VietnameseOfficial Dispatch No. 2601/NHNN-TCKT of Apirl 14, 2009, re guiding the checking up of classification and foundations for setting up provisions against the fall of financial investments’ price
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Official Dispatch No. 2601/NHNN-TCKT of Apirl 14, 2009, re guiding the checking up of classification and foundations for setting up provisions against the fall of financial investments’ price
| Issuing body: | State Bank of Vietnam | Effective date: | Known Please log in to a subscriber account to use this function. Don’t have an account? Register here |
| Official number: | 2601/NHNN-TCKT | Signer: | Nguyen Thi Thanh Huong |
| Type: | Official Dispatch | Expiry date: | Updating |
| Issuing date: | 14/04/2009 | Effect status: | Known Please log in to a subscriber account to use this function. Don’t have an account? Register here |
| Fields: | Finance - Banking |
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STATE BANK OF VIETNAM ------- | SOCIALIST REPUBLIC OF VIETNAM Independence- Freedom- Happiness --------- |
No. 2601/NHNN-TCKT Ref: guiding the checking up of classification and foundations for setting up provisions against the fall of financial investments’ price | Hanoi, April 14, 2009 |
To: - Credit Institutions
- Pursuant to Accounts System of Credit Institutions issued in conjunction with the Decision No. 479/2004/QD-NHNN dated 29 April 2004 and related decisions on the amendment, supplement thereof of the Governor of the State Bank of Vietnam (hereinafter referred to as Accounts System of CIs)
- Pursuant to the Circular No. 13/2006/TT-BTC dated 27 February 2006 of the Ministry of Finance guiding the regime on provisioning and use of provisions for the fall of inventories’ price, loss of financial investments, bad debts and warranty for products, goods and building and erection works at enterprises.
- Pursuant to the Circular No. 13/2006/TT-BTC dated 27 February 2006 of the Ministry of Finance guiding the regime on provisioning and use of provisions for the fall of inventories’ price, loss of financial investments, bad debts and warranty for products, goods and building and erection works at enterprises.
In order to ensure the consistence in the classification of securities portfolio and provisioning for the fall of securities’ price, the State Bank of Vietnam would like to provide guidance to credit institutions on the implementation of some contents as follows:
1. Regarding classification of securities
Credit institutions shall check up portfolio of securities investment, trading, long term capital investments (financial portfolio) and classify again investment portfolio under the following table:
Classification | Categories of classification (1) |
Business securities (to be recorded on account 14) | - Being debit securities, capital securities or other securities - CI buys them under the business strategy, buys for sale in a period of time not over 1 year to enjoy price difference - CI has no purpose of enterprise control |
Available for sale securities (to be recorded on account 15) | - Being debit securities, capital securities or other securities - Amount invested in an enterprise is less than 20% of voting right CI invests for a long term objective and possibly sells once they are profitable - CI buys them not for purpose of enterprise control (2) - CI is neither founding shareholder nor strategic partner - Securities classified into group of available for sale securities (CI shall not classify them into business securities and held -to- maturity securities) - Being freely traded in the market (both in official market and OTC market) |
Held-to- maturity securities (to be recorded on account 16) | - Being debt securities - CI outright purchases for investment purpose to enjoy interests - CI is sure about ability to hold securities to the maturity |
Long term investments (to be recorded on Account 344 and 348) | - Including capital securities, other capital contributions for long term investment (other than capital contributions, investment in joint venture, associated company and subsidiary company); - CI invests for purpose of gaining profit in following cases: (i) CI is founding shareholder; or (ii) CI is strategic partner; or (iii) CI is capable of controlling, to some extent, process of drawing, deciding financial and operational policies of enterprises by a written agreement on delegating personnel to take part in Board of Directors/Executive Board; - Term for holding, revocation or payment is over 1 year |
Notes:
(1) In order to be classified into such groups as mentioned in above Table, securities must concurrently satisfy such categories as listed.
(2) Term: “control” shall be construed under the Accounting Standards of Vietnam, specifically, control means the right to govern financial and operational policies of an enterprise in order to gain economic benefits from activities of such enterprise.
(2) Term: “control” shall be construed under the Accounting Standards of Vietnam, specifically, control means the right to govern financial and operational policies of an enterprise in order to gain economic benefits from activities of such enterprise.
- This classification of securities portfolio shall replace the entire guidance on “Several issues that need distinguishing when accounting operation of securities trading and investment (outright purchase and sale)” at section A, Official Dispatch No. 7459/NHNN-KTTC dated 30 June 2006 of the State Bank.
- The State Bank (SBV) would like to request CIs to check up and classify portfolio of securities and long term investments in accordance with provisions in this Official Dispatch. The checking up, reclassification must be completed prior to Quarter III/2009 at the latest.
- After- purchase reclassification shall only be performed once for each item of securities already invested at most. In special cases or where big volume of securities need reclassifying (over or equal to 50% of such item’s value), CI shall explain on its financial statements about the impact of such reclassification on total assets, liabilities and capital source as well as income, expenses of the CI.
2. Accounting
- The accounting for business securities, available for sale securities and held-to-maturity securities shall be performed in accordance with applicable provisions in the Accounts System of CIs and guidance in the Official Dispatch No. 7459/NHNN-KTTC mentioned above.
- The accounting of capital contributions to subsidiary company, joint venture company, or associated company shall be performed in accordance with relative Accounting Standard of Vietnam.
3. Regarding the level of provisioning for the fall of securities’ price and the fall of long term investments’ price
3.1. CI shall set up provisions for the fall of securities’ price and provisions for the fall of long term investments’ price under the guidance of the regime on provisioning and use of provisions for the fall of inventories’ price, loss of financial investments, bad debts and warranty of products, goods, building and erection works at enterprise (issued in conjunction with the Circular No. 13/2006/TT-BTC dated 27 February 2006 of Ministry of Finance).
3.2. While pending for the issuance of an official document, by Ministry of Finance, on foundations to use actual securities’ price on the market to calculate provisions amount required to set up, SBV provides guidance to CI on implementation as follows:
a. For group of business securities and available for sale securities
- For listed capital securities: CI shall use closing price on the date of financial statements. If there is no transaction performed on the date of financial statements, CI shall use closing price of the latest session.
- For unlisted capital securities (to be traded on OTC market):
+ CI shall use the average price of three (3) prestigious securities companies (of which charter capital is more than 300 billion dong) in the market.
+ Where securities, investments don’t have reasonable value/actual market value or their value is unable to determine reliably (for example: securities are listed by 2 or less than 2 qualified securities companies mentioned above or there is no successful transaction to be performed near the time of preparing Financial Statements), then CI shall (i) set up, by itself, the most prudential model of provisioning or/and (ii) make reference to the model or result of other CIs (in case of availability of information) to calculate and set up provisions for the fall of such securities and investments’ price.
CI should state the list of securities companies already selected to refer to securities’ prices and describe the most prudential model or result of provisioning for the fall in price of securities and other long term investments on the Notes to financial statements.
b. Regarding group of other long term investments
CI shall make provisions if economic organization, in which CI is investing, suffers loss (except for case of loss under the plan determined in the business plan prior to investment). Amount of provisioning shall be in accordance with provisions in point 2.1(b) and point 2.2 (b) of the Circular No. 13/2006/TT-BTC dated 27 February 2006 of Ministry of Finance.
3.3. Accounting for provisioning and use of provisions for loss shall be performed in accordance with provisions in the Accounts System of CIs and guidance in the Official Dispatch No. 7459/NHNN-KTTC mentioned above.
Hereinabove is guidance of SBV on classification of financial investments and foundations to set up provisions for the loss of financial investments. It is requested for CIs to check up and correctly comply with guidance in this Official Dispatch.
AUTHORIZED BY THE GOVERNOR OF THE STATE BANK OF VIETNAM FOR DIRECTOR OF FINANCE- ACCOUNTING DEPARTMENT DEPUTY DIRECTOR Nguyen Thi Thanh Huong |
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