Circular No. 57/2019/TT-BTC on August 26, 2019 of the Ministry of Finance on providing guidelines on risk handling mechanisms of credit guarantee funds for small and medium enterprises

CIRCULAR
Providing guidelines on risk handling mechanisms of credit guarantee funds for small and medium enterprises

Pursuant to the Law on State Budget dated June 25, 2015;

Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law dated November 20, 2017 amending and supplementing a number of articles of the Law on Credit Institutions;

Pursuant to the Law on Enterprises dated November 26, 2014;

Pursuant to the Law on Support for Small and Medium Enterprises dated June 12, 2017;

Pursuant to the Government s Decree No.87/2017/ND-CP dated July 26, 2017 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Government s Decree No.34/2018/ND-CP dated March 8, 2018 on establishment, organization and operation of credit guarantee funds for small and medium-sized enterprises;

At the request of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance promulgates a Circular providing guidelines on the risk handling mechanisms of credit guarantee funds for small and medium-sized enterprises.

Chapter I

GENERAL RULES

Article 1. Scope of regulation

This Circular provides guidelines on the risk handling mechanisms of credit guarantee funds for small and medium-sized enterprises (hereinafter referred to as credit guarantee funds) for debts of the guaranteed parties at the credit guarantee funds after they fulfill the guarantee obligations as specified in Government’s Decree No.34/2018/ND-CP dated March 08, 2018 on the establishment, organization and operation of credit guarantee funds (hereinafter referred to as Government’s Decree No.34/2018/ND-CP).

Article 2. Subjects of application

1. Credit guarantee funds.     

2. The guaranteed party has been guaranteed by the Credit Guarantee Fund in accordance with the provisions of Government’s Decree No.34/2018/ND-CP and relevant law provisions (hereinafter referred to as customers).     

3. Lending organizations as specified in Government’s Decree No.34/2018/ND-CP.     

4. Relevant organizations and individuals in the process of implementing this Circular.      

Article 3. Interpretation of terms

In this Circular, in addition to the terms specified in the Government s Decree No.34/2018/ND-CP, the following terms are construed as follows:

1. Mandatory repaymentis a contract signed between the credit guarantee fund and its customer after the credit guarantee fund fulfills its debt repayment obligation on behalf of the guaranteed party at the lending institutions according to the provisions of Government’s Decree No.34/2018/ND-CP of the.    

2. Principalis a debt of a customer at a credit guarantee fund, including principal, interest or both principal and interest at the lending institution that the Credit guarantee fund has paid on its behalf as specified in the Credit guarantee contract in accordance with the provisions of Government’s Decree No.34/2018/ND-CP.     

3. Interest debt (interest)is the amount of interest that a customer has not paid to a Credit Guarantee Fund, calculated on the principal debt and the interest rate specified in the Mandatory repayment.     

4. Guarantor is a third party whose assets are used to secure principal debts of its customers.

5. Guarantee contract of mandatory repaymentis a contract made between a credit guarantee fund and a guarantor at the same time a compulsory debt reception contract is made between the credit guarantee fund and its customers.     

6. Credit risk is the possibility of a loss in the operation of a credit guarantee fund due to a client s failure or inability to perform a part or the whole of debt repayment obligations (principals or interests).     

7. Risk handlingmeans the application of measures to handle debts of customers at risk that lead to the credit guarantee fund’s inability to fully and timely recover debts (principals or interests).

8. Debt restructuring means the adjustment of debt repayment term or debt rescheduling for debts (principals or interests) of its customers.

9. Adjustment of debt repayment termmeans an acceptance by a credit guarantee fund to change the repayment terms (of principals or interests) previously agreed upon in the signed mandatory repayment without changing the mandatory repayment terms.

10. Debt extension means the approval of a credit guarantee fund to extend the repayment terms (of principals or interests) in excess of the mandatory repayment terms agreed upon in the signed compulsory debt acknowledgment contract.

11. Charge-off means the temporary collection of a part or the whole of debts (principals and interests) of customers within a certain period of time, excluding arising interests on charged-off debts (principals and interests) during the charge-off period. The charge-off period is not included in the compulsory debt acknowledgment terms in the signed compulsory debt acknowledgment contract.     

12. Write-offof interests means the no-collection of a part or the whole of interests of customers.     

13. Write-offof principalsmeans the non-collection of a part or the whole of principals of customers.     

14. Handling of collaterals means the application of measures to exchange with collaterals in order to recover customers debts.    

15. Debt sale means the transfer of a part or the whole of a creditor s rights and other rights related to a customer s debt to a debt purchaser with a payment for the creditor from the debt purchaser.    

16.Book value of debtsis the total book value of principals, interests and other financial obligations related to a customer s debt (if any) that is monitored in the accounting books of the credit guarantee fund according to law provisions.    

17. Debt purchaser is an organization or individual that purchases debts in accordance with law provisions.     

18. Debt sale price is the amount which a debt purchaser pays to a credit guarantee fund under the debt purchase and sale contract signed by both parties according to law provisions and this Circular.    

19. Broker is an organization providing debt purchase and sale brokerage services according to law provisions.    

20. Guaranteed risk reserveis a risk reserve set up under the Government s Decree No.34/2018/ND-CP.    

21. Objective causeis a cause that does not belong to small and medium-sized enterprises.    

Article 4. Risk handling principles of credit guarantee funds

1. The risk handling of credit guarantee funds shall comply with the principles specified in Clause 1, Article 37 of the Government’s Decree No.34/2018/ND-CP.

2. The handling of risky debts shall be conducted when the following conditions are fully met:

a) Debts within the scope of risk handling as specified in Article 1 of this Circular;

b) Debts of customers at the credit guarantee funds which are at risk due to one of the cases specified in Article 7 of this Circular.

3. The handling of risks of the credit guarantee funds shall be considered on a case-by-case basis, based on the extent of damages, the circumstances leading to risks as specified in Article 7 of this Circular, the practical situation of production and business, the financial status and the repayment plan of customers.

4. A debt of a customer may be subject to one or more simultaneous risk handling measures in accordance with this Circular.    

Article 5. Time for considering and handling risks

1. For consideration and handling of risks within the competence of the credit guarantee funds: Risks shall be considered and handled after the credit guarantee funds receive complete risk handling requests from customers or in case the credit guarantee funds must handle collaterals.

2. For consideration and handling of risks within the competence of the chairpersons of People s Committees of provinces or municipalities (hereinafter collectively referred to as chairpersons of provincial-level People s Committees): Risks shall be handled in installments (at least every six (06) months each) at the proposals of the presidents of the Credit Guarantee Funds.  

Article 6. Information and reporting regime

1. Annually, the credit guarantee funds shall report on the establishment and use of the guaranteed risk reserves and risk handling results following the form in Appendix 1 attached to this Circular and send it to the provincial-level People s Committees of the localities where credit guarantee funds are attached and the Ministry of Finance for monitoring and supervision according to regulations.

2. Credit guarantee funds shall report to competent authorities on unexpected situations.

Chapter II 
SPECIFIC PROVISIONS

Article 7.Cases considered for risk handling

1. Customers who suffer losses of finance and assets caused by natural disasters, crop failures, epidemics, fires, political risks or wars, which affects their production and business, and leads to the failure to repay the debts (principals and interests) on due time according to the signed mandatory repayments.    

2. Bankrupted customers in accordance with current law provisions.      

3. Customers being unable to pay debts (principals and interests) on due time according to the signed mandatory repayments because of the changes in policies by the State, which affects their production and business.

4. Customers encountering risks due to other objective causes which directly affect their production and business and lead to the failure to pay the debts (principals and interests) on due time according to the signed mandatory repayments.    

5. Customers having bad debts (from group 3 to group 5) according to debt classification results as specified in Clause 1, Article 36 of the Government s Decree No.34/2018/ND-CP.    

Article 8. Risk handling measures

Risk handling measures include:

1. Debt restructuring;     

a) Adjustment of debt repayment term;      

b) Debt extension.      

2. Charge-off of debts.      

3. Handling of collaterals.      

4. Debt sale.      

5. Write-off of interests.      

6. Write-off of principals.      

Article 9. Competence to handle risks

Competence to handle risks shall comply with the provisions specified in Clause 3, Article 37 of the Government s Decree No.34/2018/ND-CP.

Article 10. Adjustment of repayment term

1. Subjects for consideration: Customers encountering risks due to one of the cases specified in Clauses 1, 3 and 4 of Article 7 of this Circular.

2. Conditions for consideration: Repayment term of customers shall be considered to be adjusted when the customers are able to meet the following conditions:   

a) Being subjects defined in Clause 1 of this Article;

b) Encountering difficulties in production and business, resulting in failing to pay the debts (principals and interests) in due time under the signed mandatory repayments;

c) Having production and business plans and feasible plans for repaying the debts after the debt extension;

3, The repayment term of a debt shall be adjusted many times but the mandatory repayment term in the signed contracts shall not be changed.     

Articles 11. Debt extension

1. Subjects for consideration: Customers encountering risks due to one of the cases specified in Clauses 1, 3 and 4 of Article 7 of this Circular.

2. Conditions for consideration: Debts of customers shall be considered to be extended when the customers are able to meet the following conditions:

a) Being subjects defined in Clause 1 of this Article;

b) Encountering difficulties in production and business, resulting in failing to pay the debts (principals and interests) in due time under the signed mandatory repayments;     

c) Having production and business plans and feasible plans for repaying the debts after the debt extension;

d) In case the debts of customers applied with debt extension, or not applied with debt extension but the credit guarantee funds have appraised and assessed that even if they have been applied with debt extension, the customers cannot repay the debts (principals and interests) to the Credit Guarantee Funds in accordance with the signed mandatory repayments;

3. Debt extension time: A debt shall be extended several times but the time limit for mandatory repayment after the debt extension shall not exceed the maximum limit of mandatory repayment term as specified in Point c, Clause 1, Article 34 of the Government s Decree No.34/2018/ND-CP.     

4. In case of debt extension, the credit guarantee funds shall adjust the term of mandatory repayment in the contracts.     

Article 12. Charge-off of debts

1. Subjects for consideration: Customers encountering risks due to one of the cases specified in Clauses 1, 3 and 4 of Article 7 of this Circular.     

2. Conditions for consideration: Debts of customers shall be considered to be charged off when the customers are able to meet the following conditions:     

a) Being subjects defined in Clause 1 of this Article;     

b) Encountering difficulties in production and business, resulting in failing to pay the debts (principals and interests) in due time under the signed compulsory debt acknowledgments;     

c) Having production and business plans and feasible plans for repaying the debts after the debt extension;     

d) In case the debts of customers having adjustment of debt repayment term, or not having adjustment of debt repayment term but the credit guarantee funds have appraised and assessed (except for bankrupted customers) that:

- Even if they have been applied with debt restructuring, the customers cannot repay the debts (principals and interests) to the Credit Guarantee Funds in accordance with the signed mandatory repayments;

- The business situation of the customers is very difficulties and their debts need to be charged off to remove their difficulties. After the charge-off, the customers shall be able to fully repay the principals and interests to Credit guarantee funds as committed.     

3. Charge-off time: A debt shall be charged-off many times but the total time of charge-off shall not be more than three (03) years and more than 1/3 of the mandatory repayment term.    

4. Basing on the consideration conditions for charge-off of debts specified in Clause 2 of this Article and the financial status of the credit guarantee funds, the Chairpersons of the credit guarantee funds shall consider and decide on the measures for charging off the debts according to provisions specified at Point b, Clause 3, Article 37 of Government’s Decree No.34/2018/ND-CP.    

Article 13. Handling of collaterals

1. Subjects for consideration: Customers encountering risks due to one of the cases as specified in Article 7 of this Circular or as agreed between the credit guarantee funds and the customers in the mandatory repayments and the guarantors in the signed compulsory guaranteed debt acknowledgements (if any).    

2. Conditions for consideration: Credit guarantee funds shall handle collaterals to recover debts when:    

a) The subjects of consideration are those specified in Clause 1 of this Article;    

b) The debts of customers have been restructured, charged off or written off of interests or have not yet been restructured, charged off or written off of interests but the credit guarantee funds have appraised and assessed that even if applying debt restructuring, charge-off or write-off of interests, the customers cannot repay the principals to the Credit Guarantee Funds as committed.    

3. Handling differences between the proceeds from the disposal of collaterals and the book value of debts (after subtracting expenses specified by law):    

a) In case the proceeds from the handling of collaterals are higher than the book value of debts: The credit guarantee funds shall handle the balance according to the agreement between the credit guarantee funds and the customers in the  mandatory repayments and the guarantors of the signed compulsory guaranteed debt acknowledgements (if any);   

b) In case the proceeds from the handling of collaterals are lower than the book value of debts: The credit guarantee funds shall continue monitoring and recovering the remaining debts (principals and interests) according to the specified regimes or applying other risk handling measures as specified in this Circular.    

4. In the case the collaterals are for both loans and guaranteed amounts, the handling of collaterals shall be in accordance with the agreement between the Credit Guarantee Funds and the guarantors according to Clause 3, Article 33 of Government’s Decree No.34/2018/ND-CP.    

Article 14. Debt sale

1. Subjects for consideration: Customers encountering risks due to one of the cases specified in Article 7 of this Circular.     

2. Conditions for consideration: Credit guarantee funds shall consider sale debts to recover debts when:     

a) The subjects of consideration are those specified in Clause 1 of this Article;     

b) Customers encountering difficulties in production and business and unable to repay debts (principals and interests) on time in accordance with the signed compulsory debt acknowledgments;

c) Credit guarantee funds considering debt sale the more effective measure than other risk handling measures to recover debts.     

3. Methods of debt sale:      

a) Debt sale in the form of auction: Credit guarantee funds shall hire professional auction organizations or organize the debt auction by themselves according to law provisions on property auction. In case of unsuccessful auctions, the Credit Guarantee Funds shall consider and apply the methods of debt sale by agreement as specified in point b of this clause;    

b) Debt sale by agreement: Credit guarantee funds and debt purchasers shall agree on debt sale directly or through brokers according to market principles.     

4. The determination of debt sale prices for debt sale by agreement and the reserve prices for debt sale by auction shall comply with the State Bank s regulations on debt valuation in debt purchase and sale activities of credit institutions.     

5. Debt sale of credit guarantee funds shall be conducted through debt sale and purchase contracts, in which clearly defining the debt sale prices and transferring the rights of creditors from debt sellers to debt purchasers as well as other related agreements.     

6. Handling the difference between the debt sale price (after deducting expenses according to law provisions) and the book value of the debts:     

a) In case the debt sale price is higher than the book value of the debts: The difference shall be added to the guaranteed risk reserves in accordance with the Government s Decree No.34/2018/ND-CP and relevant law provisions;    

b) In case the debt sale price is lower than the book value of the debts: The credit guarantee funds shall use the guaranteed risk reserve to cover the difference or comply with the decision of the presidents of the credit guarantee funds as specified in Clause 3, Article 43 of Government’s Decree No.34/2018/ND-CP.    

Article 15.Write-off of interests

1. Subjects for consideration: Customers encountering risks in one of the cases specified in Clauses 1 and 2, Article 7 of this Circular.

2. Conditions for consideration: The interests of customers shall be considered to be written off when the customers meet the following conditions:

a) Being subjects defined in Clause 1 of this Article;

b) Encountering difficulties in production and business, resulting in production and business results of the two (02) years preceding the year of request for writing off of the outstanding amount and accrued but unpaid interests, failing to pay a part or a whole of the interests in due time under the signed compulsory debt acknowledgments with loss of capitals and assets;

c) The customers have made production and business plans and feasible plans for repaying the remaining debts after the write-off of interests (except for bankrupted customers);

d) The debts of customers have been restructured, charged off or written off, or have not yet been restructured, charged off or written off but the credit guarantee funds have appraised and assessed (except for bankrupted customers) that:

- Even if they have applied debt restructuring, charge-off or write-off of interests, the customers cannot repay the interests to the Credit Guarantee Funds as committed;

- The business situation of the customers is very difficult, and interests need to be written off to remove a part of difficulties for customers. After the write-off of interests, the customers shall be able to fully repay the debts to Credit guarantee funds as committed.

3. Basing on the consideration conditions for write-off of the interests specified in Clause 2 of this Article and the financial status of the credit guarantee funds, the Chairpersons of the provincial-level People s Committees shall consider and decide on the measure for writing off the interests according to provisions specified at Point a, Clause 3, Article 37 of Government’s Decree No.34/2018/ND-CP.

Article 16. Write-off of principals

1. Subjects for consideration: Customers encountering risks in one of the cases specified in Clauses 1 and 2, Article 7 of this Circular.     

2. Conditions for consideration: The principals of customers shall be considered to be written off when the customers meet the following conditions:     

a) Being subjects defined in Clause 1 of this Article;     

b) Encountering difficulties in production and business, resulting in production and business results of the two (02) years preceding the year of request for writing off of the outstanding principal amount and accrued losses, failing to pay a part or a whole of the principals in due time under the signed compulsory debt acknowledgments with loss of capitals and assets;     

c) In case the principals of the customers are partially written off,they shall make production and business plans and feasible plans for repaying the remaining debts after the partial write-off (except for bankrupted customers);     

d) The debts of customers have been restructured, charged off or written off or have not yet been restructured, charged off or written off but the credit guarantee funds have appraised and assessed that even if applying debt restructuring, charge-off or write-off of interests, the customers cannot repay the principals to the Credit Guarantee Funds as committed;   

e) The credit guarantee funds have applied the measures to handle collaterals to recover debts according to the provisions of Article 13 of this Circular but the customers still have a remaining amount of unpaid principals.

3. Basing on the consideration conditions for write-off of the principals specified in Clause 2 of this Article and the financial status of the credit guarantee funds, the Chairpersons of the provincial-level People s Committees shall consider and decide on the measures for writing off the principals according to provisions specified at Point a, Clause 3, Article 37 of Government’s Decree No.34/2018/ND-CP.   

Article 17. Use of the guaranteed risk reserves

1. The credit guarantee funds shall use the guaranteed risk reserves to handle risks when applying the measures of writing off principals or sale debts (in case the debt sale price is lower than the book value of the principal portion of the debt) in accordance with this Circular.   

2. In case the guaranteed risk reserves are insufficient to offset the risks from the debts of customers arising in the year, they shall be considered to be taken from the financial reserves as specified in Clause 3, Article 43 of Government’s Decree No.34/2018/ND-CP.   

3. In case the guaranteed risk reserves and financial reserves are insufficient to offset the risks from debts of customers arising in the year, the credit guarantee funds shall report and propose the provincial-level People’s Committees to allocate from the local budget for the guaranteed risk reserves to handle arising risks strictly according to law provisions.

Chapter III
ORGANIZATION OF IMPLEMENTATION

Article 18. Responsibilities of relevant agencies and units

1. Customers requesting for risk handling shall:

a) Provide adequate, timely and accurate information on the financial status, production and business, conditions for risk handling under the provisions of this Circular and the records in accordance with law provisions; comply with commitments in the Mandatory repayments and other contents related to customers when requesting for risk handling in accordance with this Circular, relevant legal documents and guidance of the Credit Guarantee Funds;   

b) Make risk handling records under the guidance of the credit guarantee funds;     

c) Take legal accountability for the accuracy, legality and validity of the information, data and documents in the applications for risk handling provided to the Credit Guarantee Funds and their commitments in case risk handling is conducted;

d) Fully pay the debts to the Credit Guarantee Funds after risks are handled (except for risks handled by the following measures: writing off all debts (principals or interests), sale debts) as specified in this Circular.    

2. Credit guarantee funds shall:     

a) Take legal accountability and responsibility to the state management agencies for the implementation of handling credit risks at the credit guarantee funds as specified in this Circular and other related legal documents;    

b) Promulgate Regulations providing detailed guidelines on risk handling as specified at Point d, Clause 3, Article 10 of the Government s Decree No.34/2018/ND-CP;    

c) Instruct customers to prepare risk handling applications and organize the implementation in accordance with this Circular;     

d) Evaluate and take full responsibility for the results of assessment of risk handling for clients in accordance with this Circular;    

e) Decide to implement risk handling measures according to its competence and organize the risk handling for debts (principals or interests) of customers according to the decisions of competent authorities;

f) Use guaranteed risk reserves to handle risks in accordance with this Circular and relevant legal documents;    

g) Continue to monitor, urge and take measures to recover fully and thoroughly debts (principals or interests) of customers under compulsory debt acknowledgments and commitments agreed upon with customers after such risks are handled (except for cases of debt sale, write-off of principals or interests in accordance with this Circular);

h) Coordinate with the Ministry of Finance in studying, amending and supplementing the Circular providing guidelines on the risk handling mechanisms of the Credit Guarantee Funds (if any).

3. Lending organizations shall: Hand over records, documents and collaterals related to the guaranteed loans to the Credit Guarantee Funds after the Credit Guarantee Funds fulfill their guarantee obligations in accordance with the provisions of Government’s Decree No.34/2018/ND-CP and the agreements between the two parties.     

4. Provincial-level People s Committees shall:      

a) The Chairpersons of the provincial-level People s Committee shall consider deciding risk handling measures in accordance with this Circular;    

b) Instruct the subsidiary bodies and provide guidelines or requests for small and medium-sized enterprises in the localities to coordinate with and support the credit guarantee funds in debt recovery and debt settlement;    

c) Instruct the People s Committees of communes, wards or districts where customers conduct their production and business to certify their losses of assets and commodities due to natural disasters, crop failures, epidemics, fires, political risks or wars.

Article 19. Transitional provisions

1. In case risks arise for the debts of customers who have signed the compulsory debt acknowledgments before the effective date of this Circular, the provisions of this Circular shall be applied to handle such risks.    

2. For debts of customers who are not small and medium-sized enterprises receiving compulsory debts according to the Prime Minister s Decision No.193/2001/QD-TTg dated December 20, 2001 promulgating the Regulations on establishment, organization and operation of credit guarantee funds for small and medium-sized enterprises: Based on the provisions of this Circular, the credit guarantee funds shall provide specific guidelines in the Regulations on risk handling issued by the Presidents of Credit guarantee funds in accordance with law provisions.    

Article 20. Provisions of implementation

1. This Circularshalltake effect from October 15, 2019.    

2. Presidents of credit guarantee funds, directors of credit guarantee funds and concerned organizations and individuals shall take responsibility to implement this Circular.