option contracts, and other interest rate derivative contracts as specified by law;

(iii)Foreign exchange derivative products, including forward foreign exchange trading transactions, foreign exchange swap transactions, foreign exchange put and call option transactions, and other foreign exchange derivative transactions as specified by law;

(iv)Commodity price derivative products, including commodity price swap contracts, commodity price futures contracts, commodity price option contracts, and other commodity price derivative contracts as specified by law.

b/Derivatives, including futures contracts, option contracts, forward contracts, and other derivatives as specified by the regulations on derivatives and derivatives market;

c/ Other derivative products as specified by law.

5.Subordinated debtmeans a debt that is, as agreed upon, only payable by the creditor after all other secured or unsecured liabilities and debts have been paid upon bankruptcy or dissolution of the debtor.

6.Commercial advantagemeans a positive difference between the amount paid to purchase a financial asset and the book value of such financial asset which is payable by a credit institution  and arises from a transaction of acquisition of another enterprise or credit institution in accordance with law. Such financial asset shall be fully reflected on balance sheets of credit institutions.

7.OECDstands for the Organization for Economic Cooperation and Development.

8.International financial institutionsinclude:

a/ The group of world banks, including the International Bank for Reconstruction and Development (IBRD), the International Financial Company (IFC), the International Development Association (IDA), and the Multilateral Investment Guarantee Agency (MIGA);

b/ The Asian Development Bank (ADB);

c/ The African Development Bank (AfDB);

d/ The European Bank for Reconstruction and Development (EBRD);

dd/ The Inter-American Development Bank (IADB);

e/ The European Investment Bank (EIB);

g/ The European Investment Fund (EIF);

h/ The Nordic Investment Bank (NIB);

i/ The Caribbean Development Bank (CDB);

k/ The Islamic Development Bank (IDB);

l/ The Council of Europe Development Bank (CEDB);

m/ Other international financial institutions with charter capital contributed by governments.

9.Controlling companymeans:

a/ A company that directly or indirectly owns over 20% of the charter capital or voting equity of or holds the right to control a commercial bank;

b/ A commercial bank that has subsidiaries or associates.

10.Valuable papermeans a deed proving the debt obligation of its issuer toward its holder for a given period under interest payment terms and other terms. Valuable papers include bonds, bills, public bonds, deposit certificates, promissory notes and the like.

11.Credit extensionmeans that a credit institution or foreign bank branch agrees to let an institution or individual use a money amount or commit to permit the use of a money amount on the principle of repayment by the operation of loan provision, discount, financial leasing, factoring, corporate bond purchase or investment, credit card issuance, bank guarantee, issuance commitment in the form of letter of credit (L/C), or other credit extension operations specified by the State Bank, including also credit extension from funding sources of other legal entities for which the credit institution or foreign bank branch bears risks in accordance with law.

12.Total outstanding credit balanceincludes the total outstanding balance of loans, discounts, rediscounts, financial leasing, factoring, corporate bond purchase or investment, and other credit extension operations specified by the State Bank (including also the balance of credit extension from funding sources of other legal entities for which a credit institution or foreign bank branch bears risks in accordance with law); undisbursed loan limits, credit card limits, bank guarantee balance, issuance commitments in the form of L/C (after subtracting the deposit of L/Cs), and the balance of amounts entrusted to other credit institutions and foreign bank branches for credit extension.

13.Corporate bond investmentmeans purchase of corporate bonds or entrustment of purchase of corporate bonds to other institutions (including credit institutions and foreign bank branches).

14.Affiliated persons of an institution or individualinclude institutions and individuals that have a direct relationship or an indirect relationship with that institution or individual.

a/ Affiliated persons of an institution (including credit institutions) include:

(i) The parent company or a credit institution being the parent company (below referred to as parent credit institution) of such institution;

(ii) Subsidiaries of such institution;

(iii) Companies that have the same parent company or parent credit institution of such institution;

(iv) Managers and members of the Supervisory Board of the parent company or parent credit institution of such institution;

(v) Individuals or institutions competent to appoint managers and members of the Supervisory Board of the parent company or parent credit institution of such institution;

(vi) Managers and members of the Supervisory Board of such institution;

(vii) Companies and institutions competent to appoint managers and members of the Supervisory Board of such institution;

(viii) Spouses, parents and children (including adoptive parents, adopted children, parents-in-law, children-in-law, step parents, and step children of spouses), blood siblings (including half-siblings), siblings-in-law of managers, members of the Supervisory Board, capital contributors or shareholders holding at least 5% of the charter capital or voting equity of such institution;

(ix) Institutions or individuals that own at least 5% of the charter capital or voting equity of such institution;

(x) Individuals authorized to represent capital contributions or shares of such institution;

(xi) Companies or credit institutions of which such institution owns at least 5% of the charter capital or voting equity;

(xii) Companies or credit institutions of which such institution is competent to appoint managers or members of Supervisory Boards;

(xiii) Companies or credit institutions of which such institution is competent to appoint managers or members of Supervisory Boards of parent companies.

b/ Affiliated persons of an individual, including:

(i) Spouses, parents and children (including adoptive parents, adopted children, parents-in-law, children-in-law, step parents, and step children of spouses, blood siblings (including half-siblings), and siblings-in-law;

(ii) Companies or credit institutions of which such individual owns at least 5% of the charter capital or voting equity;

(iii) Subsidiaries of which such individual is a manager or a member of the Supervisory Board of the parent company or parent credit institution;

(iv) Subsidiaries of which such individual is competent to appoint managers and members of the Supervisory Board of the parent company or parent credit institution;

(v) Companies or credit institutions of which such individual is a manager or a member of the Supervisory Board;

(vi) Companies or credit institutions of which such individual is a spouse, parent or child (including adoptive parent, adopted child, parent-in-law, child-in-law, step parent, or step child of a spouse), blood sibling (or half-sibling) or sibling-in-law of a manager, member of the Supervisory Board, a capital contributor or shareholder owning at least 5% of the charter capital or voting equity;

(vii) Institutions or individuals that are authorized to represent capital contributions or shares of such individual;

(viii) Individuals who, together with such individual, are authorized by an institution to represent its capital contributions or shares in another institution;

(ix) Individuals who are authorized by such individual to represent his/her capital contributions or shares.

c/ Other legal entities and individuals that have relationships with potential risks to operations of banks and foreign bank branches as determined under internal regulations of such banks and foreign bank branches or as requested in writing by the State Bank through inspection and supervision in each specific case.

15.Capital contribution or share purchase by commercial bankmeans a commercial bank’s contribution to the charter capital or purchase of shares or other forms of capital contribution to become a shareholder or capital contributor of another enterprise or credit institution, including allocation of charter capital, contribution of capital to subsidiaries or associates of another credit institution; contribution to investment funds or entrustment of capital to other institutions to contribute capital or purchase shares in the aforesaid forms.

16.Irrevocabilitymeans the impossibility to revoke or alter in any form an established commitment, unless the revocation or alteration is required by law.

17.Credit extension for stock investment or tradingmeans that a bank or foreign bank branch provides loans or entrusts provision of loans in accordance with law to clients for such clients or other legal entities and individuals to use the loans for the purpose of stock investment or trading or shareholding.

18.Credit extension for corporate bond investment or tradingmeans that a bank or foreign bank branch provides loans or entrusts provision of loans in accordance with law to clients for such clients or other legal entities and individuals to use the loans for the purpose of corporate bond investment, trading or holding.

19.Credit institution or foreign bank branchmeans a credit institution or foreign bank branch established and operating in Vietnam in accordance with Vietnam’s law.

20.Financial institutionmeans an institution defined in the anti-money laundering law.

21.State-owned financial institutionmeans an institution defined in Clause 20 of this Article of which the State holds 100% of charter capital.

22.State-owned commercial bankmeans a commercial bank of which the State holds 100% of charter capital.

23.Overseas financial institutionmeans a financial institution established in a foreign country in accordance with law of such country.

24.Total monthly payablesequal the total balance of payables on the balance at the end of each day in a month divided by the total number of days in that month.

25.Forward transactionmeans a transaction in which a credit institution or foreign bank branch purchases and receives the ownership over an undue valuable paper (the purchaser) from another credit institution or foreign bank branch (the seller) and, at the same time, the seller commits to buy back such valuable paper after a given period of time.

26.Exchange rateused to calculate limits and prudential ratios referred to in this Circular (below referred to as exchange rate) is provided as follows:

a/ Exchange rates for conversion of foreign currencies into Vietnam dong:

(i) On working days other than the last working day of a month, quarter or year: These exchange rates shall be applied under the State Bank’s regulations on exchange rates for accounting in the system of bookkeeping accounts of credit institutions;

(ii) On the last working day of a month, quarter or year: These exchange rates shall be applied under the State Bank’s regulations on exchange rates for conversion of foreign-currency amounts on monthly, quarterly or annual balance sheets into Vietnam dong amounts, for credit institutions and foreign bank branches using Vietnam dong for accounting, or exchange rate for conversion of foreign-currency amounts in financial statements into Vietnam dong amounts, for credit institutions and foreign bank branches using foreign currencies for accounting in the system of bookkeeping accounts of credit institutions and observing the financial reporting regime applicable to credit institutions.

b/ Exchange rates for conversion of amounts in other foreign currencies into US dollar amounts shall be set by credit institutions and foreign bank branches.

Article 4.Internal regulations

1. Banks and foreign bank branches shall issue their internal regulations on credit extension and management of loans in order to ensure that these loans are used for proper purposes prescribed in this Circular and relevant legal documents. Such internal regulations must have at least the following:

a/ Criteria for identification of a client or a client and affiliated persons as defined in Clause 14, Article 3 of this Circular, credit policy toward a client or a client and affiliated persons, principles of power delegation or authorization to decide or approve credit extension or reschedule debts for a client or a client and affiliated persons;

b/ Risk diversification in credit extension; methods of monitoring and management and approval of or decision on credit extension to a client or a client and affiliated persons at the rate of at least 1% of the own capital of the  bank or foreign bank branch, ensuring publicity and transparency of the appraisal, credit extension and debt rescheduling, preventing conflicts of interest between appraisers, credit extension deciders and clients being affiliated persons thereof;

c/ Principles and criteria for evaluation and identification of credit extension risks with regard to clients and fields for which the bank or foreign bank branch prioritizes or limits credit extension, for use as a basis for working out annual business plans or strategies;

d/ Approval of credit extension and approval of debt rescheduling (including prolongation and adjustment of loan terms), which must adhere to principles of transparency without any conflict of interests and without concealing credit quality and that the debt rescheduling decider is not the person having decided on credit extension, unless the credit extension is approved by the Board of Directors, Members’ Council, or director general/director or the parent bank (for foreign bank branches). In case the approval of credit extension or approval of debt rescheduling is carried out by a council, the chairperson of the council approving debt rescheduling must not be the chairperson of the council approving credit extension and at least 2/3 (two-thirds) of members of the council approving debt rescheduling must not be members of the council approving credit extension;

dd/ Management of risks in credit extension for stock and corporate bond investment or trading; credit extension for real estate business; or credit extension for public-private partnership investment projects;

e/ Credit extension applicable to Directors (Deputy Directors) of branches and attached units and holders of equivalent titles of banks and foreign bank branches in adherence with the principles prescribed at Points a, b, c, d and dd of this Clause. Holders of equivalent titles shall be determined under internal regulations of banks and foreign bank branches.

2. Banks and foreign bank branches shall issue their internal regulations on quality evaluation of assets and assurance of capital adequacy ratio on the principle of risk management for assets, based on needs, characteristics and risks of their operations, taking into account their business cycle, risk adaptability and business strategies. These regulations must comply with this Circular and relevant legal documents, and regulate at least the following:

a/ Organizational structure, mechanism of power delegation or authorization and functions and tasks of each management unit with regard to capital adequacy ratio;

b/ Principles, policies and processes of identification, measurement, monitoring and control of, reporting and exchange of information on, risks for the purpose of ensuring capital adequacy ratio;

c/ Management of the structure of own capital and assets, which must help evaluate the extent and trend of risks and impacts of risks on own capital needed to offset risks; size and quality of own capital and ability to bear risks from macro-elements, and accessibility to funding sources to supplement own capital, including financial assistance from shareholders when necessary to ensure capital adequacy ratio; the obligation to allocate capital to subsidiaries and associates; short- and long-term own capital targets, estimated expenses for own capital supplementation and solutions to achieve own capital targets. Regulations on management of the structure of own capital and assets must specify:

(i) Procedures for and methods of monitoring and evaluation of the size, structure and quality of own capital and asset portfolio;

(ii) Capital adequacy management system;

(iii) Early warning system, clearly indicating signs for early identifying risks, risks leading to capital adequacy ratio decrease, and the supervision and reporting regime;

(iv) Remedies to ensure individual and consolidated capital adequacy ratios, which must prescribe:

- Measures to manage and develop own capital and assets in response to the decrease in, or violations of regulations on, capital adequacy ratio;

- Responsibilities, powers and obligations of, and coordination among, related units and individuals in the formulation of plans and remedies to respond to the decrease in, or violations of regulations on, capital adequacy ratio.

3. Banks and foreign bank branches shall issue internal regulations on liquidity management under this Circular and relevant legal documents, which must regulate at least the following:

a/ Power delegation, authorization, functions and tasks of related units in the management of assets and liabilities and the maintenance of solvency and liquidity ratios;

b/ Processes, procedures and limits for the management of liquidity and limits for the control of the difference in the terms of assets and liabilities  on the basis of cash inflow and outflow specified in Appendix 3 to this Circular;

c/ Principles, policies and processes of identification, measurement, monitoring and control of, reporting and exchange of information on, solvency and liquidity risks; criteria for early warning of the risk of solvency and liquidity deficit and remedies;

d/ Plans and measures to hold highly liquid valuable papers;

dd/ Guidance on, inspection, control and internal audit of, the maintenance of solvency and liquidity ratios;

e/ Models of evaluation and testing of solvency and liquidity, with analyses of possible solvency and liquidity scenarios. Scenario analysis must satisfy the following requirements:

(i) Presenting at least two scenarios:

- Cash flow from business operations under normal operation conditions;

- Cash flow from business operations in case of solvency and liquidity difficulties.

(ii) Showing:

- The ability to perform daily obligations and commitments;

- Remedies to ensure the compliance with regulations on solvency.

4. The internal regulations mentioned in Clauses 1, 2 and 3 of this Article shall be reviewed for amendment and supplementation at least once a year.

5. Within 10 days after issuing, amending, supplementing or replacing the internal regulations mentioned in Clauses 1, 2 and 3 of this Article, banks and foreign bank branches shall submit them directly or send them by post to the State Bank under Clause 6 of this Article.

6. Banks and foreign bank branches shall send their reports to the recipient mentioned in Clause 5 of this Article as follows:

a/  Banks and foreign bank branches shall send their reports to the State Bank (the Banking Supervisory Agency), except the case specified at Point b of this Clause;

b/ Foreign bank branches subject to micro-safety inspection and supervision by the State Bank’s provincial-level branches shall send their reports to such branches.

Article 5.Information technology systems

A bank or foreign bank branch must have a fully connected information technology system to implement the provisions of this Circular, meeting the following minimum requirements:

1. Storing, accessing and supplementing a database on clients and markets, ensuring risk management under the State Bank’s regulations and its internal regulations.

2. Making statistics of, monitoring and managing cash flow, and capital, asset and liability items; calculating, managing and supervising limits and prudential ratios in its operations.

3. Observing the statistical reporting regime under regulations and at the request of the State Bank.

Chapter II

SPECIFIC PROVISIONS

Section 1

REAL VALUE OF CHARTER CAPITAL OR ALLOCATED CAPITAL AND HANDLING OF CASES IN WHICH REAL VALUE OF CHARTER CAPITAL OR ALLOCATED CAPITAL IS LOWER THAN LEGAL CAPITAL

Article 6.Real value of charter capital or allocated capital

1. The real value of charter capital or allocated capital of a bank or foreign bank branch means the residual value of its charter capital or allocated capital determined according to the principles prescribed in Clause 2 and the method provided in Clause 3 of this Article.

2. Principles for determination of real value of charter capital or allocated capital:

A bank or foreign bank branch shall calculate the residual value of its charter capital or allocated capital when having:

a/ Fully set aside a risk provision in accordance with law;

b/ Fully accounted revenues and expenditures in accordance with law in determining business results.

3. Method of calculation of real value of charter capital or allocated capital:

The real value of charter capital or allocated capital is determined to be the charter capital or allocated capital and equity surplus plus (minus) undivided accumulated profits (unsettled accumulated losses) as reflected on account books.

4. Banks and foreign bank branches shall constantly monitor and evaluate the real value of their charter capital or allocated capital and periodically report it to the State Bank under Points a and b, Clause 6, Article 4 of this Circular, as follows:

a/ For banks and foreign bank branches that have the annual financial statement period ending on December 31:

No later than July 15 and January 15 every year, banks and foreign bank branches shall report on the real value of their charter capital or allocated capital as of the end of June 30 and December 31;

b/ For banks and foreign bank branches that have the annual financial statement period not ending on December 31 as approved by competent state agencies:

No later than the 15^thof the first month of the accounting period of the first quarter and that of the third quarter, banks and foreign bank branches shall report on the real value of their charter capital or allocated capital as of the last day of the accounting period of the preceding quarter;

c/ In case the real value of charter capital or allocated capital at the time of reporting prescribed at Point a or b of this Clause has not yet included adjustments to the entries made by independent auditors (if any), banks and foreign bank branches shall add up such adjustments in the subsequent financial statement period.

Article 7.Handling of cases in which the real value of charter capital or allocated capital is lower than legal capital

1. When the real value of the charter capital of a bank or allocated capital of a foreign bank branch is lower than the legal capital, the bank or foreign bank branch shall:

a/ Work out and implement a handling plan to ensure that the real value of its charter capital or allocated capital is at least equal to the legal capital;

b/ Within 30 days after the real value of its charter capital or allocated capital becomes lower than the legal capital, send directly or by post a report on the handling plan and commitment to implementing such plan to the State Bank under Points a and b, Clause 6, Article 4 of this Circular. Such a plan must have at least the following contents:

(i) Real value of its charter capital or allocated capital prescribed in Article 6 of this Circular;

(ii) Reason(s) for real value decrease;

(iii) Measures to keep the real value of its charter capital or allocated capital not lower than the legal capital, and to maintain prudential ratios in its operations;

c/ Implement handling measures at the request of the State Bank (if any).

2. Measures to be applied by the State Bank to handle the case in which the real value of charter capital or allocated capital of a bank or foreign bank branch is lower than the legal capital:

a/ Carrying out evaluation, examination or inspection or requesting the bank or foreign bank branch to get independent audit to identify the real value of charter capital or allocated capital under the handling plan reported by the bank or foreign bank branch under Clause 1 of this Article;

b/ Requesting modification, addition or improvement of handling measures to be taken by the bank or foreign bank branch under the plan prescribed in Clause 1 of this Article when necessary;

c/ Supervising and inspecting the implementation of the measures stated in the handling plan, including handling measures requested by the State Bank;

d/ Depending on deficiency of the real value of charter capital or allocated capital compared to the legal capital, deciding to apply the following specific handling measures to each bank or foreign bank branch:

(i) The measures prescribed in Clause 2, Article 59 of the Law on the State Bank of Vietnam in case the real value of charter capital or allocated capital falls to below 80% of the legal capital;

(ii) Restructuring measures prescribed by law, revocation of the license of the bank or foreign bank branch if the real value of its charter capital or allocated capital falls to below 50% of the legal capital or has been lower than the legal capital for 6 consecutive months despite the implementation of the handling plan under Clause 1 of this Article.

3. The State Bank’s provincial-level branches may apply the handling measures specified in Clause 2 of this Article to foreign bank branches subject to micro-safety inspection and supervision, including:

a/ The measures specified at Points a, b and c, Clause 2 of this Article;

b/ The measures specified at Point d(i), Clause 2 of this Article according to their competence vested by the State Bank Governor;

c/ Submitting the handling measures specified in Clause 2 of this Article which fall beyond their competence, to the State Bank Governor for decision.

Section 2

OWN CAPITAL AND CAPITAL ADEQUACY RATIOS

Article 8.Own capital

Own capital is the total of tier-1 capital and tier-2 capital minus reductions specified in Appendix 1 to this Circular.

Article 9.Capital adequacy ratios

1. Capital adequacy ratios show the capital adequacy of a bank or foreign bank branch on the basis of its own capital value and operation risk level. Banks and foreign bank branches shall constantly maintain the capital adequacy ratios prescribed in Clauses 2 and 3 of this Article.

2. Capital adequacy ratios of banks:

a/ Capital adequacy ratios of banks include individual capital adequacy ratio and consolidated capital adequacy ratio.

b/ Individual capital adequacy ratio: Each bank shall maintain an individual capital adequacy ratio of 9%.

The individual capital adequacy ratio shall be determined according to the following formula:

In which:

- The individual own capital shall be determined under Appendix 1 to this Circular.

- Total individual risk-weighted assets means the total value of on-balance-sheet assets determined according to risk level and value of corresponding on-balance-sheet assets of off-balance-sheet commitments determined according to risk level under Appendix 2 to this Circular.

c/ Consolidated capital adequacy ratio: Banks that have subsidiaries shall, in addition to maintaining the individual capital adequacy ratio prescribed at Point b of this Clause, maintain a consolidated capital adequacy ratio of 9%.

The consolidated capital adequacy ratio shall be determined according to the following formula:

In which:

- The consolidated own capital shall be determined under Appendix 1 to this Circular.

- Total consolidated risk-weighted “credit’ assets shall be determined under Appendix 2 to this Circular.

3. Capital adequacy ratio of foreign bank branches: Foreign bank branches shall maintain a capital adequacy ratio of 9%.

The capital adequacy ratio shall be determined according to the following formula:

In which:

- The own capital shall be determined under Appendix 1 to this Circular.

- Total risk-weighted assets means the total value of on-balance-sheet assets determined according to risk level and value of corresponding on-balance-sheet assets of off-balance-sheet commitments determined according to the risk level under Appendix 2 to this Circular.

Section 3

CREDIT EXTENSION RESTRICTIONS AND LIMITS

Article 10.Credit extension restrictions and limits

1. Banks and foreign bank branches shall comply with the provisions on cases in which credit extension is not permitted or restricted and credit extension limits of Articles 126, 127 and 128 of the Law on Credit Institutions, which was amended and supplemented.

2. Banks and foreign bank branches shall base themselves on their own capital determined under Clause 3 of this Article at the end of the latest working day to determine credit extension restrictions and limits under Clause 1 of this Article.

3. The own capital shall be determined as follows:

a/ For banks and foreign bank branches that maintain a capital adequacy ratio under this Circular, banks shall use the individual own capital while foreign bank branches shall use the own capital under Article 9 of this Circular.

b/ Banks and foreign bank branches that maintain a capital adequacy ratio under Circular No. 41/2016/TT-NHNN shall use the own capital under such Circular.

Article 11.Conditions and limits of credit extension for corporate bond investment and trading

1. Banks and foreign bank branches may only extend credit facilities of a term of up to 1 (one) year to their clients for corporate bond investment and trading when satisfying the following conditions:

a/ They extend credit facilities within limits and prudential ratios in accordance with law;

b/ They have a non-performing loan ratio of under 3%;

c/ They fully comply with the State Bank’s regulations on risk management regarding internal control systems of commercial banks and foreign bank branches and regulations on classification of assets, level and method of setting aside risk provisions and use of risk provisions to offset risks in operations of credit institutions and foreign bank branches.

2. Banks and foreign bank branches may not extend credit facilities to clients for corporate bond investment and trading in the following cases:

a/ Collaterals are bonds issued by credit institutions, subsidiaries of credit institutions or foreign bank branches;

b/ Collaterals are bonds of enterprises which clients borrow to purchase bonds of such enterprises;

c/ Clients are the subjects specified in Clause 1, Article 126 of the Law on Credit Institutions, which was amended and supplemented;

d/ Clients are affiliated persons of the subjects specified in Clauses 1 and 4, Article 126 of the Law on Credit Institutions, which was amended and supplemented;

dd/ Clients are the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented, or affiliated persons of the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented;

e/ Clients wish to use credit facilities to invest in bonds neither yet listed on the securities market nor registered for trading on the market of unlisted public companies (Upcom);

g/ Clients wish to use credit facilities to invest in bonds of enterprises being subsidiaries of such banks;

h/ Clients are subsidiaries or associates of credit institutions.

3. The total outstanding balance of credit facilities extended by a bank or foreign bank branch to clients for investment and trading in corporate bonds (including bonds of credit institutions and foreign banks branches) must not exceed 5% of charter capital or allocated capital of such bank or foreign bank branch.

Article 12.Conditions and limits of credit extension for stock investment and trading

1. Banks and foreign bank branches may only extend credit facilities of a term of up to 1 (one) year to their clients for stock investment and trading when satisfying the following conditions:

a/ They extend credit facilities within limits and prudential ratios in accordance with law;

b/ They have a non-performing loan ratio of under 3%;

c/ They fully comply with the State Bank’s regulations on risk management regarding internal control systems of commercial banks and foreign bank branches and regulations on classification of assets, level and method of setting aside risk provisions and use of risk provisions to offset risks in operations of credit institutions and foreign bank branches.

2. Banks and foreign bank branches may not extend credit facilities to clients for stock investment and trading in the following cases:

a/ Collaterals are stocks issued by credit institutions or subsidiaries of credit institutions;

b/ Collaterals are stocks of issuing enterprises which clients borrow to purchase stocks of such enterprises;

c/ Clients wish to use credit facilities to invest or trade in stocks of credit institutions;

d/ Clients are the subjects specified in Clause 1, Article 126 of the Law on Credit Institutions, which was amended and supplemented;

dd/ Clients are affiliated persons of the subjects specified in Clauses 1 and 4, Article 126 of the Law on Credit Institutions, which was amended and supplemented;

e/ Clients are the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented, or affiliated persons of the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented;

g/ Clients are subsidiaries or associates of credit institutions.

3. The total outstanding balance of credit facilities extended by a bank or foreign bank branch to clients for stock investment and trading must not exceed 5% of charter capital or allocated capital of such bank or foreign bank branch.

Article 13.Management of credit extension

1. Banks and foreign bank branches shall manage credit extension in accordance with law and their internal regulations on credit extension and management of loans in order to ensure that loans are used for proper purposes specified in Clause 1, Article 4 of this Circular.

2. Banks and foreign bank branches shall make and update any change in lists of founding shareholders, major shareholders, capital contributors, members of Boards of Directors, Members’ Councils and Supervisory Boards, executive officers and holders of other managerial titles in accordance with law, their organization and operation charters, and affiliated persons of these persons. Such lists shall be publicized in entire systems of banks and foreign bank branches and submitted directly or sent by post to the State Bank under Points a and b, Clause 6, Article 4 of this Circular.

3. Banks and foreign bank branches shall report to:

a/ Shareholders’ General Meeting and Members’ General Meeting on credit facilities extended to the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented, by the time of collecting figures for meetings of Shareholders’ General Meeting and Members’ General Meeting;

b/ Owners, capital contributors, managers and executive officers on new credit facilities extended to the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented;

c/ The State Bank under the State Bank’s regulations on the regime of reporting and making statistics on credit facilities extended to the subjects specified in Clause 1, Article 127 of the Law on Credit Institutions, which was amended and supplemented.

4. Credit facilities extended to subsidiaries, associates and subjects on the lists mentioned in Clause 2 of this Article (except cases where credit extension is not permitted prescribed in Article 126 of the Law on Credit Institutions, which was amended and supplemented) shall be approved by Boards of Directors or Members’ Councils (for banks) or directors general /directors (for foreign bank branches), except credit facilities falling within the competence of the Shareholders’ General Meeting. Supervisory Boards shall supervise the approval of credit facilities to be extended to such subjects.

Section 4

SOLVENCY RATIOS

Article 14.Solvency ratios

1. At the end of every working day, banks and foreign bank branches shall base themselves on Appendix 3 to this Circular to make a cash inflow and outflow statement for monitoring and management of solvency ratios prescribed in Clauses 2 and 3 of this Article.

2. Liquidity reserve ratio:

a/ Banks and foreign bank branches shall hold highly liquid assets as reserves to meet due and unexpected payment demands.

b/  Banks and foreign bank branches shall maintain a liquidity reserve ratio of at least 10%.

c/ The liquidity reserve ratio shall be determined according to the following formula:

In which:

- Highly liquid assets are specified in Appendix 3 to this Circular;

- Total liabilities refers to the item of total liabilities on the balance sheet, minus:

+ Refinancing amounts of the State Bank in the form of discount of valuable papers or loans secured with the pledge of valuable papers (minus refinancing amounts of the State Bank on the basis of special bonds and bonds directly issued for debt-selling credit institutions to purchase non-performing loans at market value from the Vietnam Asset Management Company); overnight loans in interbank e-payment; forward sales of valuable papers (minus forward sales of bonds directly issued for debt-selling credit institutions to purchase non-performing loans at market value from the Vietnam Asset Management Company) through the open-market operation of the State Bank.

+ Credit facilities of other credit institutions or foreign bank branches in the form of forward sale, discount or rediscount, and loans secured with the pledge of: (i) valuable papers used in transactions of the State Bank; (ii) bonds and bills issued or guaranteed by governments or central banks of other countries and rated at least AA or the equivalent by Standard & Poor’s or Fitch Rating or equivalently rated by other independent credit rating agencies.

d/ Highly liquid assets and total liabilities denominated in Vietnam dong, including Vietnam dong and freely convertible foreign currencies converted into Vietnam dong (at the exchange rates specified at Point a, Clause 26, Article 3 of this Circular).

3. Solvency ratios within 30 days:

a/ Banks and foreign bank branches shall calculate and maintain solvency ratios within 30 days for Vietnam dong and foreign currencies (including US dollar and other foreign currencies converted into US dollar at the exchange rates specified at Point b, Clause 26, Article 3 of this Circular);

b/ The solvency ratio within 30 days shall be determined according to the following formula:

In which:

(i) Highly liquid assets are specified in Appendix 3 to this Circular;

(ii) Net cash outflow in subsequent 30 days is the difference between the cash outflow of 30 consecutive days following the next day and the cash inflow of 30 consecutive days following the next day as prescribed in Appendix 3 to this Circular.

c/ In case banks and foreign bank branches determine a positive net Vietnam-dong cash outflow in subsequent 30 days, they shall maintain a solvency ratio for Vietnam dong of at least 50% in 30 days as mentioned at Point b of this Clause.

d/ In case banks and foreign bank branches determine a positive net foreign-currency cash outflow in subsequent 30 days, they shall maintain a solvency ratio for a foreign currency in 30 days as mentioned at Point b of this Clause of at least:

(i) 10%, for commercial banks;

(ii) 5%, for foreign bank branches;

(iii) 5%, for cooperative banks.

Article 15.Management, and handling of the failure to maintain, solvency ratios

1. A bank or foreign bank branch shall organize a liability and asset management unit (of division or equivalent level) at its headquarters to monitor and manage its day-to-day solvency. Its director general (director) or authorized deputy director general (deputy director) shall be in charge of such unit.

2. In case the calculated solvency ratio within 30 days following the next day of a bank or foreign bank branch is below the ratio specified at Point c or d, Clause 3, Article 14 of this Circular, the State Bank shall consider handling the case under regulations on sanctioning of administrative violations in the monetary and banking field and, at the same time, carry out supervision of solvency. The bank or foreign bank branch shall immediately take remedies, including borrowing from another credit institution or foreign bank branch, borrowing from an overseas financial institution, or signing with another credit institution or foreign bank branch or overseas financial institution irrevocable time deposit commitments, irrevocable loan commitments and other irrevocable remedies in order to ensure the prescribed solvency ratio. In case the bank or foreign bank branch has to take the above remedies with at least 20% of their highly liquid assets, the State Bank shall additionally apply supervisory and handling measures prescribed by law.

3. Every day, a bank or foreign bank branch shall report to the State Bank on its solvency ratio under regulations on statistical reports applicable to credit institutions and foreign bank branches. Before 10 a.m. of the next day, the bank or foreign bank branch shall send, directly or by post, a report to the State Bank (the Banking Supervision Agency) on its temporary solvency ratio deficiency (if any) and remedies it has taken to make up for the deficit under Points a and b, Clause 6, Article 4 of this Circular.

4. A bank or foreign bank branch may provide loans or sign irrevocable time deposit commitments or irrevocable loan commitments with another credit institution or foreign bank branch to make up for its solvency ratio deficiency only if it can ensure the solvency ratio within 30 days under Article 14 of this Circular after carrying out such activities.

5. After taking the remedies mentioned in Clause 2 of this Article, banks and foreign bank branches that continue facing solvency difficulties shall immediately report such to the State Bank (the Banking Supervision Agency and the State Bank’s provincial-level branches of the localities where they are headquartered).

Section 5

MAXIMUM RATIO OF SHORT-TERM CAPITAL SOURCES TO BE USED FOR PROVISION OF MEDIUM- AND LONG-TERM LOANS

Article 16.Maximum ratio of short-term capital sources to be used for provision of medium- and long-term loans

1. Banks and foreign bank branches shall determine the maximum ratio of short-term capital sources used for provision of medium- and long-term loans in Vietnam dong, including Vietnam dong and foreign currencies converted into Vietnam dong (at the exchange rates specified at Point a, Clause 26, Article 3 of this Circular) according to the following formula:

Of which:

- A: ratio of short-term capital sources to be used for provision of medium- and long-term loans.

- B: total outstanding balance of medium- and long-term loans specified in Clause 2 of this Article minus total of medium- and long-term capital sources specified in Clause 3 of this Article.

- C: short-term capital sources specified in Clause 4 of this Article.

2. The total outstanding balance of medium- and long-term loans covers:

a/ The outstanding balance of the following amounts that have the remaining term of over 1 (one) year:

(i) Loans (including also those provided to other credit institutions and foreign bank branches in Vietnam), except:

- Loans provided from funding sources entrusted by the Government, individuals and other organizations (including other credit institutions and foreign bank branches in Vietnam; and parent banks and their overseas branches), risks related to which are borne by the Government and these individuals and organizations;

- Loans provided to programs and projects eligible for refinancing by the State Bank under decisions of the Government or Prime Minister.

(ii) Amounts entrusted to other credit institutions and foreign bank branches for loan provision, risks related to which are borne by entrusting banks and foreign bank branches;

(iii) Amounts for purchase of or investment in valuable papers, entrusted amounts for purchase or investment in valuable papers in accordance with law, risks related to which are borne by entrusting banks and foreign bank branches, except valuable papers used in transactions of the State Bank (excluding bonds issued by the Vietnam Asset Management Company);

(iv) For loans and amounts entrusted for provision of loans specified at Items (i) and (ii) of this Point with different principal repayment schedules, the remaining term for being accounted in the outstanding balance of medium- or long-term loans shall be determined for each schedule for principal repayment.

b/ Overdue outstanding balance of loans or amounts entrusted for provision of loans, and balance from purchase of or investment in valuable papers or balance from entrusted purchase of or investment in valuable papers in accordance with law.

3. Medium- and long-term capital sources include the balance of the following amounts that have the remaining term of over 1 (one) year:

a/ Deposits of individuals;

b/ Deposits of domestic and overseas institutions, except deposits of all kinds of the State Treasury;

c/ Loans from domestic and overseas financial institutions;

d/ Financial aid for entrusted investment received from the Government, risks related to which are borne by banks and foreign bank branches;

dd/ Loans from credit institutions and foreign bank branches acting as focal points in case banks and foreign bank branches participating in on-lending to financing projects, investment entrustment and risks related to loans borne by banks and foreign bank branches;

e/ Amounts raised through issuance of promissory notes, bills, deposit certificates and bonds;

g/ Deposits of people’s credit funds, in case of cooperative banks;

h/ Charter capital, allocated capital and reserve funds for addition of charter capital, development investment funds and financial provisions left after subtracting accumulated losses (determined in balance sheets by the time of calculating the maximum ratio of short-term capital sources used for provision of medium- and long-term loans), historical value of amounts for purchase of or investment in fixed assets or capital contribution or share purchase in accordance with law;

i/ Surplus of equity or undivided profits (determined in balance sheets by the time of calculating the maximum ratio of short-term capital sources used for provision of medium- and long-term loans) left remaining after the purchase of treasury stocks;

k/ Exchange rate difference due to revaluation of equity of foreign-currency origin in the Equity item recorded in balance sheets upon conversion of foreign currencies in financial statements into Vietnam dong.

4. Short-term capital sources include the balance of the following amounts that have the remaining term of up to 1 (one) year (including also demand deposits):

a/ Deposits of individuals, except collateral amounts and special-use capital deposits;

b/ Deposits of domestic and overseas institutions, except:

(i) Deposits of all kinds of the State Treasury;

(ii) Collateral amounts and special-use capital deposits of clients;

(iii) Deposits of other credit institutions and foreign bank branches in Vietnam.

c/ Loans of domestic and overseas financial institutions (except loans of other credit institutions and foreign bank branches in Vietnam);

d/ Financial aid for entrusted investment received from the Government, risks related to which are borne by banks and foreign bank branches;

dd/ Loans from credit institutions and foreign bank branches acting as focal points in case banks and foreign bank branches participating in on-lending to financing projects, investment entrustment and risks related to loans borne by banks and foreign bank branches;

e/ Amounts raised through issuance of promissory notes, bills, deposit certificates and bonds;

g/ Deposits of people’s credit funds, in case of cooperative banks.

5. Banks and foreign bank branches shall comply with the maximum ratio of short-term capital sources for provision of medium- and long-term loans according to the schedules below:

a/ From January 1, 2020, through September 30, 2020: 40%;

b/ From October 1, 2020, through September 30, 2021: 37%;

c/ From October 1, 2021, through September 30, 2022: 34%;

d/ From October 1, 2022: 30%.

Section 6

GOVERNMENT BOND AND GOVERNMENT-GUARANTEED BOND PURCHASE AND INVESTMENT RATIOS

Article 17.Government bond and government-guaranteed bond purchase and investment ratios

1. Banks and foreign bank branches may purchase and invest in government bonds and government-guaranteed bonds at the maximum ratio of 30% to the total average liabilities of the preceding month.

2. Government bonds include:

a/ Treasury bills;

b/ Treasury bonds;

c/ Public bonds for national construction.

3. Government-guaranteed bonds include:

a/ Corporate bonds guaranteed by the Government;

b/ Bonds issued by policy banks and guaranteed by the Government;

c/ Bonds issued by financial institutions and credit institutions and guaranteed by the Government.

4. The balance of government bond and government-guaranteed bond purchase and investment used for determining the maximum ratio prescribed in Clause 1 of this Article is the purchase price of government bonds and government-guaranteed bonds owned by banks and foreign bank branches and amounts entrusted for government bond and government-guaranteed bond purchase and investment in accordance with law, excluding those for government bond and government-guaranteed bond purchase and investment from entrusted capital sources in accordance with law, risks related to which are not borne by banks and foreign bank branches.

5. Newly established banks and foreign bank branches (excluding credit institutions reorganized in accordance with the Law on Credit Institutions) that have operated for under 2 (two) years and have the total liabilities smaller than their charter capital or allocated capital may purchase and invest in government bonds and government-guaranteed bonds at the maximum ratio of 30% to their charter capital or allocated capital.

Section 7

LIMITS OF CAPITAL CONTRIBUTION AND SHARE PURCHASE

Article 18.Limits of capital contribution or share purchase

Commercial banks and their subsidiaries and associates shall observe limits of capital contribution or share purchase prescribed in Articles 103, 129 and 135 of the Law on Credit Institutions, which was amended and supplemented.

Article 19.Commercial banks purchasing or holding stocks of other credit institutions

1. Commercial banks purchasing or holding stocks (including also amounts entrusted to other institutions and individuals and their shareholders) of other credit institutions shall satisfy the conditions prescribed in Clause 2 and observe the limits prescribed in Clause 3 of this Article.

2. At the time of purchase or holding of stocks of other credit institutions, a commercial bank shall fully satisfy the following conditions:

a/ Keeping the real value of its charter capital not lower than the registered charter capital;

b/ Maintaining the limits and prudential ratios prescribed in this Circular;

c/ Having a non-performing loan ratio of under 3%;

d/ Having a process of approving, appraising and assessing risks for the purchase or holding of stocks of other credit institutions;

dd/ Ensuring that each amount of purchased or held stocks of other credit institutions is approved by the Board of Directors or Members’ Council;

e/ Not being sanctioned for administrative violations in banking activities within 1 year before the date of stock purchase or holding;

g/ Ensuring that the Chairperson and other members of its Board of Directors, Chairperson and other members of its Members’ Council, its director general (director), head and other members of its Supervisory Board, its major shareholders and subsidiaries, and affiliated persons of such persons purchase or hold no voting shares of such credit institutions;

h/ Ensuring that the Chairperson and other members of its Board of Directors, Chairperson and other members of its Members’ Council, its director general (director), head and other members of its Supervisory Board, its major shareholders and subsidiaries, and affiliated persons of such persons do not entrust other institutions to purchase or hold voting equity of such credit institutions.

3. Limits:

a/ A commercial bank may only purchase or hold stocks of no more than 2 (two) other credit institutions, unless other credit institutions are its subsidiaries;

b/ A commercial bank may only purchase or hold stocks of another credit institution at a ratio of under 5% of voting equity of such credit institution;

c/ A commercial bank may not appoint its staff members to the Board of Directors at the credit institution from which it has purchased or held stocks, unless such credit institution is a subsidiary of the commercial bank or the commercial bank is the supporting credit institution designated to participate in the management, control, administration and assistance of the organization and operation of a credit institution placed under special control;

d/ A commercial bank may purchase or hold stocks of another credit institution in excess of the limits specified at Points a and b of this Clause or it may do so even when it fails to fully satisfy the conditions specified in Clause 2 of this Article in the following cases:

(i) Such stock purchase or holding is under a plan on restructuring of the credit institution placed under special control in accordance with the Law on Credit Institutions, which was amended and supplemented;

(ii) The commercial bank is designated by the State Bank in accordance with law.

dd/ In case a commercial bank sells shares of other credit institutions by mode of deferred payment, it may only transfer the ownership of the shares in proportion to the money amounts paid by purchasers.

Section 8

LOAN-TO-DEPOSIT RATIOS

Article 20.Loan-to-deposit ratios

1. Banks and foreign bank branches shall determine the maximum loan-to-deposit ratio (LDR) calculated in Vietnam dong, including Vietnam dong and foreign currencies converted into Vietnam dong (at the exchange rates specified at Point a, Clause 26, Article 3 of this Circular) according to the following formula:

Of which:

- LDR is loan-to-deposit ratio.

- L is the total outstanding balance of loans specified in Clauses 2 and 3 of this Article.

- D is the total deposits specified in Clause 4 of this Article.

2. The total outstanding balance of loans covers:

a/ Outstanding balance of loans for individuals and institutions (except the outstanding balance of loans of other credit institutions or foreign bank branches in Vietnam);

b/ Amounts entrusted to other credit institutions or foreign bank branches for provision of loans.

3. The following amounts may be subtracted from the total outstanding balance of loans:

a/ Outstanding balance of loans with sources entrusted by the Government and other individuals and institutions (including other credit institutions and foreign bank branches in Vietnam; and parent banks and their overseas branches), risks related to which are borne by the Government and such individuals and institutions;

b/ Overseas loans of banks and foreign bank branches. For foreign bank branches, overseas loans include loans of parent banks and their overseas branches;

c/ Balance of refinancing loans of the State Bank, excluding refinancing loans to support temporary solvency.

4. Total deposits include:

a/ Deposits of domestic and overseas institutions (including also deposits of other credit institutions and foreign bank branches), except:

(i) Deposits of all kinds of the State Treasury;

(ii) Collateral amounts and special-use capital deposits of clients;

b/ Deposits of individuals, except collateral amounts and special-use capital deposits.

c/ Amounts raised through issuance of promissory notes, bills, deposit certificates and bonds.

5. Banks and foreign bank branches shall maintain the maximum LDR of 85%.

For a bank or foreign bank branch, during the first 3 (three) years of its operation, the State Bank Governor shall prescribe a specific ratio different from the above ratio.

6. A bank or foreign bank branch is not required to comply with the LDR specified in Clause 5 of this Article if its charter capital or allocated capital left after subtracting accumulated losses (determined in the balance sheet at the time of LDR calculation), and historical value of amounts for purchase of or investment in fixed assets and capital contribution or share purchase are larger than the outstanding balance of loans.

Chapter III

ORGANIZATION OF IMPLEMENTATION

Article 21.Transitional provisions

1. For contracts signed before the effective date of this Circular and compliant with law effective at the time of signing, banks and foreign bank branches and their clients may continue to perform them until their expiration. The modification, supplementation or extension of such contracts must comply with this Circular and relevant regulations.

2. On the effective date of this Circular, a bank or foreign bank branch that has a capital adequacy ratio not up to that prescribed in Article 9 of this Circular shall work out a remedial plan which must have at least the following:

a/ Actual ratio that is not up to the prescribed ratio;

b/ Measures and plans to raise the current ratio up to the prescribed ratio within 6 months from the effective date of this Circular.

3. On the effective date of this Circular, a bank or foreign bank branch that has a LDR higher than that prescribed in Article 20 of this Circular shall work out a remedial plan which must have at least the following:

a/ Actual ratio that is higher the prescribed ratio;

b/ Measures to be applied to prevent the ratio from increasing;

c/ Measures and plans to reduce the ratio down to the ratio prescribed in this Circular before January 1, 2022.

Article 22.Post-transition remedies

After the maximum transitional period stated in remedial plans specified in Clauses 2 and 3, Article 21 of this Circular or after the time limit prescribed by the State Bank, banks and foreign bank branches that fail to maintain capital adequacy ratios and LDRs prescribed in this Circular shall, depending on risk level and nature, be subject to necessary remedies applied by the State Bank, including their restructuring in accordance with law and revocation of licenses.

Article 23.Responsibilities of banks and foreign bank branches

1. Banks and foreign bank branches that fail to comply with the limits and prudential ratios prescribed in this Circular shall work out remedial plans and proactively take measures to ensure such limits and ratios.

2. Within 30 days from the effective date of this Circular, banks and foreign bank branches shall submit directly or send by post their remedial plans specified in Clauses 2 and 3, Article 21 of this Circular to the State Bank under Points a and b, Clause 6, Article 4 of this Circular.

In case the State Bank or its provincial-level branches request modification, supplementation or adjustment of contents of remedial plans, banks and foreign bank branches shall modify, supplement or adjust such plans.

3. Banks and foreign bank branches shall modify or supplement their remedial plans mentioned in Clauses 1 and 2 of this Article and add the implementation schedule to their plans on restructuring associated with resolution of non-performing loans approved under the Prime Minister’s Decision No. 1058/QD-TTg of July 19, 2017, approving the scheme on restructuring of the system of credit institutions associated with resolution of non-performing loans in the 2016-2020 period, for comprehensive implementation.

Article 24.Effect

1. This Circular takes effect on January 1, 2020.

2. To amend and supplement Article 23 of Circular No. 41/2016/TT-NHNN as follows:

“Article 23.Effect

1. This Circular takes effect on January 1, 2020, except the cases specified in Clauses 2 and 3 of this Article.

2. Banks and foreign bank branches that are able to maintain the capital adequacy ratio prescribed in this Circular before the date specified in Clause 1 of this Article shall send their written registrations for application of this Circular to the State Bank (the Banking Supervision Agency), clearly stating their ability and expected time of application. The time of application of this Circular for banks and foreign bank branches that have sent written registrations is stated in notices issued by the State Bank.

3. Banks and foreign bank branches that are not yet able to maintain the capital adequacy ratio prescribed in this Circular shall send before January 1, 2020 to the State Bank (the Banking Supervision Agency) and the State Bank’s provincial-level branches of the localities where they are headquartered written registrations for application of the capital adequacy ratio under the State Bank’s regulations on limits and prudential ratios in operations of banks and foreign bank branches.

Such a registration must clearly state reason(s) for continued maintenance of the capital adequacy ratio under the State Bank’s regulations on limits and prudential ratios in operations of banks and foreign bank branches from January 1, 2020, and plan (measures and schedule) to ensure compliance with this Circular no later than January 1, 2023, except banks that follow the schedule stated in the plan on restructuring associated with resolution of non-performing loans approved under the Prime Minister’s Decision No. 1058/QD-TTg of July 19, 2017, approving the scheme on restructuring of the system of credit institutions associated with resolution of non-performing loans in the 2016-2020 period. The time of application of this Circular is that stated in the written registration or schedule stated in the plan on restructuring associated with resolution of non-performing loans approved under the Prime Minister’s Decision No. 1058/QD-TTg of July 19, 2017, approving the scheme on restructuring of the system of credit institutions associated with resolution of non-performing loans in the 2016-2020 period.”

3. The following documents and provisions cease to be effective for banks and foreign bank branches:

- The State Bank Governor’s Circular No. 36/2014/TT-NHNN of November 20, 2014, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;

-  The State Bank Governor’s Circular No. 06/2016/TT-NHNN of May 27, 2016, amending and supplementing a number of articles of the State Bank Governor’s Circular No. 36/2014/TT-NHNN of November 20, 2014, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;

-  The State Bank Governor’s Circular No. 19/2017/TT-NHNN of December 28, 2017, amending and supplementing a number of articles of the State Bank Governor’s Circular No. 36/2014/TT-NHNN of November 20, 2014, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;

-  The State Bank Governor’s Circular No. 16/2018/TT-NHNN of July 31, 2018, amending and supplementing a number of articles of the State Bank Governor’s Circular No. 36/2014/TT-NHNN of November 20, 2014, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;

- Article 4 of the State Bank Governor’s Circular No. 13/2019/TT-NHNN of August 21, 2019, amending and supplementing a number of articles of the circulars concerning the grant of licenses, and organization and operation of credit institutions and foreign bank branches.

Article 25.Organization of implementation

The Chief of the Office, the Chief of the Banking Supervision Agency and heads of units of the State Bank, directors of the State Bank’s provincial-level branches, and chairpersons of Boards of Directors or chairpersons of Members’ Councils, and directors general (directors) of banks and foreign bank branches shall organize the implementation of this Circular.-

For the State Bank Governor
Deputy Governor
NGUYEN THI HONG

* The appendices to this Circular are not translated.