Circular No. 23/2020/TT-NHNN on limits and prudential ratios of non-bank credit institutions

CIRCULAR
Prescribing limits and prudential ratios in operations of non-bank credit institutions

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

Pursuant to the Law No. 47/2010/QH12 dated June 16, 2010 on Credit Institutions and the Law dated November 20, 2017 Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

Pursuant to Decree No. 39/2014/ND-CP dated May 07, 2014 of the Government on operation of finance companies and financial leasing companies;

Pursuant to Decree No. 16/2019/ND-CP dated February 1, 2019 of the Government amending and supplementing Decrees on business conditions under the state management of the State Bank of Vietnam;

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

At the proposal of the Chief Inspector of the Banking Supervision Agency;

The Governor of the State Bank of Vietnam promulgates the Circular prescribing limits and prudential ratios in operations of non-bank credit institutions.

Chapter I
GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Circular prescribes limits and prudential ratios which non-bank credit institutions must constantly maintain in their operations, including:

a) Minimum capital adequacy ratio;

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;

2. Based on results of supervision, inspection, and examination by the State Bank of Vietnam (hereinafter referred to as the State Bank) of non-bank credit institutions, in case of necessity to secure prudence in operations of these non-bank credit institutions and depending on the nature and extent of risks, the State Bank may request non-bank credit institutions to maintain one or several limit(s) or prudential ratio(s) higher than those prescribed in this Circular.
3. Non-bank credit institutions subject to special control shall maintain limits and prudential ratios prescribed in Article 146dd of the Law on Credit Institutions (amended and supplemented).
4. Non-bank credit institutions providing support under approved rehabilitation plans shall maintain government bond and government-guaranteed bond purchase or investment ratio prescribed in Clause 8, Article 148dd of the Law on Credit Institutions (amended and supplemented).
5. For non-bank credit institutions 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. Non-bank credit institutions: Finance companies and financial leasing companies.

2. Institutions and individuals related to limits and prudential ratios in operations of non-bank credit institutions.

Article 3. Interpretation of terms

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

1. Receivables include 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 in accordance with the regulations of the State Bank; amounts to be provided as loans or financial leases under entrustment; and amounts payable on others’ behalf according to off-balance sheet commitments.
2. Clients in the credit extension relationship with non-bank credit institutions (hereinafter referred to as clients) means institutions (also including credit institutions and foreign bank branches), individuals and other entities as defined by the civil law.

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

3. Real estate business means 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. Subordinated debt means 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.
5. Goodwill means 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 non-bank credit institution and arises from a transaction of acquisition of another enterprise or credit institution in accordance with law provisions. Such financial asset shall be fully reflected on balance sheets of such non-bank credit institution.
6. OECD stands for the Organization for Economic Cooperation and Development.
7. International financial institutions include:

a) The World Bank Group, including the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (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.

8. Controlling company means:

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 non-bank credit institution;

b) A finance company that has subsidiaries or associates.

9. Valuable paper means 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.
10. Credit extension means that a non-bank credit institution 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, or other credit extension operations prescribed by the State Bank, including also credit extension from funding sources of other legal entities for which the non-bank credit institution bears risks in accordance with law provisions.
11. Total outstanding balance of credit facilities includes the aggregate outstanding balance of loans, discounts, rediscounts, financial leasing, factoring, corporate bond investment (except 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), and other credit extension operations prescribed by the State Bank (including also the outstanding balance of credit extension from funding sources of other legal entities for which a non-bank credit institution bears risks in accordance with law provisions); undisbursed loan limits, credit card limits, bank guarantee balance, and the balance of amounts entrusted to other credit institutions for loan provision or finance leasing.
12. Corporate bond investment means purchase of corporate bonds.
13. Affiliated persons of an institution or individual include 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:

1. The parent company or a credit institution being the parent company (hereinafter referred to as parent credit institution) of such institution;
2. Subsidiaries of such institution;
3. Companies that have the same parent company or parent credit institution of such institution;
4. Managers and members of the Supervisory Board of the parent company or parent credit institution of such institution;
5. Individuals or institutions competent to appoint managers and members of the Supervisory Board of the parent company or parent credit institution of such institution;
6. Managers and members of the Supervisory Board of such institution;
7. Companies and institutions competent to appoint managers and members of the Supervisory Board of such institution;
8. Spouses, parents, and children (including adoptive parents, adopted children, parents-in-law, children-in-law, stepparents, and stepchildren 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;
9. Institutions or individuals that own at least 5% of the charter capital or voting equity of such institution;
10. Individuals authorized to represent capital contributions or shares of such institution;
11. Companies or credit institutions of which such institution owns at least 5% of the charter capital or voting equity;
12. Companies or credit institutions of which such institution is competent to appoint managers or members of Supervisory Boards;
13. 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 include:

1. Spouses, parents, and children (including adoptive parents, adopted children, parents-in-law, children-in-law, stepparents, and stepchildren of spouses, blood siblings (including half-siblings), and siblings-in-law;
2. Companies or credit institutions of which such individual owns at least 5% of the charter capital or voting equity;
3. Subsidiaries of which such individual is a manager or a member of the Supervisory Board of the parent company or parent credit institution;
4. Subsidiaries of which such individual is competent to appoint managers and members of the Supervisory Board of the parent company or parent credit institution;
5. Companies or credit institutions of which such individual is a manager or a member of the Supervisory Board;
6. 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, stepparent, or stepchild 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;
7. Institutions or individuals that are authorized to represent capital contributions or shares of such individual;
8. Individuals who, together with such individual, are authorized by an institution to represent its capital contributions or shares in another institution;
9. 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 non-bank credit institutions as determined under internal regulations of such non-bank credit institutions or as requested in writing by the State Bank through inspection and supervision in each specific case.

14. Capital contribution or share purchase by finance company means a finance company’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 finance company; contribution to investment funds.
15. Irrevocability means the impossibility to revoke or alter in any form an established commitment unless the revocation or alteration is required by law provisions.
16. Credit extension for stock investment or trading means that a finance company extend credit or entrusts credit extension in accordance with law provisions to clients for such clients or other legal entities and individuals to use the extended credit for the purpose of stock investment or trading, or shareholding.
17. Credit extension for corporate bond investment or trading means that a finance company extend credit or entrusts credit extension in accordance with law provisions to clients for such clients or other legal entities and individuals to use the extended credit for the purpose of corporate bond investment, trading or holding.
18. Non-bank credit institution means a finance company or finance leasing company being established and operating in Vietnam in accordance with Vietnam’s laws.
19. Financial institution means an institution defined in the anti-money laundering law.
20. State-owned financial institution means an institution defined in Clause 19 of this Article, of which the State holds more than 50% of charter capital or total of voting equity.
21. Overseas financial institution means a financial institution established in a foreign country in accordance with laws of such country.
22. Average total liabilities of a month equal to the aggregate balance of the items of Total liabilities on the balance sheets at the end of each day in a month divided by the total number of days in that month.
23. Forward transaction means a transaction in which a non-bank credit institution 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.
24. Exchange rate used to calculate limits and prudential ratios referred to in this Circular (hereinafter referred to as exchange rate) is provided as follows:

a) Exchange rates for conversion of foreign currencies into VND:

1. 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 Chart of Bookkeeping Accounts of credit institutions;
2. 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 VND amounts, for credit institutions and foreign bank branches using VND for accounting, or exchange rate for conversion of foreign-currency amounts in financial statements into VND amounts, for credit institutions and foreign bank branches using foreign currencies for accounting in the Chart 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 USD amounts shall be quoted by non-bank credit institutions.

Article 4. Internal regulations

1. Non-bank credit institutions 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, in which at least the following contents shall be included:

a) Criteria for identification of a client, or a client and his/her/its affiliated persons as defined in Clauses 2 and 13, Article 3 of this Circular, credit policy toward a client, or a client and his/her/its affiliated persons, principles of power delegation or authorization to decide or approve credit extension or reschedule debts for a client, or a client and his/her/its affiliated persons;

b) Risk diversification in credit extension; methods of monitoring and management as well as approval of or decision on credit extension to a client, or a client and his/her/its affiliated persons at the rate of at least 1% of the own capital of the non-bank credit institution. Such regulations must ensure 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 non-bank credit institution prioritizes or limits credit extension, in order to serve 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 such extended credit, unless the credit extension is approved by the Board of Directors or Members’ Council. In cases where 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 two-thirds (2/3) 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 non-business units, as well as holders of equivalent titles of non-bank credit institutions in adherence with the principles prescribed at Points a, b, c, d and dd of this Clause. Holders of equivalent titles shall be defined in internal regulations of non-bank credit institutions.

2. Non-bank credit institutions shall issue their internal regulations on quality evaluation of assets and assurance of the minimum capital adequacy ratios on the principle of risk management for assets, based on needs, characteristics, and risks of their operations, taking into account their business cycles, risk adaptability and business strategies. Such regulations must comply with this Circular and relevant legal documents, and include at least the following contents:

a) Organizational structure, mechanism of power delegation or authorization as well as functions and tasks of each management unit with regard to the minimum capital adequacy ratios;

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

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, 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 the minimum capital adequacy ratios; 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:

1. Procedures for and methods of monitoring and evaluation of the size, structure and quality of own capital and asset portfolio;
2. Minimum capital adequacy management system;
3. Early warning system, clearly indicating signs for early identifying risks and causes of decrease in minimum capital adequacy ratios, and the supervision and reporting regime in accordance with the regulations;
4. Remedies to ensure individual and consolidated minimum 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, minimum capital adequacy ratios;
• 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, minimum capital adequacy ratios.

3. Non-bank credit institutions shall issue internal regulations on liquidity management in accordance with this Circular and relevant legal documents, which must include at least the following contents:

a) Power delegation and authorization as well as 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 prescribed 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:

1. 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.

2. 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, non-bank credit institutions shall submit them directly or send them by post to the State Bank (via the Banking Supervision Agency).

Article 5. Information technology systems

A non-bank credit institution 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 in accordance with the regulations and at the request of the State Bank.

Chapter II
SPECIFIC PROVISIONS

Section 1
REAL VALUE OF CHARTER CAPITAL AND HANDLING OF CASES WHERE REAL VALUE OF CHARTER CAPITAL IS LOWER THAN LEGAL CAPITAL

Article 6. Real value of charter capital

1. The real value of charter capital of a non-bank credit institution means the residual value of its charter capital determined on the principles prescribed in Clause 2 and the method prescribed in Clause 3 of this Article.
2. Principles for determination of real value of charter capital:

A non-bank credit institution shall calculate the residual value of its charter capital when having:

a) Fully set aside a risk provision in accordance with law provisions;

b) Fully accounted revenues and expenditures in accordance with law provisions for determining business results.

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

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

4. Non-bank credit institutions shall constantly monitor and evaluate the real value of their charter capital and periodically report it to the State Bank (via the Banking Supervision Agency), as follows:

a) For non-bank credit institutions that have the annual financial statement period ending on December 31:

No later than July 15 and January 15 every year, non-bank credit institutions shall report on the real value of their charter capital as of the end of June 30 and December 31;

b) For non-bank credit institutions that have the annual financial statement period not ending on December 31 as approved by competent state agencies:

No later than the 15^th of the first month of the accounting period of the first quarter and that of the third quarter, non-bank credit institutions shall report on the real value of their charter capital as of the last day of the accounting period of the preceding quarter;

c) In cases where the real value of charter capital at the time of reporting prescribed at Points a and b of this Clause has not yet included adjustments to the entries made by independent auditors (if any), non-bank credit institutions shall add up such adjustments in the subsequent financial statement period.

Article 7. Handling of cases where the real value of charter capital is lower than legal capital

1. When the real value of the charter capital of a non-bank credit institution is lower than the legal capital, such non-bank credit institution shall:

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

b) Within 30 days after the real value of its charter 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 (via the Banking Supervision Agency), in which at least the following contents must be included:

1. Real value of its charter capital prescribed in Article 6 of this Circular;
2. Reason(s) for real value decrease;
3. Measures to keep the real value of its charter 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 cases where the real value of charter capital of a non-bank credit institution is lower than the legal capital:

a) Carrying out evaluation, examination, or inspection, or requesting the non-bank credit institution to get independent audit to identify the real value of charter capital under the handling plan reported by such non-bank credit institution in accordance with Clause 1 of this Article;

b) Requesting modification, addition, or improvement of handling measures to be taken by the non-bank credit institution 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 compared to the legal capital, deciding to apply the following specific handling measures to each non-bank credit institution:

1. Measures prescribed in Clause 2, Article 59 of the Law on the State Bank of Vietnam in cases where the real value of charter capital falls to below 80% of the legal capital;
2. Measures of restructuring prescribed by law provisions, revocation of the license of the non-bank credit institution if the real value of its charter 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 in accordance with Clause 1 of this Article.

Section 2
OWN CAPITAL AND MINIMUM CAPITAL ADEQUACY RATIOS

Article 8. Own capital

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

Article 9. Minimum capital adequacy ratios

1. A minimum capital adequacy ratio shows the capital adequacy of a non-bank credit institution on the basis of its own capital value and operation risk level. Non-bank credit institutions shall constantly maintain the minimum capital adequacy ratios prescribed in Clause 2 of this Article.
2. Minimum capital adequacy ratios of non-bank credit institution:

a) Minimum capital adequacy ratios of non-bank credit institutions include individual minimum capital adequacy ratios and consolidated minimum capital adequacy ratios.

b) Individual minimum capital adequacy ratios: Each non-bank credit institution shall maintain an individual minimum capital adequacy ratio of 9%.

The individual minimum capital adequacy ratios shall be determined using the following formula:

In which:

• The individual own capital shall be determined in accordance with Appendix 1 to this Circular.
• Total individual risk-weighted assets mean the total value of on-balance­-sheet assets determined according to risk level and value of corresponding on- balance-sheet assets of the off-balance-sheet commitments determined on the basis of risk level in accordance with Appendix 2 to this Circular.

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

The consolidated minimum capital adequacy ratios shall be determined using the following formula:

In which:

• The consolidated own capital shall be determined in accordance with Appendix 1 to this Circular.
• Total consolidated risk-weighted “credit’ assets shall be determined in accordance with Appendix 2 to this Circular.

Section 3
CREDIT EXTENSION RESTRICTIONS AND LIMITS

Article 10. Credit extension restrictions and limits

1. Non-bank credit institutions shall comply with the provisions on cases where credit extension is not permitted or restricted and credit extension limits of Articles 126, 127 and 128 of the Law on Credit Institutions (amended and supplemented).
2. Non-bank credit institutions shall base themselves on their own capital determined in accordance with Article 9 of this Circular at the end of the latest working day to determine credit extension restrictions and limits as prescribed in Clause 1 of this Article.

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

1. Finance companies shall only extend credit facilities of a term of up to 01 (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 provisions;

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 non-bank credit institutions 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. Finance companies shall 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 prescribed in Clause 1, Article 126 of the Law on Credit Institutions (amended and supplemented);

d) Clients are affiliated persons of the subjects prescribed in Clauses 1 and 4, Article 126 of the Law on Credit Institutions (amended and supplemented);

dd) Clients are the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (amended and supplemented), or affiliated persons of the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (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 finance companies;

h) Clients are subsidiaries or associates of credit institutions.

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

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

1. Finance companies shall only extend credit facilities of a term of up to 01 (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 provisions;

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 non-bank credit institutions 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. Finance companies shall 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 prescribed in Clause 1, Article 126 of the Law on Credit Institutions (amended and supplemented);

dd) Clients are affiliated persons of the subjects prescribed in Clauses 1 and 4, Article 126 of the Law on Credit Institutions (amended and supplemented);

e) Clients are the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (amended and supplemented), or affiliated persons of the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (amended and supplemented);

g) Clients are subsidiaries or associates of credit institutions.

3. The total outstanding balance of credit facilities extended by a finance company to its clients for stock investment and trading must not exceed 5% of charter capital of such finance company.

Article 13. Management of credit extension

1. Non-bank credit institutions shall manage credit extension in accordance with law provisions and their internal regulations on credit extension and management of loans in order to ensure that loans are used for proper purposes prescribed in Clause 1, Article 4 of this Circular.
2. Non-bank credit institutions shall make and update any change in lists of their 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 provisions, their organization and operation charters, and affiliated persons of such persons. Such lists shall be publicized in entire systems of non-bank credit institutions and submitted directly or sent by post to the State Bank (via the Banking Supervision Agency), except positions of which any change has been reported in accordance with law provisions.
3. Non-bank credit institutions shall report to:

a) Shareholders’ General Meetings and Members’ Councils on credit facilities extended to the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (amended and supplemented) by the time of collecting figures for meetings of Shareholders’ General Meetings and Members’ Councils;

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

c) The State Bank in accordance with the State Bank’s regulations on the regime of reporting and making statistics on credit facilities extended to the subjects prescribed in Clause 1, Article 127 of the Law on Credit Institutions (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 as prescribed in Article 126 of the Law on Credit Institutions (amended and supplemented)) shall be approved by Boards of Directors or Members’ Councils, 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, non-bank credit institutions shall base themselves on Appendix 3 to this Circular to make cash inflow and outflow statements for monitoring and management of solvency ratios as prescribed in Clauses 2 and 3 of this Article.
2. Liquidity reserve ratio:

a) Non-bank credit institutions shall hold highly liquid assets as reserves to meet due and unexpected payment demands.

b) Non-bank credit institutions shall maintain a liquidity reserve ratio of at least 10%.

c) The liquidity reserve ratio shall be determined using the following formula:

In which:

• Highly liquid assets are prescribed in Appendix 3 to this Circular;
• Total liabilities refer 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 enterprises.

d) Highly liquid assets and total liabilities denominated in VND, including VND and freely convertible foreign currencies converted into VND (at the exchange rates prescribed at Point a, Clause 24, Article 3 of this Circular).

3. Solvency ratios within 30 days:

a) Non-bank credit institutions shall calculate and maintain solvency ratios within 30 days for VND and foreign currencies (including USD and other foreign currencies converted into USD at the exchange rates prescribed at Point b, Clause 24, Article 3 of this Circular);

b) The solvency ratio within 30 days shall be determined using the following formula:

In which:

1. Highly liquid assets are prescribed in Appendix 3 to this Circular;
2. 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 cases where non-bank credit institutions determine the positive net VND cash outflows in subsequent 30 days, they shall maintain solvency ratios for VND in 30 days of at least 20% as mentioned at Point b of this Clause.

d) In cases where non-bank credit institutions determine the positive net foreign-currency cash outflows in subsequent 30 days, they shall maintain solvency ratios for foreign currencies in 30 days as mentioned at Point b of this Clause of at least 5%.

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

1. A non-bank credit institution shall organize a liability and asset management unit (at division level or equivalent level) at its headquarters to monitor and manage its day-to-day solvency, which shall be in charge of by its director general (director) or authorized deputy director general (deputy director).
2. In cases where the calculated solvency ratio within 30 days following the next day of a non-bank credit institution is below the ratio prescribed at Point c or d, Clause 3, Article 14 of this Circular, the State Bank shall consider handling the case in accordance with the regulations on sanctioning of administrative violations in the monetary and banking field and, at the same time, carry out supervision of solvency. The non-bank credit institution shall immediately take remedies, including borrowing from another credit institution or foreign bank branch, borrowing from an overseas financial institution, or signing with other credit institutions or foreign bank branches or overseas financial institution irrevocable time deposit commitments, irrevocable loan commitments and other irrevocable remedies in order to ensure the prescribed solvency ratio. In cases where the non-bank credit institution 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 as prescribed by law provisions.
3. Every day, a non-bank credit institution shall report to the State Bank on its solvency ratio in accordance with the regulations on statistical reports applicable to credit institutions and foreign bank branches. Before 10 a.m. of the next day, the non-bank credit institution shall send, directly or by post, a report on its temporary solvency ratio deficiency (if any) and remedies it has taken to make up for the deficit to the State Bank (via the Banking Supervision Agency).
4. A non-bank credit institution shall 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 as prescribed in Article 14 of this Circular after carrying out such activities.
5. After taking the remedies mentioned in Clause 2 of this Article, non-bank credit institutions that continue facing solvency difficulties shall immediately report such to the State Bank (via the Banking Supervision Agency).

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. Non-bank credit institutions shall determine the maximum ratio of short-term capital sources used for provision of medium- and long-term loans in VND, including VND and foreign currencies converted into VND (at the exchange rates prescribed at Point a, Clause 24, Article 3 of this Circular) using the following formula:

In 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 prescribed in Clause 2 of this Article minus total of medium- and long-term capital sources prescribed in Clause 3 of this Article.
• C: short-term capital sources prescribed in Clause 4 of this Article.

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

a) The outstanding balance of the following amounts that have the remaining term of over 01 (one) year:

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

• Loans and financial leases from funding sources entrusted by the Government, individuals, and other organizations (including other credit institutions and foreign bank branches in Vietnam), risks related to which are borne by the Government and such individuals and organizations;
• Loans and financial leases provided to programs and projects refinanced by the State Bank under decisions of the Government or Prime Minister.

2. Amounts entrusted to other credit institutions for loan provision or financial leasing, risks related to which are borne by entrusting non-bank credit institutions;
3. Amounts for purchase of or investment in valuable papers, except valuable papers used in transactions of the State Bank (excluding bonds issued by the Vietnam Asset Management Company);
4. For loans and financial leases, as well as amounts entrusted for loan provision and financial leasing as prescribed 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 and financial leases, as well as amounts entrusted for loan provision and financial leasing, and balance from purchase of or investment in valuable papers.

3. Medium- and long-term capital sources include the balance of the following amounts that have the remaining term of over 01 (one) year:

a) Deposits of domestic and overseas institutions (including those of other credit institutions or foreign bank branches in Vietnam), except deposits of all kinds of the State Treasury;

c) Loans from domestic and overseas financial institutions (including those of other credit institutions or foreign bank branches in Vietnam);

c) Financial aid for entrusted investment received from the Government, risks related to which are borne by non-bank credit institutions;

d) Loans from credit institutions and foreign bank branches acting as focal points in cases where non-bank credit institutions participating in on-lending to financing projects, investment entrustment and risks related to loans borne by non-bank credit institutions;

dd) Amounts raised through issuance of promissory notes, bills, deposit certificates and bonds;

e) Charter capital, 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 provisions;

g) 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 after the purchase of treasury stocks;

h) Exchange rate difference due to revaluation of equity of foreign-currency origin in the Equity item recorded in balance sheets at the latest time upon conversion of foreign currencies in financial statements into VND.

4. Short-term capital sources include the balance of the following amounts that have the remaining term of up to 01 (one) year (including also demand deposits):

a) Deposits of domestic and overseas institutions (including those of other credit institutions or foreign bank branches in Vietnam), except:

1. Deposits of all kinds of the State Treasury;
2. Collateral amounts and special-use capital deposits of clients;

b) Loans of domestic and overseas financial institutions (including those of other credit institutions or foreign bank branches in Vietnam);

c) Financial aid for entrusted investment received from the Government, risks related to which are borne by non-bank credit institutions;

d) Loans from credit institutions and foreign bank branches acting as focal points in cases where non-bank credit institutions participating in on-lending to financing projects, investment entrustment and risks related to loans borne by non-bank credit institutions;

dd) Amounts raised through issuance of promissory notes, bills, deposit certificates and bonds;

5. Non-bank credit institutions shall comply with the maximum ratio of short-term capital sources for provision of medium- and long-term loans of 90%.

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. Non-bank credit institutions may purchase and invest in government bonds and government-guaranteed bonds at the maximum ratio of 10% to the average Total 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 non-bank credit institutions, excluding amounts used for government bond and government-guaranteed bond purchase and investment from entrusted capital sources in accordance with law provisions, risks related to which are not borne by non-bank credit institutions.
5. Newly established non-bank credit institutions (excluding non-bank credit institutions reorganized in accordance with the Law on Credit Institutions) that have operated for under two (02) years and have the Total liabilities smaller than their charter capital may purchase and invest in government bonds and government-guaranteed bonds at the maximum ratio of 30% to their charter capital.

Section 7
LIMITS OF CAPITAL CONTRIBUTION AND SHARE PURCHASE

Article 18. Limits of capital contribution or share purchase

Finance companies and their subsidiaries and associates shall comply with the limits of capital contribution or share purchase prescribed in Articles 110, 129 and 135 of the Law on Credit Institutions (amended and supplemented).

Chapter III

ORGANIZATION OF IMPLEMENTATION

Article 19. Transitional provisions

1. Contracts signed by the non-bank credit institutions and their clients before the effective date of this Circular and compliant with the laws effective at the time of signing may continue to be performed until their expiration. The modification, supplementation or extension of such contracts shall be performed if the contents to be modified, supplemented, or extended comply with this Circular and relevant regulations.
2. On the effective date of this Circular, any non-bank credit institution that has a minimum 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.

Article 20. Post-transition remedies

After the maximum transitional period stated in remedial plans as prescribed in Clause 2, Article 19 of this Circular or after the maximum time limit required by the State Bank in accordance with Clause 2, Article 21 of this Circular, non-bank credit institutions that fail to maintain minimum capital adequacy ratios prescribed in this Circular shall, depending on level and nature of risks, be subject to necessary remedies applied by the State Bank in accordance with law provisions.

Article 21. Responsibilities of non-bank credit institutions

1. Non-bank credit institutions that fail to comply with the limits and prudential ratios prescribed in this Circular shall work out remedial plans and proactively take remedial measures to ensure such limits and ratios.
2. Within 30 days from the effective date of this Circular, non-bank credit institutions shall submit directly or send by post their remedial plans as prescribed in Clause 2, Article 19 of this Circular to the State Bank (via the Banking Supervision Agency).

In cases where the State Bank requests modification, supplementation, or adjustment of contents of remedial plans, non-bank credit institutions shall modify, supplement or adjust such plans at the request of the State Bank.

Article 22. Effect

1. This Circular takes effect on February 14, 2021.
2. The following documents and provisions shall cease to be effective:

• Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;
• Circular No. 06/2016/TT-NHNN dated May 27, 2016 of the Governor of the State Bank of Vietnam amending and supplementing a number of articles of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;
• Circular No. 19/2017/TT-NHNN dated December 28, 2017 of the Governor of the State Bank of Vietnam amending and supplementing a number of articles of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;
• Circular No. 16/2018/TT-NHNN dated July 31, 2018 of the Governor of the State Bank of Vietnam amending and supplementing a number of articles of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam, prescribing limits and prudential ratios in operations of credit institutions and foreign bank branches;
• Article 4 of Circular No. 13/2019/TT-NHNN of August 21, 2019 of the Governor of the State Bank of Vietnam, 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 State Bank’s Office, the Chief Inspector of the Banking Supervision Agency, heads of units of the State Bank, and non-bank credit institutions shall organize the implementation of this Circular.