Circular 09/2024/TT-NHNN amend Circulars prescribing limits and prudential ratios in the operations, internal control systems of credit institutions and foreign bank branches

CIRCULAR

Amending and supplementing a number of articles of the Circulars prescribing limits and prudential ratios in the operations, internal control systems of credit institutions and foreign bank branches

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

Pursuant to January 18, 2024 Law on Credit Institutions;

Pursuant to the Government’s Decree No. 102/2022/ND-CP of December 12, 2022, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Chief of the Banking Supervisory Agency;

The Governor of the State Bank of Vietnam promulgates the Circular amending and supplementing a number of articles of the Circulars prescribing limits and prudential ratios in operations, internal control systems of credit institutions and foreign bank branches.

Article 1. Amending, supplementing, replacing and abolishing a number of articles of the Governor of the State Bank of Vietnam’s Circular No. 22/2019/TT-NHNN of November 15, 2019, prescribing limits and prudential ratios in the operations of banks and foreign bank branches

1. To amend and supplement Point dd, Clause 1, Article 1 as follows:

“dd) The ratio of purchasing, holding, and investing in Government bonds and Government-guaranteed bonds;”

2. To amend and supplement Clause 3 of Article 1 as follows:

“3. During the period of special control, banks are not required to comply with the provisions of Articles 136, 137, 138, and Clause 3, Article 144 of the Law on Credit Institutions and the relevant provisions of this Circular.”

3. To amend and supplement Clause 4 of Article 1 as follows:

“4. Supporting banks and banks that are compulsorily receiving transfers are not restricted by the ratio of purchasing, holding, and investing in Government bonds and Government-guaranteed bonds as stipulated at Point d, Clause 1, Article 138 of the Law on Credit Institutions and the relevant provisions of this Circular.”

4. To amend and supplement Clause 11 of Article 3 as follows:

“11. Credit extension means that a credit institution or foreign bank branch agrees to let an institution or individual use a money amount or commit to permit the use of a money amount on the principle of repayment by the operation of loan provision, discount, financial leasing, factoring, corporate bond purchase or investment, credit card issuance, bank guarantee, letter of credit, or other credit extension operations specified by the State Bank, including also credit extension from funding sources of other legal entities for which the credit institution or foreign bank branch bears risks in accordance with law.”

5. To amend and supplement Clause 12 of Article 3 as follows:

“12. Total outstanding credit balance includes the total outstanding balance of loans, discounts, rediscounts, financial leasing, factoring, corporate bond investment (excluding special bonds, bonds issued directly to credit institutions selling debts to purchase bad debts at market value by the Vietnam Asset Management Company), and other credit extension operations specified by the State Bank (including also the balance of credit extension from funding sources of other legal entities for which a credit institution or foreign bank branch bears risks in accordance with law); undisbursed loan limits, credit card limits, bank guarantee balance, the balance of issued letters of credit, the balance of confirmed letters of credit, the balance of negotiated payments of letters of credit, the balance of repayment commitments of letters of credit and the balance of amounts entrusted to other credit institutions and foreign bank branches for credit extension.”

6. To amend and supplement Clause 13 of Article 3 as follows:

“13. Corporate bond investment means purchase of corporate bonds, holding of corporate bonds or entrustment of purchase of corporate bonds to other institutions (including credit institutions and foreign bank branches). The holding of corporate bonds does not include corporate bonds accepted as collateral, discounted, or rediscounted assets.”

7. To amend and supplement Clause 1 of Article 4 as follows:

“1. Banks and foreign bank branches shall issue their internal regulations on credit extension and management of credit extension as prescribed in this Circular and other relevant law provisions. Such internal regulations must have at least the following:

a) Criteria for identification of a client or a client and affiliated persons as defined in Clause 24, Article 4 of the Law on Credit Institutions, credit policy toward a client or a client and affiliated persons, principles of power delegation or authorization to decide or approve credit extension or reschedule debts for a client or a client and affiliated persons;

b) Risk diversification in credit extension; methods of monitoring and management and approval of or decision on credit extension to a client or a client and affiliated persons at the rate of at least 1% of the own capital of the bank or foreign bank branch, ensuring publicity and transparency of the appraisal, credit extension and debt rescheduling, preventing conflicts of interest between appraisers, credit extension deciders and clients being affiliated persons thereof;

c) Principles and criteria for evaluation and identification of credit extension risks with regard to clients and fields for which the bank or foreign bank branch prioritizes or limits credit extension, for use as a basis for working out annual business plans or strategies;

d) Approval of credit extension and approval of debt rescheduling (including prolongation and adjustment of loan terms), which must adhere to principles of transparency without any conflict of interests and without concealing credit quality and that the debt rescheduling decider is not the person having decided on credit extension, unless the credit extension is approved by the Board of Directors, Members’ Council, or director general/director or the parent bank (for foreign bank branches). In case the approval of credit extension or approval of debt rescheduling is carried out by a council, the chairperson of the council approving debt rescheduling must not be the chairperson of the council approving credit extension and at least 2/3 (two-thirds) of members of the council approving debt rescheduling must not be members of the council approving credit extension;

dd) Management of risks in credit extension for stock and corporate bond investment or trading; credit extension for real estate business; or credit extension for public-private partnership investment projects;

e) Credit extension applicable to Directors, Deputy Directors of branches and attached units and holders of equivalent titles of banks and foreign bank branches in adherence with the principles prescribed at Points a, b, c, d and dd of this Clause. Holders of equivalent titles shall be determined under internal regulations of banks and foreign bank branches.”

8. To amend and supplement Article 10 as follows:

“Article 10. Credit extension restrictions and limits

1. Banks and foreign bank branches shall base themselves on their own capital determined under Clause 2 of this Article at the end of the latest working day to determine credit extension restrictions and limits under Article 135, Article 136 of the Law on Credit Institutions.

2. The own capital shall be determined as follows:

a) For banks and foreign bank branches that maintain a capital adequacy ratio under this Circular, banks shall use the individual own capital while foreign bank branches shall use the own capital under Article 9 of this Circular.

b) Banks and foreign bank branches that maintain a capital adequacy ratio under Circular No. 41/2016/TT-NHNN shall use the own capital under such Circular.”

9. To amend and supplement Point e, Clause 2 of Article 11 as follows:

“e) Clients wish to use credit facilities to invest in bonds yet listed on the securities market;”

10. To amend and supplement Article 13 as follows:

“Article 13. Management of credit extension

1. Banks and foreign bank branches shall manage credit extension in accordance with law and their internal regulations on credit extension and management of credit extension as prescribed in this Circular and other relevant law provisions.

2. Credit extension for the subjects specified at Point dd, Clause 1, Article 135 of the Law on Credit Institutions shall be carried out as follows:

a) Boards of Directors, Members’ Councils of the bank, and the General Director (Director) of the foreign bank branch shall approve credit extensions for the evaluators and credit extensions with a total outstanding credit balance at that bank or foreign bank branch of VND 10 billion or more, or a lower amount as prescribed in the internal regulations of the bank or foreign bank branch.

b) Other cases shall be handled according to the internal regulations of the bank or foreign bank branch.

3. Banks and foreign bank branches shall report to:

a) Shareholders’ General Meeting and Members’ General Meeting on credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions by the time of collecting figures for meetings of Shareholders’ General Meeting and Members’ General Meeting;

b) Owners, capital contributors, managers and executive officers on new credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions;

c) The State Bank on credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions.”

11. To add Article 15a after Article 15 as follows:

“Article 15a. Banks and foreign bank branches at risk of insolvency or facing insolvency

1. A bank or foreign bank branch is at risk of insolvency when there is a shortfall of 20% or more in highly liquid assets at the time of calculating the liquidity ratio, resulting in the inability to maintain any of the liquidity ratios as stipulated in this Circular for a continuous period of 30 days.

2. A bank or foreign bank branch is insolvent when it is unable to fulfill debt obligations for a period of 1 month from the due date of payment.

3. When there is a risk of or actual insolvency, the bank or foreign bank branch must promptly report to the State Bank on the situation, causes, measures that have been applied, proposed measures to be taken to remedy the situation, and any recommendations or requests to the State Bank.”

12. To amend and supplement Point i, Clause 3 of Article 16 as follows:

“i) Surplus of equity or undivided profits (determined in balance sheets by the time of calculating the maximum ratio of short-term capital sources used for provision of medium- and long-term loans);”

13. To amend and supplement Clause 4 of Article 17 as follows:

“4. The balance of government bond and government-guaranteed bond purchase, holding and investment used for determining the maximum ratio prescribed in Clause 1 of this Article is the purchase price of government bonds and government-guaranteed bonds owned by banks and foreign bank branches and amounts entrusted for government bond and government-guaranteed bond purchase, holding and investment in accordance with law, excluding these following:

a) Purchases and investments in Government bond and government-guaranteed bond from entrusted capital sources in accordance with law, risks related to which are not borne by banks and foreign bank branches.

b) Government bonds and Government-guaranteed bonds accepted by the bank or foreign bank branch as collateral, discounted, or rediscounted assets.”

14. To amend and supplement the content of determination in Section 6, Part A.I of Appendix 1 as follows:  

“Use the undistributed profit figures from the Balance Sheet at the time of calculating the individual minimum capital adequacy ratio. For banks that have been approved for deferral or extension of risk provision, the undistributed profit must be reduced by the positive difference between the required risk provisions according to the regulations on asset classification, provisioning levels, provisioning methods, and the use of risk provisions for credit institutions and foreign bank branches, compared to the risk provisions already made.”

15. To amend and supplement the content of determination in Section 6, Part B of Appendix 1 as follows:

“Use the undistributed profit figures from the Balance Sheet at the time of calculating the minimum capital adequacy ratio. For foreign bank branches that have been approved for deferral or extension of risk provision, the undistributed profit must be reduced by the positive difference between the required risk provisions according to the regulations on asset classification, provisioning levels, provisioning methods, and the use of risk provisions for credit institutions and foreign bank branches, compared to the risk provisions already made.”

16. To abolish Clauses 4, 9, 14, 15 of Article 3 and Article 18.

17. To replace the phrase “Article 126 of the Law on Credit Institutions (as amended and supplemented)” with the phrase “Article 134 of the Law on Credit Institutions” at Points c and d, Clause 2 of Article 11, and Points d and dd, Clause 2 of Article 12.

18. To replace the phrase “Article 127 of the Law on Credit Institutions (as amended and supplemented)” with the phrase “Article 135 of the Law on Credit Institutions” at Point dd, Clause 2 of Article 11, and Point e, Clause 2 of Article 12.

19. To replace the phrase “purchase, investment” with the phrase “purchase, holding, investment” in the title of Section 6, the title of Article 17, and Clauses 1 and 5 of Article 17.

20. To replace the phrase “shares” with the phrase “stocks” in Article 19.

Article 2. Amending, supplementing, replacing and abolishing a number of articles of the Governor of the State Bank of Vietnam’s Circular No. 23/2020/TT-NHNN of December 31, 2020, prescribing limits and prudential ratios in the operations of non-bank credit institutions

1. To add Point dd, Clause 1 of Article 1 as follows:

“dd) Government bond or government-guaranteed bond purchase, holding or investment ratio;”

2. To amend and supplement Clause 3 of Article 1 as follows:

“3. During the period of special control, non-bank credit institutions are not required to comply with the provisions of Articles 136, 137, 138, and Clause 3, Article 144 of the Law on Credit Institutions and the relevant law provisions of this Circular.”

3. To amend and supplement Clause 4 of Article 1 as follows:

“4. Non-bank credit institutions providing support and non-bank credit institutions that are compulsory transferees are not restricted in terms of the ratio of purchasing, holding, and investing in Government bonds and Government-guaranteed bonds as prescribed at Point d, Clause 1, Article 138 of the Law on Credit Institutions and the relevant provisions of this Circular.”

4. To amend and supplement Clause 1 of Article 2 as follows:

“1. Non-bank credit institutions;”

5. To amend and supplement Clause 12 of Article 3 as follows:

“12. Corporate bond investment means purchase and holding of corporate bonds (excluding corporate bonds accepted as collateral, discounted, and rediscounted assets).”

6. To amend and supplement Clause 1 of Article 4 as follows:

“1. Non-bank credit institutions shall issue their internal regulations on credit extension and management of credit extension as prescribed in this Circular and relevant law provisions, in which at least these following contents shall be included:

a) Criteria for identification of a client, or a client and affiliated persons as defined in Clause 24 Article 4 of the Law on Credit Institutions, credit policy toward a client, or a client and affiliated persons, principles of power delegation or authorization to decide or approve credit extension or reschedule debts for a client, or a client and affiliated persons;

b) Risk diversification in credit extension; methods of monitoring and management as well as approval of or decision on credit extension to a client, or a client and affiliated persons at the rate of at least 1% of the own capital of the non-bank credit institution. Such regulations must ensure publicity and transparency of the appraisal, credit extension and debt rescheduling, preventing conflicts of interest between appraisers, credit extension deciders and clients being affiliated persons thereof;

c) Principles and criteria for evaluation and identification of credit extension risks with regard to clients and fields for which the non-bank credit institution prioritizes or limits credit extension, for use as a basis for working out annual business plans or strategies;

d) Approval of credit extension and approval of debt rescheduling (including prolongation and adjustment of loan terms), which must adhere to principles of transparency without any conflict of interests and without concealing credit quality and that the debt rescheduling decider is not the person having decided on such extended credit, unless the credit extension is approved by the Board of Directors or Members’ Council. In cases the approval of credit extension or approval of debt rescheduling is carried out by a council, the chairperson of the council approving debt rescheduling must not be the chairperson of the council approving credit extension, and at least two-thirds (2/3) of members of the council approving debt rescheduling must not be members of the council approving credit extension;

dd) Management of risks in credit extension for stock and corporate bond investment or trading; credit extension for real estate business; or credit extension for public-private partnership investment projects;

e) Credit extension applicable to Directors, Deputy Directors of branches and non-business units, as well as holders of equivalent titles of non-bank credit institutions in adherence with the principles prescribed at Points a, b, c, d and dd of this Clause. Holders of equivalent titles shall be determined under internal regulations of non-bank credit institutions.”

7. To amend and supplement Article 10 as follows:

“Article 10. Credit extension restrictions and limits

1. Non-bank credit institutions shall base themselves on their own capital determined under Article 9 of this Article at the end of the latest working day to determine credit extension restrictions and limits under Article 135, Article 136 of the Law on Credit Institutions.”

8. To amend and supplement Point e Clause 2 Article 11 as follows:

“e) Clients wish to use credit facilities to invest in bonds yet listed on the securities market;”

9. To amend and supplement Article 13 as follows:

“Article 13. Management of credit extension

1. Non-bank credit institutions shall manage credit extension in accordance with law and their internal regulations on credit extension and management of credit extension as prescribed in this Circular and other relevant law provisions.

2. Credit extension for the subjects specified at Point dd, Clause 1, Article 135 of the Law on Credit Institutions shall be carried out as follows:

a) Boards of Directors, Members’ Councils of the non-bank credit institutions shall approve credit extensions for the evaluators and credit extensions with a total outstanding credit balance at that bank or foreign bank branch of VND 05 billion or more, or a lower amount as prescribed in the internal regulations of the non-bank credit institutions.

b) Other cases shall be handled according to the internal regulations of the non-bank credit institutions.

3. Non-bank credit institutions shall report to:

a) Shareholders’ General Meeting and Members’ General Meeting on credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions by the time of collecting figures for meetings of Shareholders’ General Meeting and Members’ General Meeting;

b) Owners, capital contributors, managers and executive officers on new credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions;

c) The State Bank on credit facilities extended to the subjects specified in Clause 1, Article 135 of the Law on Credit Institutions.”

10. To add Article 15a after Article 15 as follows:

“Article 15a. Non-bank credit institutions at risk of insolvency or facing insolvency

1. A non-bank credit institution is at risk of insolvency when there is a shortfall of 20% or more in highly liquid assets at the time of calculating the liquidity ratio, resulting in the inability to maintain any of the liquidity ratios as stipulated in this Circular for a continuous period of 30 days.

2. A non-bank credit institution is insolvent when it is unable to fulfill debt obligations for a period of 1 month from the due date of payment.

3. When there is a risk of or actual insolvency, the non-bank credit institution must promptly report to the State Bank on the situation, causes, measures that have been applied, proposed measures to be taken to remedy the situation, and any recommendations or requests to the State Bank.”

11. To amend and supplement Point g, Clause 3 of Article 16 as follows:

“g) Surplus of equity or undivided profits (determined in balance sheets by the time of calculating the maximum ratio of short-term capital sources used for provision of medium- and long-term loans);”

12. To amend and supplement Clause 4 of Article 17 as follows:

“4. The balance of government bond and government-guaranteed bond purchase and investment used for determining the maximum ratio prescribed in Clause 1 of this Article is the purchase price of government bonds and government-guaranteed bonds owned by non-bank credit institutions and amounts entrusted for government bond and government-guaranteed bond purchase and investment in accordance with law, excluding these following:

a) Purchases and investments in Government bond and Government-guaranteed bond from entrusted capital sources in accordance with law, risks related to which are not borne by non-bank credit institutions.

b) Government bonds and Government-guaranteed bonds accepted by the non-bank credit institutions as collateral, discounted, or rediscounted assets.”

13. To amend and supplement the content of determination in Section 6, Part I, Appendix 1 as follows:

"Use the undistributed profit figures from the Balance Sheet at the time of calculating the individual minimum capital adequacy ratio. For non-bank credit institutions that have been approved for deferral or extension of risk provision, the undistributed profit must be reduced by the positive difference between the required risk provisions according to the regulations on asset classification, provisioning levels, provisioning methods, and the use of risk provisions for credit institutions and foreign bank branches, compared to the risk provisions already made."

14. To abolish Clauses 8, 13, 14, 18 of Article 3 and Article 18.

15. To replace the phrase “Finance company” with the phrase “'non-bank credit institution” in Clauses 16 and 17 of Article 3, Point c, Clause 2 of Article 9, Article 11, and Article 12.

16. To replace the phrase “Article 126 of the Law on Credit Institutions (as amended and supplemented)” with the phrase “Article 134 of the Law on Credit Institutions” at Points c and d, Clause 2 of Article 11, and Points d and dd, Clause 2 of Article 12.

17. To replace the phrase “Article 127 of the Law on Credit Institutions (as amended and supplemented)” with the phrase “Article 135 of the Law on Credit Institutions” at Point dd, Clause 2 of Article 11, and Point e, Clause 2 of Article 12.

18. To replace the phrase “purchase, investment” with the phrase “purchase, holding, investment” in the title of Section 6, the title of Article 17, and Clauses 1 and 5 of Article 17.

Article 3. Amending and supplementing the Governor of the State Bank of Vietnam’s Circular No. 13/2018/TT-NHNN of May 18, 2018, prescribing internal control systems of commercial banks, foreign bank branches

To amend and supplement Article 1 as follows:

“Article 1. Scope of regulation

1. This Circular prescribes the internal control system of commercial banks and foreign bank branches.

2. Commercial banks under special control are not required to comply with the provisions of Chapter V of this Circular.”

Article 4. Responsibility for organization of implementation

The Chief of the Office, the Chief of the Banking Supervision Agency and heads of units under the State Bank of Vietnam, banks, foreign bank branches and non-bank credit institutions shall organize the implementation of this Circular.

Article 5. Effect

1. This Circular takes effect on July 01, 2024.

2. Transitional provisions for Circular No. 22/2019/TT-NHNN: Banks and foreign bank branches that exceed the credit extension limits prescribed in Article 136 of the Law on Credit Institutions due to including the deposit amount of credit extensions by letter of credit operations taken before the date of effect of this Circular in the total outstanding credit balance shall not be considered as violating the credit extension limits. Banks and foreign bank branches shall only provide new credit extension to clients, clients and affiliated persons with the aforementioned credit extensions in case of complying with the provisions of Article 136 of the Law on Credit Institutions and Clause 12, Article 3 of Circular No. 22/2019/TT-NHNN, which was amended and supplemented under Clause 5, Article 1 of this Circular./.