Official Dispatch No. 763/CV-KTTC of June 10, 2002, re guidance on the accounting of overdue debts transfer in accordance with Decision No. 1627/2001/QD-NHNN

To: Credit Institutions[1]

Pursuant to Clause 2, Article 13 of the Lending Regulation of Credit Institutions to Customers promulgated together with Decision No. 1627/2001/QD-NHNN dated December 31, 2001 of the Governor of the State Bank, the State Bank of Vietnam hereby provides guidance on accounting for transfer of overdue debts at Credit Institutions (CIs) as follows:

1.                 Accounting for adjustment of principal or interest repayment term; or extension of principal or interest repayment term:

Upon the due date for repayment of principal or interest, if the customer fails to repay on time and is considered by the CI for adjustment of the principal or interest repayment term or extension of the principal or interest repayment term: the CI shall open a Monitoring Register or apply an appropriate statistical method to accurately and promptly monitor the amount of principal or interest for which the repayment term has been adjusted or extended, in order to meet information and reporting requirements as prescribed by the State Bank (if any) and the management needs, conditions, and characteristics of the institution.

2.                 Accounting for transfer to overdue debts:

·                     Upon the due date for repayment of principal or interest, if the customer fails to repay on time and is not granted adjustment of the principal or interest repayment term or extension of the principal or interest repayment term, the CI shall account for transfer of the entire outstanding balance to overdue debt. Accounting entries:

Debit: Overdue Debts Account

Credit: Appropriate Lending Account

The CI must open a Monitoring Register or apply an appropriate statistical method to monitor and calculate interest on the portion of outstanding principal of the installment that the customer failed to repay on time and the portion of outstanding principal not yet due but required to be transferred to overdue debt.

·                     Handling and accounting for loan interest:

·                     If the customer fails to repay loan interest on time, record:

Enter Off-balance Sheet Account - Uncollected Loan Interest: Amount of loan interest unpaid by the customer.

·                     For CIs accounting for interest income under the accrual method, the receivable interest of the loan transferred to overdue debt must be handled and accounted for in accordance with the current regulations of the Financial Regime and the method of calculation and accounting for interest income applicable to CIs. If interest income must be reduced, record:

Debit: Loan Interest Income Account

Credit: Appropriate Accrued Interest Receivable Account

Simultaneously record off-balance sheet:

Enter Off-balance Sheet Account - Uncollected Loan Interest: Amount of loan interest to be reduced from income due to the loan having been transferred to overdue debt.

3.                 Accounting for transfer of overdue debt back to current debt:

·                     Immediately after the borrowing customer has fully repaid the principal and interest of the overdue installment(s) and the due installment(s) (if any), the CI shall transfer the entire remaining outstanding balance of that loan from overdue debt to current debt. Accounting entries:

Debit: Appropriate Lending Account

Credit: Overdue Debts Account

·                     Handling and accounting for loan interest:

·                     For the amount of loan interest paid by the customer, record:

Debit: Appropriate Account (deposits, cash)

Credit: Loan Interest Income Account

Remove from Off-balance Sheet Account - Uncollected Loan Interest: Amount of loan interest paid by the customer.

·                     For CIs accounting for interest income under the accrual method, the receivable interest of the loan transferred from overdue debt back to current debt that was previously reduced from income shall be handled and accounted for as follows:

Debit: Appropriate Accrued Interest Receivable Account

Credit: Loan Interest Income Account

Simultaneously record off-balance sheet:

Remove from Off-balance Sheet Account - Uncollected Loan Interest: Amount of loan interest previously reduced from income.

4.                 The application of interest rates; the timing of accounting for transfer to overdue debt; and the provisioning for risks of overdue debts shall be implemented by CIs in accordance with the current regulations and guidance of the State Bank.

In the course of implementation, if any difficulties arise, CIs are requested to report to the State Bank of Vietnam (Accounting - Finance Department) for timely guidance and resolution.

P.P. the Governor of the State Bank
For the Director of the Accounting - Finance Department
Deputy Director

PHAM HOANG DUC