Integrated Document No. 01/VBHN-NHNN dated March 31, 2014 of the State Bank of Vietnam integrates the Circulars on classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches

THE STATE BANK OF VIETNAM

Integrated Document No.01/VBHN-NHNN dated March 31, 2014 of the State Bank of Vietnam integrates the Circularson classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches

The Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the Governor of the Vietnam State Bank that provides for the classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches, and comes into force from June 01, 2013 is amended by:

The Circular No. 09/2014/TT-NHNN dated January 21, 2013 of the Governor of the State bank of Vietnam on amending a number of articles of the Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the Governor of the Vietnam State Bank on classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches.

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

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

Pursuant to the Decree No. 96/2008/ND-CP dated August 26, 2008 of the Government on defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

After the achievement of consensus with the Ministry of Finance;

At the request of the Chief of Banking Inspection and Supervision;

The Governor of the State Bank hereby promulgates a Circular on classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches.

Chapter 1.

GENERAL PROVISIONS

Article 1. Scope of adjustment

1. This Circular provides for classification of assets, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity of credit institutions and foreign banks’ branches for the following assets (hereinafter referred to as “debts”):

a) Loans;

b) Financial leases;

c) Discounts, rediscounts of negotiable instruments and other valuable papers;

d) Factoring;

dd) Credit extensions in the form of credit card issuance;

e) Payments-on-behalf-of (POBO) under off-balance sheet commitments;

g) Amounts in service of purchase and authorization of purchase of corporate bonds unlisted on securities market or not conducted transaction registration on Unlisted Public Company Market (UPCoM) (hereinafter referred to as “unlisted bonds”), excluding purchase of unlisted bonds by authorization capital sources which the authorizing party bears risks.

h) Authorization of credit extension;

i) Deposits (excluding demand deposit) at domestic credit institutions and foreign banks’ branches in Vietnam as prescribed by law and deposits at foreign credit institutions.

2. Guarantee amounts, payment acceptances, irrevocable lending commitments (hereinafter referred to as “off-balance sheet commitments”) must be classified as prescribed in this Circular in order to manage, supervise quality of credit extension of credit institutions and foreign banks branches.

3. The establishment and use of provision for inventory impairment, provision for loss of financial investments, provision for bad debts, excluding amounts specified in clause 1 this Article shall comply with regulations of law.

The establishment and use of provisions for credit losses for special bonds issued by Asset Management Company of Vietnamese credit institutions to purchase bad debts of credit institutions shall comply with Circular No. 19/2013/TT-NHNN dated September 06, 2013 of the Governor of the State Bank on the purchase, sale and handling of bad debts of Vietnam Asset Management Company of Vietnamese credit institutions (Circular 19) and documents amending and replacing Circular 19 (if any).

Article 2. Subject of application

1. This Circular applies to:

a) Credit institutions, including:  commercial banks and non-bank credit institutions;

b) Foreign banks branches.

2. Foreign banks branches which apply policy on provisions for credit losses of foreign banks to classify debts and off-balance sheet commitments, establishment and use of provisions for credit losses must have the consent of the State Bank of Vietnam (hereinafter referred to as the “State Bank”) under the condition that such policy are more progressive and preeminent than those defined in Article 6 of this Circular. Applications and procedures for obtaining the consent of the State Bank to apply the policy on provisions for credit losses of foreign banks shall comply with regulations defined in Clause 3, Clause 4, Article 11 of this Circular.

3. Foreign banks branches whose application of policy on provisions for credit losses of foreign banks has obtained the consent of the State Bank before the effective date of this Circular, and foreign banks branches whose application of policy on provisions for credit losses of foreign banks has obtained the consent of the State Bank as prescribed in Clause 2 of this Article shall comply with regulations of foreign banks. In the course of inspection and supervision, if the State Bank concludes that a foreign bank’ policy on provisions fails to reflect fully the credit risk extent in actual bank activity in Vietnam, the State Bank may request foreign banks’ branches to classify debts and off-balance sheet commitments, establish and use provisions for credit losses as prescribed in this Circular.

4. During the implementation of plan on re-structuring, merging, consolidating, if credit institutions encounter difficulties in classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses, they should inform the Governor of the State Bank thereof for solutions, thereby ensuring the system’s safety.

Article 3. Definitions

For the purposes of this Circular, the following terms are construed as follows:

1.Credit risks in banking activity(hereinafter referred to as “risks”) mean loss which may be incurred on debts of credit institutions and foreign banks’ branches as customers fail to fulfill or appear incapable of fulfilling part or whole of their obligations as committed.

2.Debtmeans an amount of money which a credit institution or foreign bank’s branch has sent or disbursed under an agreement specified in Clause 1 Article 1 of this Circular.

3.Provision for credit lossesmean the amounts created and accounted into the operational cost in order to make provisions for losses which may be incurred on debts of credit institutions and foreign banks’ branches.  Provisions for credit losses include specific provisions and general provisions.

4.Specific provisionsmean the amounts created in order to make provisions for losses which may be incurred on each specific debt.

5.General provisionsmeanthe amounts created in order to make provisions for losses which may be incurred but have not been defined upon the creation of specific provisions.

6.Overdue debtmeans a debt whose part or whole of principal and interest becomes overdue.

7.Rescheduled debtsare debts, the payment term of which a credit institution and foreign bank’s branch consents to rescheduling and/or reschedule for a customer as he/she appears incapable of duly paying the principal and/or interest as stated in the contract, but there are sufficient grounds for that credit institution and foreign bank’ branch to conclude that the customer is capable of fully paying principal and interest under the rescheduled.

8.Nonperforming loan (NPL)means a debt which is classified as those in Groups 3, 4 and 5.

9.Bad debt ratesmean the rates of bad debts in comparison with total debts of from Group 1 to Group 5.

10.Rates of bad credit extensionsmean the rates between total debts and off-balance sheet commitments of group 3 to group 5 in comparison with total debts and off-balance sheet commitments of group 1 to group 5.

11.Customersmean organizations (including credit institutions and foreign banks’ branches), individuals, other subjects as prescribed by civil law which have transactions in terms of credit extension, deposit; issuance of bonds, valuable papers, which are bought by credit institutions and foreign banks’ branches.

12. Use of provisions for credit lossesmeans a credit institution or foreign bank’s branch remove a risky debt from the balance sheet and continue supervising and working out solutions to full debt recovery under the signed contracts, or commitments agreed with customers.

Article 4. Collection of customers’ data, information and information technology

1. Credit institutions and foreign banks’ branches shall take measures and regularly collect customers’ information, data, including information from the Credit Information Center (CIC), in order to:

a) Amend the internal credit ranking system, internal regulations on credit extension, loan management, and policy on provisions for credit losses.

b) Supervise and assess customers’ solvency after having ranked under the internal credit ranking system, take appropriate measures for managing credit risks and managing credit quality.

c) Classify debts and off-balance sheet commitments, establish provisions for credit losses and use provisions as prescribed in this Circular.

2. Credit institutions and foreign banks’ branches must create an information technology system in their whole system to meet requirements for management of customers’ data, information, operation and management of internal credit ranking system, risk management, classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses.

Article 5. Internal credit ranking system

1. Internal credit ranking system means a system including financial and non-financial criteria and process for assessing customers based on financial qualitative and quantitative, business and administration, and prestige of customers. The internal credit ranking system must be created for each subject of various customers, including subjects restrained from credit extension and relevant persons of these subjects.

2. The internal credit ranking system must be created according to the following rules:

a) The internal credit ranking system is created according to customer s data and information collected within at least 01 (one) year preceding the year in which the system is created.

b) At least once a year, the internal credit ranking system must be considered and adjusted according to the customer’s data and information collected during the year.

c) The ranks are defined according to levels of risk in ascending order.

d) The internal credit ranking system shall be approved by the Board of Directors (for credit institutions being joint-stock companies), the Board of Members (for credit institutions being limited liability companies), General Director or Director (for foreign banks’ branches).

3. Credit institutions and foreign banks’ branches must create the internal credit ranking system in order to rank customers periodically or when necessary, thereby acting as a basis for approval for credit extension, management of credit quality, and formulation of policy on provisions for credit losses in conformity with operational scope and actual situation of credit institutions and foreign banks’ branches.

Non-bank credit institutions are not required to have an internal credit ranking system

4. Within 10 (ten) days from the day on which the internal credit ranking system is introduced and amended, credit institutions and foreign banks’ branches must send the following documents directly or via post to the State Bank (the Banking Inspection and Supervision Authority):

a) For introduction of a new system:

(i) A written report on introduction and application of an internal credit ranking system;

(ii) An internal credit ranking system, documents describing internal credit ranking system, process for collecting customers information and data, and ranking customers;

(iii) Guidance for use of internal credit ranking system, including decentralization and authorization for collection of customers information and data, and customer ranking;

b) For amendments:

(i) A written report on amendments to an internal credit ranking system, clearly stating reasons thereof;

(ii) Amending documents on the internal credit ranking system and guidance for use of the internal credit ranking system.

Article 6. Internal regulations on credit extension, loan management and policy on provisions for credit losses

1. Credit institutions and foreign banks’ branches must issue internal regulations on credit extension, loan management, and policy on provisions for credit losses.

2. Internal regulations on credit extension and loan management must meet at least the following conditions:

a) They are made according to customer s collected data and information, and results of customer ranking under the internal credit ranking system;

b) They are adopted in the whole system, thereby acting as a basis for approval, extension of credit, and management of loans applicable to each customer;

c) They specify the credit policy applicable to customers, including regulations on eligibility for credit extension, limit of credit extension, interest rate, applications, procedures and process for appraising and approving credit extension and management of loans;

d) They specify the management, aiming to comply with regulations and law of the State Bank on safety assurance level in activity of credit institutions and foreign banks’ branches;

dd) They specify duties, powers of entities and individuals in appraisal, credit extension and credit quality control, appraisal and management of security assets;

e) They specify process, content of inspection and supervision before, during, and after the extension of credit;

g) They specify measures for assurance, appraisal and management of security assets;

h)They specify self-assessment of security assets including rules, methods, process and duties of each entity and individual in connection with security asset valuation as prescribed in the law to ensure that the security asset value conforms to market value when calculating the amounts obtained from the establishment of specific provisions as prescribed in this Circular;

i) They specify measures for debt recovery.

3. A policy on provisions for credit losses must meet at least the following requirements:

a) Conform to regulations of law on finance, accounting and statistical reports;

b) Include process to collect customers data and information, ensure exact classification of debts and off-balance sheet commitments, manage bad debts and bad outstanding balances incurred from credit extension, and establish the sufficient provision as prescribed;

c) Include specific regulations on classification of debts and off-balance sheet commitments, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity applicable to each customer on a periodical and irregular basis;

c) Include specific regulations on classification of debts and off-balance sheet commitments, ratio and method of establishment of provisions for credit losses, and use of provisions for credit losses in the banking activity applicable to each customer on a periodical and irregular basis;

dd) Include mechanisms for inspecting, supervising and reporting contents prescribed in Points a, b, c, d of this Clause.

Article 7. Report on internal regulations on credit extension, loan management and policy on provisions for credit losses

Within 10 (ten) days from the day on which the internal regulations on credit ranking system, credit extension, loan management and policy on provisions for credit losses are issued and amended, credit institutions and foreign banks’ branches must send 01 set of application, including the following documents directly or via post to the State Bank (the Banking Inspection and Supervision Authority):

a) For issuance of new regulations:

(i) A written report on the issuance of internal regulations on credit extension, loan management, and policy on provisions for credit losses.

(ii) Internal regulations on credit extension, loan management, and policy on provisions for credit losses.

b) For amendments:

(i) A written report on amendments made to internal regulations on credit extension, loan management, policy on provisions for credit losses, clearly stating reasons thereof.

(ii) Documents amending internal regulations on credit extension, loan management, and policy on provisions for credit losses.

Article 8. Time for classification, establishment and use of provisions for credit losses

1. Based on customers’ solvency as prescribed in 11 Article 10, Article of this Circular At least every quarter, within 15 (fifteen) first days of the first month of every quarter, credit institutions and foreign banks’ branches must classify debts and off-balance sheet commitments by themselves until the end of final working day of last quarter, and send results thereof to the CIC.

For the last quarter of annual accounting period, within 15 (fifteen) first working days of the final month, credit institutions and foreign banks’ branches must classify debts and off-balance sheet commitments until the end of final working day of the second month of final quarter of the accounting period.

Apart from mentioned-above time for classification, credit institutions and foreign banks’ branches shall classify debts and off-balance sheet commitments according to internal regulations.

2. Within 03 (three) days after the receipt of result of self-classification of debts and off-balance sheet commitments made by credit institutions and foreign banks’ branches as prescribed in Clause 1 of this Article, the CIC shall compile a list of customers according to group of debts with highest risk extent which are self-classified by credit institutions and foreign banks’ branches and provide them at the request of credit institutions and foreign banks’ branches.

3. Within 05 (five) days from the day on which the CIC shall compile a list of customers as prescribed in Clause 2 of this Article. Credit institutions and foreign banks’ branches must request the CIC to provide the above-mentioned list, use result of classification of debt groups according to customer provided by the CIC in order to adjust their result of classification of debts and off-balance sheet commitments according to the rules specified in Clause 1, Article 9; establish sufficient provisions and use provisions for credit losses as prescribed in this Circular.

Chapter 2.

SPECIFIC PROVISIONS

Section 1: CLASSIFICATION OF DEBTS AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Methods and rules for classification

1. Credit institutions and foreign banks’ branches must classify debts and off-balance sheet commitments by themselves as prescribed in Article 10, Article 11 of this Circular and must use result of classification of debt groups according to customers provided by the CIC at the time of classification in order to adjust their result of self-classification of debts and off-balance sheet commitments.  If debts and off-balance sheet commitments of customers are classified into the group of debts with risk extent lower than group of debts according to the list provided by the CIC, credit institutions and foreign banks’ branches must adjust result of classification of debts and off-balance sheet commitments according to the group of debts provided by the CIC.

2. All outstanding balances and value of off-balance sheet commitments of a customer at a credit institution or foreign bank’s branch must be classified into the same group of debts. For a customer who has two debts or more and/or off-balance sheet commitments or more at a credit institution or foreign bank’s branch, if any debt or off-balance sheet commitment is classified into the group with risk extent higher than others, that credit institution or foreign bank’s branch must re-classify the remaining debts or off-balance sheet commitments of such customer into the group with the highest risk extent.

3. For a syndicated credit extension, each credit institution and foreign bank’s branch extending syndicated credit must classify in an independent manner and take responsibility for immediately informing each other of the classification result. All debts and off-balance sheet commitments of a customer whose syndicated credit is extended at a credit institution or foreign bank’s branch must be classified into the group with the highest risk extent which has been classified by a credit institution or foreign bank’s branch extending syndicated credit extension.

4. For credit extension authorization, if the authorized party is yet to disburse under the authorization contract, the authorizing party must classify the credit extension as a loan for the authorized party.

5. For a debt which has been sold but the payments are yet to be collected, a debt which is sold but the buyer has right to claim the seller, the uncollected amounts and the sold outstanding balances enclosed with right to claim the seller shall be classified and established a risk provision as prescribed in this Circular as before the debt is sold.

6. For a debt purchased, credit institutions and foreign banks’ branches shall classify the amounts which have been paid for purchase of debt into the group with risk extent not lower than the group into which such debt had been classified before the purchase.

7. For the amounts used to purchase or authorized to another organization (including credit institutions and foreign banks’ branches) to purchase unlisted corporate bonds, credit institutions and foreign banks’ branches must classify it as an unsecured loan for the party issuing bonds, unless corporate bonds have been secured for payment by assets.

8. For the discount offered by purchasing negotiable instruments, other valuable papers of the beneficiary under a definite term, credit institutions and foreign banks’ branches shall classify the discount as a loan for the beneficiary.

9. For debts which the provision of loan or credit extension is performed under consent and direction of the Government or the Prime Minister, credit institutions and foreign banks’ branches shall classify debts, establish and use provisions for credit losses in accordance with decisions of the Governor of the State Bank applicable to each specific case.

10. For debts violating law specified in Point c (iv), Clause 1, Article 10 of this Circular, at the time of detecting violation, credit institutions and foreign banks’ branches must immediately make a decision on recovering part of violated outstanding balance.

For debts recovered under inspection conclusions, credit institutions and foreign banks’ branches must make a decision on recovering outstanding balances under inspection conclusions.

For debts violating law specified in Point c (iv), Clause 1, Article 10 of this Circular, such debts must be recovered under inspection conclusions, credit institutions and foreign banks’ branches may not rescheduled, and while they fail to be recovered under the decision on recovery, credit institutions and foreign banks’ branches must classify debts and establish provisions as prescribed in this Circular.

10a. In the event a debt violating law specified in Points c(iv), d(iv), dd(v), Clause 1, Article 10 of this Circular or a debt recovered under inspection conclusions specified in Points c(iv), d(iv), dd(v), Clause 1, Article 10 of this Circular is classified into groups of different risk extent, credit institutions and foreign banks’ branches must classify that debt into the group of debt with the highest risk extent.

11. Based on result of inspection, supervision and relevant credit information, the State Bank is entitled to request credit institutions and foreign banks’ branches to assess, re-classify specific debts and establish sufficient provisions in conformity with the risk extent of such debts.

Section 10: Classification of debts and off-balance sheet commitments under the quantitative method

1. Credit institutions and foreign banks’ branches shall classify debts (excluding POBO under off-balance sheet commitments) into 05 groups as follows:

a) Group 1 (standard debts) includes:

(i) Current debts, according to the foreign banks’ branches or credit institutions’ assessment, whose principal and interest may be fully recovered when they become due;

(ii) Debts which are overdue for less than 10 days and according to the Bank or credit institution’s assessment, both overdue principal and interest may be fully recovered, and both remaining principal and interest could also be fully recovered when they become due.

(iii) Other debts which are classified into the Group 1 as prescribed in Clause 2 of this Article.

b) Group 2 (special mention debts) includes:

(i) Debts which are overdue from 10 days to 90 days;

(ii) Debts which are rescheduled for the first time;

(iii) Other debts which are classified into the Group 2 as prescribed in Clauses 2 and 3 of this Article.

c) Group 3 (sub-standard debts) includes:

(i) Debts which are overdue from 91 days to 180 days;

(ii) Debts which are extended payment term for the first time;

(iii) Debts whose interest are exempted or reduced because customers are not able to fully repay interest under credit contracts;

(iv) Debts in one of the following cases may not be recovered within 30 days from the day on which a decision on recovery is made:

- Debts which break regulations defined in Clauses 1, 3, 4, 5, 6 Article 126 of the Law on Credit Institutions;

- Debts which break regulations defined in Clauses 1, 2, 3, 4 Article 127 of the Law on Credit Institutions;

- Debts which break regulations defined in Clauses 1, 2, 5 Article 128 of the Law on Credit Institutions;

(v) Debts which are recovered under inspection conclusions;

(vi) Other debts which are classified into the Group 3 as prescribed in Clauses 2 and 3 of this Article.

(vii)Other debts which must be classified into the Group 3 as prescribed in Clause 11, Article 9 of this Article.

d) Group 4 (doubtful debts) includes:

(i) Debts which are overdue from 181 days to 360 days;

(ii) Debts which are rescheduled for the first time but still overdue for less than 90 days within that rescheduled term;

(iii) Debts which are rescheduled for the second time;

(iv) Debts which are specified in Point c (iv) Clause 1 of this Article and fail to be recovered from 30 days and 60 days after a decision on recovery is made;

(v)Debts which must be recovered under inspection conclusions but fail to be recovered while recovery term was overdue 60 days ago;

(vi) Other debts which are classified to the Group 4 as prescribed in Clauses 2 and 3 of this Article.

(vii) Other debts which must be classified into the Group 4 as prescribed in Clause 11, Article 9 of this Article.

dd) Group 5 (potentially irrecoverable debt) includes:

(i) Debts which are overdue for more than 360 days;

(ii) Debts which are rescheduled for the first time but still overdue for 90 days or more within that rescheduled term;

(iii) Debts which are rescheduled for the second time but still overdue within that rescheduled term;

(iv) Debts which are rescheduled for the third time or later, whether debts are overdue or not;

(v) Debts which are specified in Point c (iv) Clause 1 of this Article and fail to be recovered for more than 60 days after a decision on recovery is made;

(vi) Debts which must be recovered under inspection conclusions but fail to be recovered while recovery term was overdue 60 days ago;

(vii) Debts of customers being credit institutions which are announced by the State bank to place in special control status, or foreign banks’ branches whose capital and assets are blockaded;

(viii) Other debts which are classified to the Group 5 as prescribed in Clause 3 of this Article.

(ix) Other debts which must be classified into the Group 5 as prescribed in Clause 11, Article 9 of this Article.

2. Debts shall be classified into the group with lower risks in the following cases:

a) For overdue debts, credit institutions and foreign banks’ branches shall re-classify it into Group of debts with lower risks (including Group 1) when all following conditions are met:

(i) In the event customers have made full repayment of overdue principal and interest (including interest applicable to overdue principal) and the principal and interest of the following payment terms for at least 03 (three) months with respect to long and medium-term debts and 01 (one) month with respect to short-term debts, from the day in which the full repayment of the overdue principal and interest is paid;

(ii) Documents proving customers have paid debts must be available;

(iii) Credit institutions and foreign banks’ branches must provide sufficient information and documents in order to conclude that the customers are capable of fully repaying the remaining principal and interest in line with the term.

b. For the rescheduled debt, credit institutions and foreign banks’ branches shall re-classify it into Group of debts with lower risks (including Group 1) when all following conditions are met:

(i) In the event customers have made full repayment of principal and interest under the rescheduled term for at least 03 (three) months with respect to long and medium-term debts and 01 (one) month with respect to short-term debts, from the day in which the full repayment of overdue principal and interest is made under the rescheduled;

(ii) Documents proving customers have paid debts must be available;

(iii) Credit institutions and foreign banks’ branches must provide sufficient information and documents in order to conclude that the customers are capable of fully repaying the remaining principal and interest in line with the rescheduled term.

3. Debts shall be classified into the group with higher risks in the following cases:

a) Unfavorable changes in environment and business have negative and direct impacts on the customers’ solvency (natural disasters, epidemics, wars, and economic environment);

b) Indicators for profitability, solvency, debt-to-capital ratio, cash flow, customers’ solvency show a continuous reduction or a remarkably declining tendency after the assessment and classification of debt is made for the third consecutive time;

c) Customers fail to promptly, fully and honestly provide financial information at the request of credit institutions and foreign banks’ branches in order for them to make an assessment of customers’ solvency.

d) Debts which are classified into Group 2, Group 3, Group 4 as prescribed in Points a, b and c of this Clause for 01 (one) year or longer but are not eligible to be classified into the Group of debts with lower risks.

dd) Debts of which acts of credit extension have been imposed penalties for administrative violations as prescribed in law.

3a. Payment term is rescheduled and group of debt is retained:

a) Credit institutions and foreign banks’ branches may consider restructuring payment term and retaining groups of debt as classified before restructuring debt payment when all following conditions are met:

(i) Debts of which credit extension does not break regulations of law;

(ii) Payment term is rescheduled in conformity with purpose of project which needs loan in credit contract;

(iii) Customers use capital for a proper purpose;

(iv) Rescheduling of payment term and retaining of debt group may only performed if the customer, who is incapable of paying debt according to the loan principle and/or interest payment term within the loan term or incapable of paying loan principle and/or interest according to loan term as agreed in credit contract, shall formulate a new plan on debt payment which is feasible and conformable with conditions for production, business and service;

(v) When rescheduling payment term and retaining groups of debt, credit institutions and foreign banks’ branches must satisfy regulations of the State Bank on limitations and safety assurance levels in banking activities of credit institutions and foreign banks’ branches, including the maximum rate of short-term capital sources used for medium-term and long-term loans in case short-term loans are rescheduled into medium-term or long-term loans.

b) Credit institutions and foreign banks’ branches which may reschedule payment term and retain groups of debt as prescribed in Point a of this Clause must fulfill the following requirements:

(i) Credit institutions and foreign banks’ branches shall promulgate internal regulations on control and supervision on the rescheduling of payment term and retaining of debt groups and implement them in entire system, provide a mechanism for internal control involving rescheduling of payment term and retaining of debt groups, ensure strict and safe inspection and supervision, and prevention against misusing of rescheduling of payment term and retaining of debt groups to determine the credit quality in a wrong manner;

(ii) Credit institutions and foreign banks’ branches must take control of content and reason for rescheduling of payment term and retaining of debt groups for each debt. The State Bank requests credit institutions and foreign banks’ branches to inform specific content and reason for rescheduling of payment term and retaining of debt groups for each debt when necessary;

(iii) Credit institutions and foreign banks’ branches shall make a decision and take responsibility for the rescheduling of payment term and retaining of debt groups as prescribed in this Circular.

(iv) For a debt, the rescheduling of payment term and retaining of debt groups prescribed in Point a of this Clause may be performed once only;

(v) Credit institutions and foreign banks’ branches must regularly review, assess customers’ solvency after debts that is rescheduled and whose debt group are retained. In case debts whose payment term is rescheduled and debt group are retained as prescribed in this Circular but customers still fail to pay due debts according to the rescheduled term, credit institutions and foreign banks’ branches may not continue to retain debt groups and must classify such debts into respective debt groups as prescribed in Article 10, Article 11 of this Circular;

(vi) Within 05 (five) first days of each month or at the request of the State Bank, credit institutions and foreign banks’ branches must submit a report on the rescheduling of payment term and retaining of debt groups according to the form defined in Appendix No. 01 enclosed with this Circular to the State Bank (the Banking Inspection and Supervision Authority)

4. Classification of POBO under off-balance sheet commitments:

a) Classification of off-balance sheet commitments:

(i) Classify them into Group 1 if credit institutions and foreign banks’ branches assess that customers are capable of fulfilling all obligations under commitments. (ii) Classify them into Group 2 or over if credit institutions and foreign banks’ branches assess that customers are incapable of fulfilling all obligations under commitments

(iii) Classify off-balance sheet commitments in one of the cases set forth in Point c (iv) Clause 1 of this Article into Group 3 or over.

b) Classification of POBO under off-balance sheet commitments:

(i) The overdue day shall be from the day on which credit institutions and foreign banks’ branches fulfill their obligations under commitments.

(ii) POBO under off-balance sheet commitments are classified as follows:

- Classify them into Group 3 if debts are overdue for less than 30 days;

- Classify them into Group 4 if debts are overdue for between 30 days and less than 90 days;

- Classify them into Group 5 if debts are overdue for 90 days or more;

If a POBO is classified to a group with risks lower than group which POBO under off-balance sheet commitments are classified as prescribed in Point a (ii), Point a (iii) of this Clause, it must be moved to group which such off-balance sheet commitment is classified.

Article 11. Classification of debts and off-balance sheet commitments under quantitative method

1. Credit institutions and foreign banks’ branches shall classify debts and off-balance sheet commitments into 05 groups as follows:

a) Group 1 (Standard debts) includes: Debts, according to the foreign banks’ branches or credit institutions’ assessment, whose principal and interest may be fully recovered when they become due.

Off-balance sheet commitments are assessed by credit institutions and foreign banks’ branches as customers who are capable of fulfilling all obligations under commitments.

b) Group 2 (mention debts) includes: Debts, according to the foreign banks’ branches or credit institutions’ assessment, whose principal and interest may be fully recovered but there are signs showing that customers’ solvency ratio is on decline.

Off-balance sheet commitments are assessed by credit institutions and foreign banks’ branches as customers who are capable of fulfilling all obligations under commitments but there are signs showing a decline in their capability to make commitments.

c) Group 3 (Sub-standard debts) includes: Debts, according to the foreign banks’ branches or credit institutions’ assessment, whose principal and interest may not be fully recovered when they become due. These debts are assessed by credit institutions and foreign banks’ branches as potential losses.

Off-balance sheet commitments which are assessed by credit institutions and foreign banks’ branches as customers who are incapable of fulfilling all obligations under commitments.

d) Group 4 (doubtful debts) includes: Debts which are assessed by credit institutions and foreign banks’ branches as high-potential losses.

Off-balance sheet commitments which capability of commitments not to be made by customers are very high.

dd) Group 5 (potentially irrecoverable debts) includes: Debts which are assessed by the foreign banks’ branches or credit institutions’ as irrecoverable and lost.

Off-balance sheet commitments which customers are incapable of fulfilling committed obligations.

2. Credit institutions and foreign banks’ branches which classify debts and off-balance sheet commitments as prescribed in Clause 1 of this Article must obtain the written consent granted by the State Bank when all following conditions are met:

a) Operate an internal credit ranking system which is conformable with business activities, customers, nature of debt risk and has been tested for at least 01 year;

b) Adopt a policy on provisions for credit losses as prescribed in Clause 3, Article 6 of this Circular;

c) Adopt a policy on credit risk management, a model for supervising credit risk, a method of defining and measuring credit risk (including methods of assessing customers’ solvency under credit contracts, security assets, recoverability and debt management;

d) Clearly define responsibilities and powers of the Board of Directors, Board of Members, General Directors (Directors) in approving, implementing and supervising the implementation of internal credit ranking system and policy on provisions of credit institutions and foreign banks’ branches, and independence of risk management divisions.

3. Credit institutions and foreign banks’ branches must send directly or via post to the State Bank (the Banking Inspection and Supervision Authority) 01 set of application for the State Bank s consent to debt classification as prescribed in Clause 1 of this Article and Clause 2 Article 2 of this Circular, including the following documents:

a) A written request of foreign bank’s branch for the State bank’s consent to the foreign bank’s application of policy on provisions for credit losses as prescribed in Clause 2, Article 2 of this Circular; a written request of credit institution or foreign bank’s branch for the State Bank’s content to the classification of debts and off-balance sheet commitments under the qualitative method specified in Clause 1 of this Article, proving its satisfaction with all conditions specified in clause 2 this Article;

b) A copy of policy on provisions for credit losses of foreign bank for the case specified in Clause 2, Article 2 of this Article; a copy of internal credit ranking system, policy on provisions for credit losses, policy on credit risk control and drafts of documents guiding classification of debts and off-balance sheet commitments and establishment of provisions for credit losses of credit institutions and foreign banks’ branches for the case specified in clause 2 this Article.

4. Within 30 (thirty) days from the day on which a valid application prescribed in Clause 3 of this Article is received, the State Bank shall submit a written consent to the credit institution or foreign bank’ branch. In case of refusal to consent, the State Bank shall submit a written response clearly stating reasons thereof.

5. Annually, credit institutions and foreign banks’ branches must re-assess their internal credit ranking system, policy on provisions for credit losses and policy on credit risk management in order for them to be conformable with actual situation and regulations of law.

6. Credit institutions and foreign banks’ branches which are consented to classify debts and off-balance sheet commitments as prescribed in Clause 1 of this Article must simultaneously classify debts and off-balance sheet commitments as prescribed in Article 10 of this Circular. In the event results of classification of a debt and off-balance sheet commitment as prescribed in Article 10 and Clause 1 this Article are different, debt and off-balance sheet commitment must be classified into the group with higher risk extent. Debts and off-balance sheet commitments shall be simultaneously classified as prescribed in Article 10 and Article 11 of this Circular within 05 (five) years from the day in which a written consent granted by the State Bank is obtained.

Section 2: PROVISIONING RATIO

Article 12. Specific provisioning ratio

1. Amount of specific provisions required to establish for each customer shall be calculated according to the following formula:

R =

Where:

- R: total amount of specific provisions required to create of each customer;

-: total amount of specific provisions required to create of each customer from the first outstanding balance to n.

R: amount of specific provisions required to create of each customer with respect to original outstanding principal balance of debt i. Ri shall be calculated according to the following formula:

Ri = (Ai - Ci) x r

Where:

Ai: the i original outstanding principal balance i;

Ci:the deducted value of security assets, financial leasing assets (below collectively referred to as “security assets”) of the i debt;

r:specific provisioning ratio under group as prescribed in Clause 2 of this Article.

In case of Ci > Ai, Ri equals 0.

2. Specific provisioning ratio for groups of debts is as follows:

a) Group 1: 0%;

b) Group 2: 5%;

c) Group 3: 20%;

d) Group 4: 50%;

dd) Group 5: 100%;

3. Security assets for deduction when calculating amount of specific provisions (R) specified in Clause 1 of this Article must meet all following conditions:

a) Credit institutions and foreign banks’ branches may handle security assets according to the guarantee contracts and regulations of law when customers fail to fulfill their obligations under commitments.

b) The security assets which are not real estates shall be expected to be handled within 01 (one) year and security assets which are real estates shall be handled within 02 (two) years since credit institutions and foreign banks’ branches have right to handle security assets;

c) Security assets must meet all conditions as prescribed in the law on security transactions;

d) Security assets specified in Point d, Clause 5 of this Article must be valued by an organization in charge of valuation according to regulations of law in the following cases:

(i) Security assets with value of 50 billion dong or more for debts of customers who are persons related to credit institutions and foreign banks’ branches and customers who are restrained for credit extension as prescribed in Article 127 of the Law on Credit Institutions.

(ii) Security assets with value of 200 billion dong or more, except for cases specified in Point d(i) of this Clause.

Result of valuation of security assets of organization in charge of valuation as prescribed in law shall be used by credit institutions and foreign banks’ branches to determine value of security assets deducted upon calculation of specific provisioning amount and shall be valid for 12 months from the day in which the organization in charge of valuation as prescribed by law put their signature to a written valuation.

In case an organization in charge of valuation is incapable of carrying out a valuation or in case there is no organization in charge of valuation of security specified in Points d(i), d(ii) of this Clause, credit institutions and foreign banks’ branches may carry out a valuation according to internal regulations specified in Point h, Clause 2, Article 6 of this Circular.

In case a security asset fails to meet all conditions defined in Points a, b, c, d of this Clause, the deducted value of such asset must be considered as zero.

4. The deducted value of a security asset is defined by product of value of security asset specified in Clause 5 of this Article and rate of deduction for each type of security asset specified in clause 6 this Article.

Credit institutions and foreign banks’ branches may self-define the rate of deduction for each type of security asset according to the assessment of recoverability upon the handling of such security asset but the rate must not exceed the maximum deduction rate of each type of security assets specified in Clause 6 of this Article.

5. Value of security assets is defined as follows:

a) Gold bar: The purchase price at head office of enterprises, credit institutions owning label of gold bar at the end of the day before the day on which specific provisions are established. If the purchase price is not listed, value of gold bar shall be defined as prescribed in Point d of this Clause.

b) The Government s bonds which are listed on the Stock Exchange: The reference price of the Stock Exchange at the end of the day before the day on which specific provisions are established or at the latest time before the day on which specific provisions are established (if there is no reference price at the end of the day before the day on which specific provisions are established);

c) Securities issued by enterprises (including credit institutions) are listed on the Stock Exchange:  The reference price of the Stock Exchange at the end of the day before the day on which specific provisions are established or at the latest time before the day on which specific provisions are established (if there is no reference price at the end of the day before the day on which specific provisions are established);

Securities that are yet to be listed on the Stock Exchange, other valuable papers issued by enterprises (including institutions credit): calculated by face value;

d) Movable assets, real estate and other security assets: Value of security asset which is valued by an organization in charge of valuation as prescribed by law specified in Point d Clause 3 of this Article or which is valued according to internal regulations of credit institution or foreign bank’s branch specified in Point h Clause 2 Article 6 of this Circular.  In case there is no document on valuation of security asset, value of security asset must be considered as zero;

dd) The financial-leasing asset (value of financial-leasing asset according to the financial-leasing contract subtracts the payable rents): The remaining rents according to the contract at the time of establishment of specific provision or value which is valuated by an organization in charge of valuation as prescribed in law.

6. The maximum deduction rate for security assets:

a) Deposit of customer in Vietnam dong: 100%;

b) Gold bar, except gold bar specified in Point i of this Clause; deposit of customer in foreign currency: 95%;

c) The Government’s bonds, negotiable instruments, valuable papers which are issued by itself; savings card, certificates of deposit, exchange bills, treasury bills issued by other credit institutions and foreign banks’ branches:

- With remaining term of less than 1 year: 95%;

- With remaining term of between 1 year and 5 years: 85%

- With remaining term of more than 5 years: 80%;

d) Securities which are issued by other credit institutions are listed on the Stock Exchange: 70%;

dd) Securities which are issued by other enterprises are listed on the Stock Exchange: 65%;

e) Securities which are unlisted on the Stock Exchange, valuable papers, except Clauses specified in Point c of this Clause, and issued by credit institutions which have registered securities listing on the Stock Exchange: 50%;

Securities which are unlisted on the Stock Exchange, valuable papers, except clauses specified in Point c of this Clause, and issued by credit institutions which fail to register securities listing on the Stock Exchange: 30%;

g) Securities which are unlisted on the Stock Exchange, valuable papers issued by enterprises which have registered securities listing on the Stock Exchange: 30%;

Securities which are unlisted on the Stock Exchange, valuable papers issued by enterprises which fail to register securities listing on the Stock Exchange: 10%;

h) Real estate: 50%;

i) Gold bar which has no listing price, other gold and other security assets: 30%.

Article 13. General provisioning ratio

1. The amount of general provisions which have to establish is defined by 0.75% of total balances of debts from group 1 to group 4, except the following clauses:

a) Deposit set forth in Clause 1, Article 1 of this Circular;

b) Loans and purchases with defined term of valuable papers for other credit institutions and foreign banks’ branches in Vietnam.

2. Based on the result of inspection, supervision and relevant credit information, the State Bank is entitled to request credit institutions and foreign banks’ branches to establish general provisions for debts prescribed in Point a, Point b, Clause 1 of this Article in conformity with the risk extent.

Article 14. Addition and return of provisions

1. In the event the remaining amounts of specific provisions and general provisions of previous quarter are less than those of specific provisions and general provisions which must be established of the provisioning quarter, credit institutions and foreign banks’ branches must establish to add to the deficient amount.

2. In the event the remaining specific provisions and general provisions of previous quarter are more than the specific provisions and general provisions which have to establish of the provisioning quarter, credit institutions and foreign banks’ branches must return the excessive amount.

Section 3: USE OF PROVISIONS FOR CREDIT LOSSES

Article 15. Board of Credit Losses

1. Members of the Board of Credit Losses

Credit institutions must establish a Board of Credit Losses including 01 member, who is member of Board of Directors, Board of Members, as president; 01 member who is member of Credit Losses Management Committee; 01 member who is  General Director (Director), and at least other 02 members who are selected by Board of Directors, Board of Members.

Foreign banks’ branches must establish a Board of Credit Losses including General Director (Director) as president and at least 02 other members who are selected by General Director (Director).

2. Responsibilities of the Board of Credit Losses

Based on internal regulations on classification of debts and off-balance sheet commitments, establishment of provisions, use of provisions for credit losses, a Board of Credit Losses shall:

a) Approve consolidated reports of the whole system on result of debt recovery whose risks are handled with provisions, including result of handling of security assets and clarify basis of approval;

b) Decide or approve classification of debts and off-balance sheet commitments, establishment of provision, use of provisions for credit losses within the whole system;

c) Decide or approve measures for debt recovery whose risks are handled with provisions within the whole system, including the handling of security assets.

Article 16. Rules and applications for handling of credit losses

1. Credit institutions and foreign banks’ branches may use provisions for credit losses in the following cases:

a) Customer is an organization which is dissolved or goes bankrupt according to regulations of law, or an individual who dies or is missing;

b) Debts which are classified to the Group 5.

2. Credit institutions and foreign banks’ branches may use provisions for credit losses according to the following rules:

a) Use specific provisions established as prescribed in Clause 1, Article 12 of this Circular in order to handle credit losses for such debts;

b) Dispose the security assets for debt recovery:  If specific provision is insufficient to handle a debt, credit institutions and foreign banks’ branches must promptly dispose the security assets according to the agreement signed with customers and regulations of law for debt recovery;

c) In case both the specific provisions and the amounts collected from the disposal of assets are not sufficient to cover the risks of debt, the general provisions must be used.

d) Credit institutions and foreign banks’ branches shall record risk-free outstanding balances into off-balance sheet accounts as prescribed in Point a, Point b, Point c of this Clause.

3. An application for handling of credit losses includes:

a) An application for credit extension and application for debt recovery for debts whose risks are handled;

b) Documents on security assets and other relevant documents;

c) Decision or approval of the Board of Credit Losses on the result of classification of debts, and establishment of provisions for credit losses;

d) Decision or approval of the Board of Credit Losses on handling of credit Losses;

dd) For a customer being an organization or enterprise which is dissolved or goes bankrupt, apart from the application described in Point a, Point b, Point c and Point d of this Clause, an authenticated copy of decision on bankruptcy declaration granted by court or decision on dissolution of enterprise prescribed in law is required;

e) For a customer being an individual who dies or is missing, apart from the application described in Point a, Point b, Point c and Point d of this Clause, an authenticated copy of the Death Certificate, Certificate of or decision declaring missing prescribed in law is required;

Article 17. Responsibilities of credit institutions and foreign banks’ branches for credit losses

1. The use of provisions for credit losses in order to record relevant debts into appropriate off-balance sheet accounts, and supervision and collection of debts serve as internal activities of credit institutions and foreign banks’ branches and do not make any changes in customers obligation to pay debts whose risks are handled. After handling credit losses, credit institutions and foreign banks’ branches must take measures for collecting debts fully and thoroughly, and continue to supervise and collect debts whose risks are handled under credit contracts and commitments that are agreed with customers.

2. For at least 05 (five) years from the day on which provisions are used for credit losses and all measures of Board of Credit Losses had been taken for debt recovery but debts remain irrevocable, credit institutions and foreign banks’ branches may decide on release the debts whose risks are handled from the off-balance sheet accounts.

The State-owned commercial banks, joint-stock commercial banks over 50% of charter capital of which is held by the State may only release debts whose risks are handled from the off-balance sheet accounts when there are sufficient applications and documents proving that all measures for debt recovery had been taken but debts remain irrevocable and they must obtain the written consent granted by the Ministry of Finance and the State Bank.

Applications for debts released from off-balance sheet accounts must be retained as prescribed in law, including applications for Credit Losses and documents proving credit institutions, foreign banks branches had taken all measures for debt recovery but debts remain irrevocable.

Article 18. Settlement of the amounts collected from debts whose risks are handled

The amounts which are collected from debts whose risks are handled, including amounts which are collected from handling of security assets are considered as revenue in the accounting period of credit institutions and foreign banks’ branches.

Section 4. MANAGEMENT OF DEBTS AND OFF-BALANCE SHEET COMMITMENTS, ESTABLISHMENT AND USE OF PROVISIONS FOR CREDIT LOSSES

Article 19. Management of debts and off-balance sheet commitments, and use of provisions for credit losses

1. Credit institutions and foreign banks’ branches must have a division in charge for management of debts and off-balance sheet commitments (department, board or equivalent level) at their head office in order to manage the classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses within the whole system.

2. Responsibilities of division in charge of management of debts and off-balance sheet commitments:

a) Formulate and submit the following to General Director (Director) in order to submit them to Board of Directors, Board of Members (for credit institutions) or submit them to General Director (Director) (for foreign banks’ branches) for approval for promulgation of:

(i) An internal credit ranking system, amendments to the internal credit ranking system; regulations on management, operation of the internal credit ranking system, collection and addition of customers’ data and information;

(ii) Policy on provisions for credit losses, amendments to policy on provisions for credit losses.

b) Management and operation of the internal credit ranking system;

c) Submit a consolidated report on the result of classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses, and debt recovery to the Board of Credit Losses after having used provisions for credit losses of previous quarter within the whole system; recommend classification of debts and off-balance sheet commitments, establishment and use of provision for credit losses, measures for controlling bad debts and collecting debt thoroughly to the Board of Credit Losses;

d) Manage and supervise entities and individuals in the implementation of regulations specified in Point d, Clause 3, Article 6 of this Circular;

dd) Provide information and coordinate with functional entities at head office in formulating and submitting to General Director (Director) in order to submit to Board of Directors, Members Council (for credit institutions) or to submit to General Director (Director) (for foreign banks’ branches) for approval for promulgation or amendments to internal regulations on credit extension, management of loan of credit institutions and foreign banks’ branches;

e) Perform other tasks prescribed by credit institutions and foreign banks’ branches.

Section 5: Accounting and Reporting

Article 20. Accounting

Credit institutions and foreign banks’ branches shall record the amount, use, addition, returning of specific and general provisions into accounts according to regulations of law on accounting regime.

Article 21. Reporting

1. Credit institutions and foreign banks’ branches must submit a report on classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses as prescribed in the Regulation on statistical reports applicable to credit institutions and foreign banks’ branches issued by the State Bank.

2. Credit institutions and foreign banks’ branches shall be responsible for providing the CIC with the information according to regulations on credit information activities of the State Bank and regulations of this Circular;

3. Credit institutions and foreign banks’ branches must submit a report on classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses, and debt recovery to the Ministry of Finance and provincial-level Tax Department where their head offices are located according to regulations on tax return issued by the Ministry of Finance.

Chapter 3.

RESPONSIBILITIES OF THE STATE BANK AND HANDLING OF VIOLATIONS

Article 22. Responsibilities of the State Bank

1. The Banking Inspection and Supervision Authority shall:

a) Inspect and assess the formulation of internal regulations as prescribed in Article 6 of this Circular; quality and levels of satisfaction with requirements of internal regulations issued by credit institutions and foreign banks’ branches;

b) Inspect the implementation of internal regulations on credit extension, loan management, policy on provisions for credit losses achieved by credit institutions and foreign banks’ branches;

c) Inspect the classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses done by credit institutions and foreign banks’ branches;

d) Take actions against violations committed by credit institutions and foreign banks’ branches as prescribed in Article 23 of this Article;

dd) Request the Governor of the State Bank to issue guiding documents on the classification, establishment and use of provisions for credit losses for cases set forth in Clause 3, Clause 4, Article 24 of this Circular; supervise the adoption of the State Bank’s guiding documents of the credit institutions and foreign banks’ branches.

2. Based on regulations defined in this Circular, the Department of Monetary Forecasting and Statistics shall submit the Governor of the State bank for approval for promulgation of regulations on statistical report on the classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses in activities of credit institutions and foreign banks’ branches.

3. Based on regulations defined in this Circular, the Department of Finance and Accounting shall prepare a document guiding the implementation of relevant accounting regime as prescribed in law and submit them to the State Bank.

4. At the request of credit institutions and foreign banks’ branches, the CIC shall consolidate and provide the list of customers according to group of debts with the highest risk extent which is classified and reported by credit institutions and foreign banks’ branches as prescribed in Clause 1, Article 8 of this Circular.

Article 23. Handling of violations

In addition to the classification of debts and off-balance sheet commitments, establishment and use of provisions for credit losses for debts as prescribed in the Circular, credit institutions and foreign banks’ branches, and relevant individuals breaking regulations set forth in this Circular, depending on nature and severity of violations, shall be imposed penalties for administrative violations against monetary and banking operation.

Chapter 4.

IMPLEMENTATION PROVISIONS

Article 24. Transitional provisions

1. Foreign banks branches that obtain the State Bank’s consent to the classification of debts, establishment and use of provisions for credit losses according to regulations of foreign banks before the effective date of this Circular, shall classify debts and off-balance sheet commitments, and establish provisions for credit losses in accordance with the written consent granted by the State Bank.

2. Credit institutions that obtain the State Bank’s consent to the application of policy on provisions for credit losses to classification of debts as prescribed in Article 7 of the Regulation on classification of debts, establishment and use of provisions for credit losses in banking activities of credit institutions enclosed with the Decision No. 493/2005/QD-NHNN dated April 22, 2005 of the Governor of the State Bank  shall classify debts and off-balance sheet commitments as prescribed in Article 10 and Clause 1, Article 11 of this Circular within 03 (three) from the effective date of this Circular. In the event results of classification of a debt and off-balance sheet commitment as prescribed in Article 10 and Clause 1 this Article are different, debt and off-balance sheet commitment must be classified into the group with higher risk extent.

3. Credit institutions and foreign banks’ branches that have debts specified in Point c (iv), Clause 1, Article 10 of this Circular arisen before the effective date of this Circular and not yet recovered shall handle as follows:

In addition to the implementation under proposals and inspection conclusions (if any), within 10 days from the effective date of this Circular, credit institutions and foreign banks’ branches must formulate a plan, and submit it to the State Bank (Banking Inspection and Supervision Authority). The plan must at least contain the following contents:

(i) A specific list of each debt and name, address, tax code, business lines of each customer who possesses debt;

(ii) Result of classification of debts, establishment of provisions for credit losses as prescribed in this Circular;

(iii) The financial situation and capability of establishment of provisions for debts;

(iv) Plan on establishment of provisions, use of provisions for credit losses.

(v) Plan, measure and commitment on handling in order to ensure thorough debt recovery.

b) Credit institutions and foreign banks’ branches shall classify debts, establish, and use provisions for credit losses for debts under the guidance of the State Bank for each specific case. While the State Bank has not yet provided guidance, credit institutions and foreign banks’ branches shall, based on overdue time specified in Article 10 of this Circular, classify debts, establish and use provisions for credit losses as prescribed in this Circular.

4. Credit institutions and foreign banks’ branches that have debts specified in Points g, h, i, Clause 1, Article 1 of this Circular arisen before the effective date of this Circular and not yet recovered shall handle as follows:

a) Within 10 days from the effective date of this Circular, credit institutions and foreign banks’ branches must inform the State Bank (Banking Inspection and Supervision Authority) of the following contents:

(i) A specific list of each debt and name, address, tax code, business lines of each customer who possesses debt;

(ii) Result of classification of debts, establishment of provisions for credit losses as prescribed in this Circular;

(iii) The financial situation and capability of establishment of provisions for debts;

(iv) Plan on establishment of provisions, use of provisions for credit losses.

(v) Plan, measure and commitment on handling in order to ensure thorough debt recovery.

b) Credit institutions and foreign banks’ branches shall classify debts, establish, and use provisions for credit losses for debts under the guidance of the State Bank for each specific case.

Article 24a.

Make amendments to Clause 1, Article 1 specified the Regulation on classification of debts, establishment and use of provisions for credit losses in banking activities of credit institutions enclosed with the Decision No. 493/2005/QD-NHNN dated April 22, 2005 of the Governor of the State Bank as follows:

“1- Cooperative banks and People’s Credit Funds (hereinafter referred to as “credit institutions”) shall classify debts, establish and use provisions for credit losses in the banking activities under this Regulation.”

Article 25. Effect

1. This Decree, except for the regulation specified in Clause 2, Clause 3 of this Article, takes effect on June 01, 2014.

2. Clause 3a, Article 10 of this Circular comes into force from March 20, 2014 and expires from April 01, 2015.

3. Clause 3, Article 8 and Clause 1, Article 9 of this Circular comes into force from January 01, 2015.

4. The Directive No. 05/2005/CT-NHNN dated April 26, 2005 of the Governor of the State Bank, on the classification of debts and establishment of provisions for credit losses according to the Decision No. 493/2005/QD-NHNN dated April 22, 2005 of the Governor of the State Bank expires from June 01, 2014.

5. Chief of Office, the Chief of Banking Inspection and Supervision, Heads of entities affiliated to the State Bank, Directors of the State Bank’s provincial branches, Chairpersons of Board of Directors, chairpersons of Board of Members and General Directors (Directors) of credit institutions and foreign banks’ branches shall implement this Circular./.

For the Governor

The Deputy Governor

Dang Thanh Binh