Circular No. 40/2018/TT-NHNN dated December 28, 2018 of the State Bank of Vietnam on amendments and supplements to the Circular No. 13/2018/TT-NHNN dated May 18, 2018 of State Bank’s Governor prescribing internal control systems of commercial banks and foreign bank branches

THE STATE BANK OF VIETNAM

Circular No. 40/2018/TT-NHNN dated December 28, 2018 of the State Bank of Vietnam on amendments and supplements to the Circular No. 13/2018/TT-NHNN dated May 18, 2018 of State Bank’s Governor prescribing internal control systems of commercial banks and foreign bank branches

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

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

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

Upon the request of the Banking Inspection and Supervision Chief;

The Governor of the State Bank of Vietnam hereby promulgates the Circular amending and supplementing the Circular No. 13/2018/TT-NHNN dated May 18, 2018 of State Bank’s Governor prescribing internal control systems of commercial banks and foreign bank branches.

Article 1. Amendments and supplements to Circular No. 13/2018/TT-NHNN dated May 18, 2018 of State Bank’s Governor prescribing internal control systems of commercial banks and foreign bank branches (hereinafter referred to as Circular No. 13/2018/TT-NHNN)

1. Adding clauses 23, 24, 25, 26, 27, 28, 29, 30, 31 and 32 to Article 3 as follows:

 “23. Credit risk includes:

a) Credit risk refers to the risk of a customer’s failure or incapacity to fulfill part or all of debt repayment obligations under a contract or agreement with a commercial bank or foreign bank branch, unless otherwise prescribed in point b of this clause. In this case, customers (including credit institutions and foreign bank branches) have relationships with commercial banks and foreign bank branches in receiving credit (including receiving credit through entrustment), deposits and issuing corporate bonds.

b) Counterparty credit risk refers to the risk of a counterparty’s failure or incapacity to discharge part or all of payment obligations prior to or by the maturity dates of proprietary trades; repo and reverse repo transactions; trades in derivatives for risk hedging purposes; trades in foreign currencies and financial assets to serve the needs of customers and partners. In this case, counterparties (including credit institutions and foreign bank branches) enter into transactions with commercial banks and foreign bank branches in proprietary trades; repo and reverse repo transactions; trades in derivatives for risk hedging purposes; trades in foreign currencies and financial assets to serve the needs of customers and partners.

24. Market risk refers to the risk that may arise due to an adverse fluctuation in interest rates, securities prices and commodity market prices. Market risk includes:

a) Interest rate risk refers to the risk incurred due to an adverse variation in market interest rates with respect to value of securities, interest-bearing financial instruments, interest rate derivatives in the trading book of commercial banks and/or foreign bank branches;

b) Foreign exchange risk refers to the risk incurred due to an adverse variation in foreign exchange rates occurring on the market when a commercial bank or foreign bank branch is running a foreign currency position;

c) Equity risk refers to the risk incurred due to an adverse variation in market stock prices with respect to value of stocks, value of derivative securities in the trading book of commercial banks and/or foreign bank branches;

d) Commodity risk refers to the risk that may arise due to an adverse variation in commodity prices with respect to value of commodity derivatives, value of products in spot transactions exposed to the commodity risk of commercial banks and/or foreign bank branches.

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