Circular 31/2024/TT-NHNN classification of assets in the operation of commercial banks, non-bank credit institutions and foreign bank branches

CIRCULAR

Providing the classification of assets in the operation of commercial banks, non-bank credit institutions and foreign bank branches

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Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010; Pursuant to the Law on Credit Institutions dated January 18, 2024;

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

At the proposal of the Chief bank inspector-supervisor;

The State Bank Governor promulgates the Circular providing the classification of assets in the operation of commercial banks, non-bank credit institutions and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Circular provides the classification of assets (hereinafter referred to as loans) in the operation of commercial banks, non-bank credit institutions and foreign bank branches arising from the following activities:

a) Lending;

b) Financial leasing;

c) Discounting and rediscounting negotiable instruments and other valuable papers;

d) Factoring;

dd) Offering credit facilities in the form of issuance of credit cards;

e) Paying on customer behalf according to off-balance sheet commitments (including payments on behalf of customers' obligations in guarantee activities, letter of credit operations (except for the cases specified at Point n of this Clause) and other payments under off-balance sheet commitments);

g) Purchasing and entrusting to purchase corporate bonds (including bonds issued by other credit institutions) unlisted on the securities market or unregistered for trading on the Upcom trading system (hereinafter referred to as unlisted bonds), excluding entrusted capital sources for purchase of unlisted bonds whereby the entrusting parties bear risks;

h) Entrusting to offer credit facilities;

i) Depositing money (except for demand deposits at credit institutions and foreign bank branches; deposits at the Vietnam Bank for Social Policies in accordance with the regulations of the State Bank of Vietnam on the State credit institutions’ maintenance of deposit balances at the Vietnam Bank for Social Policies) at credit institutions and foreign bank branches as prescribed by law, and at credit institutions and deposit money (except demand deposits) at foreign credit institutions;

k) Purchasing and selling loans in accordance with the State Bank of Vietnam’s regulations (herein referred to as the State Bank), except for the purchase of bad loans of credit institutions, foreign bank branches and asset management companies of Vietnamese credit institutions;

l) Conducting government bond repos on the securities market in accordance with the law on the issuance, registration, depositing, listing and trading of government loan instruments on the securities market;

m)      Purchasing deposit certificates issued by other credit institutions or foreign bank branches;

n) Issuing deferred letters of credit having terms that the beneficiary may pay immediately or before the due date of the letter of credit and the operation of repayment of the letter of credit in the form of agreement with the customer to pay with the money of the reimbursing bank from the date the bank reimburses the payment to the beneficiary; negotiating letter of credit payment;

o) Purchasing without recourse sets of documents presented under the letter of credit, unless commercial banks, foreign bank branches purchase without recourse sets of documents presented under the letter of credit issued by such commercial banks or foreign bank branches.

2. Guarantees, letter of credit operations (except for the cases specified at Point n, Clause 1 of this Article), payment acceptance, irrevocable loan commitments and other commitments arising from credit risks (hereinafter referred to as off-balance sheet commitments) must be classified according to the provisions of this Circular for management, to supervise the quality of credit extension activities of commercial banks, non-bank credit institutions and foreign bank branches.

3. For loans that have been used for risk provisions under the Government's Decree on the level and method of setting aside risk provisions and the use of provisions to handle risks in the operation of credit institutions and foreign bank branches and in case the credit institutions allocate receivables interest to be divested (hereinafter referred to as Decree on setting aside risk provisions), commercial banks, non-bank credit institutions, foreign bank branches shall manage and monitor in accordance with the provisions of the Decree on setting aside risk provisions, not classifying loans according to the provisions of this Circular.

4. With regard to loans for which the Government or the Prime Minister promulgates regulations or decisions on asset classification, commercial banks, non-bank credit institutions and foreign bank branches shall comply with such regulations and decisions of the Government or the Prime Minister.

Article 2. Subjects of application

1. This Circular applies to commercial banks, non-bank credit institutions and foreign bank branches (hereinafter referred to as banks and non-bank credit institutions).

2. Foreign bank branches may apply the foreign banks' risk provisioning policy to classify loans, set aside and use risk provisions to handle risks after being approved by the State Bank.

3. Conditions, dossiers, and procedures for approving the application of risk provisioning policies of foreign bank branches shall comply with the provisions of the Decree on setting aside risk provisions.

4. For foreign bank branches that have been approved by the State Bank for the application of the foreign bank's risk provisioning policy, based on the results of examination, inspection and supervision, the State Bank's assessment of the foreign bank's risk provisioning policy does not fully reflect the actual level of credit risk in operation banks in Vietnam, the State Bank has the right to request foreign bank branches to classify loans according to the provisions of this Circular.

Article 3. Interpretation of terms

In this Circular, the following terms are construed as follows:

1. Credit risk in banking activities and non-bank credit institutions’ activities (hereinafter referred to as risk) means the possibility of loss of loans of a bank or non-bank credit institution due to the customer's inability to repay part or the whole of their debt under the contract or agreement (hereinafter referred to as the agreement) with the banks or non-bank credit institutions.

2. Loan means a sum of money deposited and disbursed instalments by the banks or non-bank credit institutions (in cases where each disbursement has a different due date or repayment period) or a sum of money disbursed by banks or non-bank credit institutions as agreed (where various disbursements have the same due date or repayment period) on loans that the customers have not yet repaid.

3. Overdue loan means a loan that a customer is unable to repay part or the whole of the principal and/or interest on time as agreed with a bank or non-bank credit institution. With regard to a credit facility in the form of issuance of a credit card, overdue loan means a loan that a card user is unable to fulfill his/her repayment obligation on the due date under the agreement on issuance, use, payment of credit cards with a bank or non-bank credit institution.

4. Rescheduled loan means a loan which has its repayment period rescheduled in accordance with the State Bank’s regulations.

5. Non-performing loan (NPL) means a bad loan on the balance sheet (bad loan on the balance sheet), including a loan in group 3, 4 or 5.

6. Non-performing loan ratio means the ratio of non-performing loans to total loans in groups 1 thru 5.

7. Bad credit facility ratio means the ratio of total non-performing loans and off-balance sheet commitments in groups 3 thru 5 to total loans and off-balance sheet commitments in groups 1 thru 5.

8. Customers are organizations (including credit institutions, foreign bank branches), individuals and other subjects as prescribed by civil law that are obliged or may incur obligations to repay loans and make payments to banks and non-bank credit institutions under agreements.

9. Other commitments that incur credit risks means off-balance sheet commitments that in case banks or non-bank credit institutions perform their obligations as committed to customers, it will form assets specified in Clause 1, Article 1 of this Circular.

Article 4. Collection of customer data and information and information technology

1. Banks and non-bank credit institutions shall take measures and regularly collect and use information and data on its customers, including information from the National Credit Information Center of Vietnam (CIC) and credit information companies in accordance with law in:

a) Building, amending and supplementing the internal credit-rating system and internal regulations on credit extension, loan management and risk provisioning policy;

b) Monitoring and evaluating the financial situation and the ability of its customers to repay loans after rating them according to the internal credit-rating system, and taking appropriate measures to manage risks and credit quality;

c) Carrying out the self-classification of loans, off-balance sheet commitments in accordance with this Circular and setting aside risk provisions and using risk provisions in accordance with the Decree on setting aside risk provisions.

2. Banks, non-bank credit institutions shall build an information technology system in its entire system to meet requirements of management of customer data and information, operation and management of the internal credit-rating system, management of risks, classification of loans and off-balance sheet commitments, and setting aside and use of risk provisions.

Article 5. Internal credit-rating system

1. An internal credit-rating system is a system consisting of:

a) Methods of assessment and rating for each group of different customers, processes for qualitatively and quantitatively assessing customers’ repayment and solvency ability in terms of finance, business operation, governance and prestige of the customer, including customers who are subject to credit restrictions; information about related persons of customers who are subject to credit restriction;

b) Methods of assessment and rating for each group of different customers.

2. The internal credit rating system must be built according to the following principles:

a) It must be based on data and information of all customers collected within at least 1 (one) year preceding the year it is built;

b) At least once a year, it must be reviewed, modified and supplemented on the basis of customer data and information collected in the year; banks and non-bank credit institutions shall amend and supplement the internal credit rating system (if necessary);

c) It sets different ratings corresponding to risk levels from low to high;

d) It is approved by the Board of Directors, Members’ Council (for commercial banks, non-bank credit institutions), General Director or Director (For foreign bank branches).

3. Commercial banks, foreign bank branches shall build an internal credit-rating system to rate its customers on a periodical basis or when necessary, which serves as a basis for consideration and approval of credit facilities, management of credit quality and formulation of risk provisioning policies suitable to its scope of operation, customers and actual situation of commercial banks, foreign bank branches.

Non-bank credit institutions are not required to have an internal credit rating system. In case a non-bank credit institution develops an internal credit rating system, it must meet the provisions of this Circular.

4. Within a period of 10 (ten) days after issuing, modifying or supplementing its internal credit-rating system, banks, non-bank credit institutions shall send the following documents directly or by post or via electronic means to the State Bank as prescribed in Clause 5 of this Article:

a) With regard to the issuance of a new system:

(i) A written report on the issuance and application of an internal credit-rating system;

(ii) The internal credit-rating system, documents describing the internal credit-rating system, process of collecting customer data and information, and the rating of customers;

(iii) Instructions for use of the internal credit-rating system, including the decentralization and authorization of the collection of customer data and information and rating of customers;

b) With regard to the modification or supplementation of an existing system:

(i) A written report on the modification or supplementation of the internal credit-rating system, clearly stating the reason for modification or supplementation;

(ii) Documents modifying or supplementing the internal credit-rating system and its use instructions.

5. Banks, non-bank credit institutions shall send reports to the State Bank as prescribed in Clause 4 of this Article as follows:

a) Banks, non-bank credit institutions shall send reports to the State Bank (the Bank Supervision Agency), except the cases specified at Point b of this Clause;

b) Foreign bank branches subject to micro-prudential inspection and supervision by provincial or centrally-run State Bank branches shall send reports to such provincial or centrally-run State Bank branches.

Article 6. Internal regulations on credit extension, loan management and risk provisioning policy

1. Banks, non-bank credit institutions shall issue internal regulations on credit extension, loan management and risk provisioning policy in accordance with the provisions of this Circular, the Decree on setting aside risk provisions and other relevant legal provisions.

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

a) They are based on collected customer information and data and results of customer rating according to the internal credit-rating system;

b) They are used uniformly in the entire system and serve as a basis for appraisal and approval of credit extension and management of loans for specific customers;

c) They establish credit policies toward customers, including conditions for credit extension, credit extension limits, interest rates, and dossier, procedures and process of appraisal and approval of credit extension and management of loans;

d) They have provisions on management to assure compliance with the State Bank’s regulations on prudential ratios in operations of banks, non-bank credit institutions;

dd) They define responsibilities and powers of units and individuals in the appraisal and approval of credit extension, management of credit quality and management of security assets;

e) They establish the process and contents of inspection and control before, during and after the grant of credit;

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

h) They specify the valuation of security assets, including principles, periods, methods, processes and responsibilities of each unit or individual involved in the valuation of security assets in accordance with the law to ensure that the value of security assets is consistent with the market value upon the calculation of a specific provision in accordance with the Decree on setting aside risk provisions;

i) They specify measures to recover loans.

3. The risk provisioning policy must at least satisfy the following requirements:

a) It complies with the laws on accounting, finance regimes; statement and statistics;

b) It provides a process of collecting customer information and data, assuring proper classification of loans and off-balance sheet commitments, management of non-performing loans and bad credit extension balance and setting aside of sufficient provisions in accordance with regulations;

c) It specifies the classification of loans and off-balance sheet commitments, levels and methods of setting aside risk provisions and the use of risk provisions in operations for each customer on a periodical or irregular basis;

d) It defines powers and responsibilities of units and individuals in the classification of loans and off-balance sheet commitments, setting aside and use of risk provisions in operations;

dd) It establishes mechanisms for inspection and supervision of and reporting on the contents specified at Points a thru d of this Clause.

Article 7. Reports on internal regulations on credit extension, loan management and risk provisioning policy

1. Within a period of 10 (ten) days after the issuance, amendment or supplementation of its internal regulations on credit extension, loan management and risk provisioning policy, as prescribed in Article 6 of this Circular, banks and non-bank credit institutions shall send directly or by post or via electronic means to the State Bank under the provisions of Clause 2 of this Article in the following documents:

a) With regard to newly issued regulations: Internal regulations on credit extension, loan management and risk provisioning policy;

b) With regard to amended or supplemented regulation:

(i) A written report on the amendment or supplementation of internal regulations on credit extension, loan management and risk provisioning policy, clearly stating the reason for amendment or supplementation;

(ii) Documents amending or supplementing internal regulations on credit extension, loan management and risk provisioning policy.

2. Banks, non-bank credit institutions shall send reports to the State Bank as prescribed in Clause 1 of this Article as follows:

a) Banks, non-bank credit institutions shall send reports to the State Bank (the Bank Supervision Agency), except the cases specified at Point b of this Clause;

b) Foreign bank branches subject to micro-prudential inspection and supervision by the provincial or centrally-run State Bank branches shall send reports to such provincial or centrally-run State Bank branches.

Article 8. Time and order of classification of loans

1. At least once a month, within the first 07 (seven) days of the month, banks, non-bank credit institutions shall base on provisions of Clause 4, Article 1, Article 9, Article 10, Article 11 of this Circular, to self-classify loans and off-balance sheet commitments by the end of the last day of the preceding month according to the results of self-classification of loans and off-balance sheet commitments and send the results of self-classification of loans, off-balance sheet commitment to CIC.

In addition to the above time of classification, banks, non-bank credit institutions may self-classify loans and off-balance sheet commitments in accordance with its internal regulations.

2. Within a period of 03 (three) days after receiving results of the self-classification of loans and off-balance sheet commitments of banks and non-bank credit institutions specified in Clause 1 of this Article, the CIC shall summarize a list of customers according to loan groups with the highest risk level as classified by such banks and non-bank credit institutions and provide it to banks and non-bank credit institutions.

3. Within a period of 03 (three) days after receiving a list of customers provided by the CIC as prescribed in Clause 2 of this Article, banks and non-bank credit institutions shall adjust loan groups according to loan groups of the customer list provided by CIC.

In cases where the results of self-classification of customer loans and off-balance sheet commitments as prescribed in Clause 1 of this Article are lower than that of the loan group on the customer list provided by the CIC, banks, non-bank credit institutions shall adjust the results of loan classification and off-balance sheet commitments according to the loan group of customers provided by CIC.

4. Based on inspection and supervision results and relevant credit information, the State Bank may request banks, non-bank credit institutions to re-evaluate and re-classify specific loans to the risk level of such loans.

Chapter II

SPECIFIC PROVISIONS

Section 1

CLASSIFICATION OF LOANS AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Principles of self-classification

1. All loans and balances of off-balance sheet commitments of a customer at a bank or non-bank credit institution must be classified into the same group of loans, which is the group of loans with the highest level of risk among the loan groups of such customers' off-balance sheet loans and/or commitments.

2. With regard to a syndicated credit facility, each credit institution or foreign bank branch involved shall assume the responsibility for notifying to other banks and non-bank credit institutions engaged in such syndicated credit facility of the results of loan self-classification in accordance with Clause 1, Article 8 of this Circular.

3 With regard to an entrusted credit facility (except for the entrustment to issue letters of credit), the entrustment to purchase unlisted bonds for which the trustee has not fully disbursed the entrusted amount under the entrustment contract, the entrusting bank or non-bank credit institution shall classify the entrusted amount not yet disbursed as a loan for the entrusted party. The overdue time is determined from the time when the entrusted party fails to disburse within the set time limit as specified in the entrustment contract.

For the entrustment to issue letters of credit, the trustee shall classify the payment under the entrustment contract for the entrusted party and the entrusted party shall classify the payment in lieu of commitments in the letter of credit for the requesting party as prescribed at Point b, Clause 4, Article 10 of this Circular; from the date on which the trustee pays the beneficiary.

4. With regard to a sold loan (except for loans that have been used as provisions to handle risks) with the payment money not yet collected, the bank, non-bank credit institution involved in loan sale shall classify the uncollected payment as an unsold loan, as follows:

The bank and non-bank credit institution that sell loans shall classify the uncollected amounts from loan buyers into loan groups whose loan have been classified at the time of the latest loan classification before sale and based on information on the term, period and other information in the credit contracts signed with customers with loans sale to continue classifying the uncollected money according to the provisions of this Circular.

5. With regard to a sold loan by a credit institution to a credit institution that are compulsorily transferred under the compulsory transfer plan approved by competent authorities but have not yet fully collected the proceeds from the sale of loan, the credit institution receiving compulsory transfers shall classify the uncollected amounts for credit institution subject to compulsory transfer according to the provisions of Clause 4 of this Article, the provisions of Point dd (viii), Clause 1, Article 10 of this Circular shall not apply and the loan group shall not be adjusted according to the list of customers provided by CIC specified in Clause 3, Article 8 of this Circular (if any) during the implementation of the compulsory transfer plan.

6. With regard to a purchased loan, at the time of loan purchase, the bank or non-bank credit institution involved in loan purchase shall classify the payments already made for the purchase at the time of purchase into a group of loans with a risk level not lower than that of the group of loans into which such loans are classified at the time of the latest loan classification before being purchased, and continue to classify the payments for loan purchase as loans at such bank or non-bank credit institution as prescribed in this Circular.

7. With regard to the amount of money purchased or entrusted to other organizations (including credit institutions and foreign bank branches) to purchase unlisted bonds, the bank or non-bank credit institution shall classify the amount of bond purchase as a loan to the bond issuer; in case of secured corporate bonds, they shall be classified as a secured loan to the bond issuer.

For the amount of money purchased or entrusted to another organization to purchase unlisted bonds that can be extended in accordance with law, it shall be classified as a loan eligible for loan extension.

8. With regard to a discount on negotiable instruments and other valuable papers:

a) In the form of termed purchase: The bank, non-bank credit institution shall classify the discount as a loan for the beneficiary;

b) In the form of purchase with the right to recourse: The bank, non-bank credit institution shall classify the discount as a loan for the issuer as follows:

Before the time when the bank, non-bank credit institution has the right to exercise the right to recourse under discount contracts, the bank and non-bank credit institution shall, based on the performance of loan repayment and payment obligations of issuers under agreements on issuance of negotiable instruments, valuable papers and information and data on the beneficiary's ability to repay loans for classification of discounts.

From the time the bank or non-bank credit institution has the right to exercise the right to recourse under the discount contract, the bank or non-bank credit institution shall, based on the overdue time under the agreement on the issuance of negotiable instruments, valuable papers and the loan repayment ability of the beneficiary, continue to classify the discount into the group of loans with a level appropriate risk.

9. With regard to violating loans specified at Point c(iv) Clause 1, Article 10 of this Circular, at the time of detecting the violation, the bank or non-bank credit institution must immediately issue a decision on revocation in accordance with law.

For loans to be recovered according to inspection and examination conclusions or decisions on sanctioning administrative violations (hereinafter referred to as recovery according to inspection and examination conclusions), the bank or non-bank credit institution must issue decisions on recovery according to inspection conclusion.

With regard to violating loans specified at Point c(iv) Clause 1, Article 10 of this Circular and loans subject to recovery under inspection and examination conclusions, the bank or non-bank credit institution may not reschedule their due dates and during the period when it has not yet been recovered according to the recovery decision, the bank or non-bank credit institution shall classify loans according to the provisions of this Circular.

10. With regard to loans arising from factoring:

a) With regard to factoring on the purchaser, factoring on the seller without a commitment to repay: The bank or non-bank credit institution shall classify factoring as a loan to purchasers based on the performance of loan repayment obligations, payment of the purchaser under the factoring contract;

b) With regard to factoring where the seller commits to repay: The bank and non-bank credit institution shall classify factoring as a loan to the seller based on the fulfillment of the loan repayment and payment obligations of the seller under the factoring contract.

11. With regard to government bond repos, the bank or non-bank credit shall classify the payment made for the purchase as a loan for the seller in the purchase transaction (the 1^st transaction) in accordance with the law on the registration, depositing, listing, trading and payment of government loan instruments, government-guaranteed bonds issued by policy banks and local government bonds.

12. With regard to payments made for the purchase of promissory notes issued by the other credit institution or foreign bank branch, the bank or non-bank credit institution classify the purchase amount as a loan for credit institution or foreign bank branch issued.

13. With regard to loans arising from letter of credit:

a) With regard to the issuance of letter of credit:

(i) In case of issuance of a letter of credit with immediate or deferred payment (except for the case specified at Point a(ii) of this Clause), the issuing bank shall classify the payment on behalf of the person as committed in the letter of credit as prescribed at Point b, Clause 4, Article 10 of this Circular for the requesting party, from the date the bank issues the payment to the beneficiary;

(ii) In case of issuance of a deferred letter of credit with a clause agreeing that the beneficiary may be paid immediately or before the due date of the letter of credit, the issuing bank shall classify the loan arising from the letter of credit operation as a loan to the applicant from the date the bank refunds the payment to the beneficiary;

b) With regard to the confirmation of letter of credit:

The bank shall certify the classification of the payment in accordance with the commitment in the letter of credit for the issuing bank and the issuing bank shall classify the payment in accordance with the commitment in the letter of credit for the applicant as prescribed at Point b, Clause 4, Article 10 of this Circular, from the time the bank confirms the payment to the beneficiary;

c) With regard to payment negotiation of letter of credit:

The negotiating bank shall classify loans arising from the letter of credit to the beneficiary as discounts on negotiable instruments and other valuable papers specified in Clause 8 of this Article;

d) With regard to refund of letter of credit:

(i) In case of refunding a letter of credit in the form of issuance of a commitment to repay, the reimbursing bank shall classify the payment on behalf of the commitment in the letter of credit as prescribed at Point b, Clause 4, Article 10 of this Circular for the issuing bank, from the date the bank refunds the payment to the beneficiary;

(ii) In case of refunding a the letter of credit in the form of agreement with the customer to pay with the money source of the repaying bank (except for the case specified at Point d(i) of this Clause), the reimbursing bank shall classify the loan arising from the letter of credit operation as a loan to the issuing bank, from the date the bank refunds the payment to the beneficiary;

dd) For the purchase amount completely exempt from recourse to the set of documents presented according to the letter of credit, the bank or non-bank credit institution shall classify the purchase amount as a loan to the issuing bank or the confirming bank.

14. For loans and deposits of supporting credit institutions at credit institutions under special control as prescribed in Clause 9, Article 174 of the Law on Credit Institutions, supporting credit institutions are classified into qualified loan groups and are not required to adjust loan groups according to the list of customers provided by CIC as prescribed in Clause 3 Article 8 of this Circular (if any).

15. For loans, guarantees and deposits of credit institutions receiving compulsory transfer and other credit institutions at commercial banks subject to compulsory transfer under the provisions of Clause 2, Article 182 of the Law on credit institutions, credit institutions receiving compulsory transfer and other credit institutions shall be classified into qualified loan groups and are not required to adjust the loan group according to the list of customers provided by CIC specified in Clause 3, Article 8 of this Circular (if any) during the implementation of the compulsory transfer plan.

16. For loans subject to loan repayment term rescheduling, the number of times of rescheduling the loan repayment term is the total number of times the loan repayment term is restructured for each loan, from the time the loan arises to the time the customer completes all loan repayment obligations, payment to banks and non-bank credit institutions.

Article 10. Classification of loans and off-balance sheet commitments by the quantitative method

1. Banks or non-bank credit institutions shall classify loans (excluding amounts to be paid under off-balance sheet commitments) into the following 5 groups:

a) Group 1 (Pass) including:

(i) Loans that are not due and assessed as fully recoverable both principal and interests on their due dates;

(ii) Loans that are overdue for less than 10 days and assessed as fully recoverable overdue and due principals and interests;

(iii) Loans that are classified into group 1 in accordance with Clause 2 of this Article;

b) Group 2 (Special mention) including:

(i) Loans that are overdue for up to 90 days, except for loans specified at Point a(ii) of this Clause and Clause 3 of this Article;

(ii) Loans subject to adjustment of the first repayment term that are not due, except for the loans specified at Point b, Clause 2 and Clause 3 of this Article;

(iii) Loans that are classified into group 2 in accordance with Clause 2 and Clause 3 of this Article;

c) Group 3 (Sub-standard) including:

(i) Overdue loans from 91 days to 180 days, except for loans specified in Clause 3 of this Article;

(ii) The loan extended for the first time that is not due, except for the loan specified at Point b, Clause 2, Clause 3 of this Article;

(iii) Loans eligible for interest exemption or reduction due to the customer's inability to pay interest in full as agreed, except for the loan specified in Clause 3 of this Article;

(iv) The loan that falls into one of the following cases and has not been recovered within less than 30 days from the date the bank or non-bank credit institution signs the loan recovery document (hereinafter referred to as the date of issuing the recovery decision):

- Loans that violate the provisions of Clauses 1, 3, 4, 5, 6, Article 134 of the Law on Credit Institutions;

- Loans that violate the provisions of Clauses 1, 2, 3, 4, Article 135 of the Law on Credit Institutions;

- Loans that violate the provisions of Clauses 1, 2, 5, 9, Article 136 of the Law on Credit Institutions;

(v) Loans within the recovery period according to inspection and examination conclusions;

(vi) Loans to be recovered under the early loan recovery decision of the bank or non-bank credit institution due to the customer's violation of the agreement with the bank or non-bank credit institution that have not been recovered within less than 30 days from the date of issuing the recovery decision;

(vii) Loans that are classified into group 3 according under Clause 2 and Clause 3 of this Article;

(viii) Loans that must be classified into group 3 as prescribed in Clause 4, Article 8 of this Circular;

d) Group 4 (Doubtful) including:

(i) Loans that are overdue for between 181 days and 360 days, except for the loans specified in Clause 3 of this Article;

(ii) The loan restructured for the first time that is overdue for up to 90 days according to the first restructured loan repayment term, except for the loan specified in Clause 3 of this Article;

(iii) The loan restructured for the second time that is not due, except for the loan specified at Point b, Clause 2, Clause 3 of this Article;

(iv) The loan specified at Point c(iv), Clause 1 of this Article that has not been recovered within 30 days to 60 days from the date of issuing the recovery decision;

(v) Loans that must be recovered according to inspection or examination conclusions but remain unrecovered up to 60 days past the recovery deadline;

(vi) Loans that must be recovered under the early loan recovery decision of the bank or non-bank credit institution due to the customer's breach of agreement with the bank or non-bank credit institution which have not yet been recovered within a period of between 30 days and 60 days from the date of issuing the recovery decision;

(vii) Loans classified into group 4 as prescribed in Clause 2 and Clause 3 of this Article;

(viii) Loans that must be classified into group 4 as prescribed in Clause 4, Article 8 of this Circular;

dd) Group 5 (Possible loss) including:

(i) Loans that are overdue for more than 360 days;

(ii) Loans that have had their due dates rescheduled for the first time and are overdue for 91 days or more according to the first-time rescheduled payment period;

(iii) Loans that have had their due dates rescheduled for the second time and are overdue according to the second-time rescheduled payment period;

(iv) Loans that are restructured for the third time or more, except for the loans specified at Point b, Clause 2 of this Article;

(v) The loan specified at Point c(iv), Clause 1 of this Article that has not been recovered for more than 60 days from the date of issuing the recovery decision;

(vi) Loans that must be recovered according to inspection and examination conclusions but remain unrecovered more than 60 days past the recovery deadline;

(vii) Loans to be recovered under the early loan recovery decision of the bank or non-bank credit institution due to the customer's breach of agreement with the bank or non-bank credit institution that have not been recovered for more than 60 days from the date of issuing the recovery decision;

(viii) Loans of customers who are credit institutions under special control, foreign bank branches that are subject to capital and asset freezing;

(ix) Loans classified into group 5 as prescribed in Clause 3 of this Article;

(x) Loans that must be classified into group 5 as prescribed in Clause 4, Article 8 of this Circular.

2. Loans are classified as lower-risk loans in the following cases:

a) Overdue loans of banks and non-bank credit institutions shall be reclassified into the group of lower-risk loans (including group 1) when they fully meet the following conditions:

(i) The customers have fully paid the overdue principal and interest (including interest applicable to overdue principal) and principal and interest of subsequent repayment terms (if any) for at least 03 (three) months for medium-term and long-term loans, 01 (one) month for short-term loans, from the date of commencement of full payment of overdue principal and interest;

(ii) There are documents and records proving that the customers have repaid the loan;

(iii) The banks or non-bank credit institutions have sufficient information and documents to assess that customers are able to fully pay the remaining principal and interest on time;

b) Loans having repayment term restructured of banks, non-bank credit institutions shall be reclassified into loans with lower risk (including group 1) when fully meeting the following conditions:

(i) The customer have fully paid the principal and interest according to the restructured loan repayment term (if any) for at least 03 (three) months for medium-term and long-term loans, 01 (one) month for short-term loans, from the date of full payment of principal or interest according to the restructured term; in case the principal and interest have the same 01 (one) loan repayment term, it shall be counted from the date of full payment of principal and interest;

(ii) There are documents and records proving that the customer has repaid the loan;

(iii) The banks and non-bank credit institutions have sufficient information and documents to assess that customers are able to fully pay the remaining principal and interest on time;

c) For loans eligible for interest exemption and reduction in accordance with the State Bank's regulations on credit institutions’ and foreign bank branches’ restructuring of loan repayment terms, exemption and reduction of interest and fees, maintenance of the same loan group to support customers affected by the Covid-19 epidemic, banks, non-bank credit institutions shall reclassify them into lower-risk loans (including group 1) when they fully meet the following conditions:

(i) The customers have fully paid the principal and interest for at least 03 (three) months for medium-term and long-term loans, 01 (one) month for short-term loans, from the date the customer starts to fully pay the principal or interest of the latest loan repayment term after the customer is no longer entitled to interest exemption or reduction; in case the principal and interest have the same 01 (one) loan repayment term, it shall be counted from the date of full payment of principal and interest of the latest loan repayment term after the customer is no longer eligible for interest exemption or reduction;

(ii) There are documents and records proving that the customer has repaid the loan;

(iii) The banks or non-bank credit institutions have sufficient information and documents to assess that customers are able to fully pay the remaining principal and interest on time.

3. Loans are classified as higher-risk loans in the following cases:

a) Indicators of profitability, solvency, loan-to-capital ratio, cash flow lead to a continuous decline in the customer's ability to repay loans through 03 times of continuous loan assessment or classification;

b) Customers fail to supply sufficient, timely and truthful information at the request of banks and non-bank credit institutions for assessment of their loan payment ability;

c) Loans have been classified into group 2, group 3 or group 4 in accordance with Point a and Point b of this Clause for 01 (one) year or more but still lack conditions for being classified into groups with lower risk levels;

d) Loans resulted from acts of credit extension which have been administratively sanctioned in accordance with the law.

4. Classification of off-balance sheet commitments and amounts payable on customer behalf according to off-balance sheet commitments:

a) Classification of off-balance sheet commitments:

(i) Classified into group 1 if the banks or non-bank credit institution assesses that the customer is capable of fully fulfilling the obligations as committed;

(ii) Classified into group 2 or higher if the bank or non-bank credit institution assesses that the customer is incapable of performing the obligations as committed;

(iii) Classified into group 3 or higher for off-balance sheet commitments in one of the cases specified at Point c(iv), Clause 1 of this Article;

b) Classification of amounts payable on customer behalf according to off-balance sheet commitments:

(i) The number of overdue days is calculated from the date the bank or non-bank credit institution performs its obligations as committed;

(ii) Amounts payable on customer behalf according to off-balance sheet commitments are classified as follows:

- Classified into group 3 if they are overdue for less than 30 days;

- Classified into group 4 if they are overdue from 30 days to less than 90 days;

- Classified into group 5 if they are overdue for 90 days or more.

In case an amount to be paid is classified into a group with a risk level lower than that of the group into which the off-balance sheet commitment of payment on customer behalf has been classified under Point a (ii) or (iii) of this Clause, such amount must be transferred to the group into which the off-balance sheet commitment has been classified.

Article 11. Classification of loans and off-balance sheet commitments by the qualitative method

1. Banks or non-bank credit institutions shall classify loans and off-balance sheet commitments in accordance with this Clause after being approved by the State Bank. Banks and non-bank credit institutions shall classify loans and off-balance sheet commitments into the following 05 groups:

a) Group 1 (Pass) including:

Loans that are assessed by the banks or non-bank credit institutions as fully recoverable both principal and interest on their due dates.

Off-balance sheet commitments that are assessed by the banks or non-bank credit institutions as having been made by customers that are able to fulfill committed obligations,

b) Group 2 (Special mention) including:

Loans that are assessed by the banks or non-bank credit institutions as fully recoverable (both principal and interest) but there are signs that customers’ loan payment ability is declining.

Off-balance sheet commitments that are assessed by the banks or non-bank credit institutions as having been made by customers that are able to fulfill committed obligations but there are signs of their declining ability to fulfill such commitments.;

c) Group 3 (Sub-standard) including:

Loans that are assessed by the banks or non-bank credit institutions as irrecoverable (both principal and interest) on their due dates. These loans are assessed by the bank or non-bank credit institution as possible losses.

Off-balance sheet commitments that are assessed by the banks or non-bank credit institutions as having been made by customers that are unable to fulfil committed obligations.

Loans that must be classified into group 3 in accordance with Clause 4, Article 8 of this Circular.

d) Group 4 (Doubtful) including:

Loans that are assessed by the bank or non-bank credit institution as highly possible losses.

Off-balance sheet commitments made by customers whose inability to fulfill committed obligations is very high.

Loans that must be classified into group 4 in accordance with Clause 4, Article 8 of this Circular.

dd) Group 5 (Possible loss) including:

Loans that are assessed by the bank or non-bank credit institution as irrecoverable and likely to be lost.

Off-balance sheet commitments made by customers that are unable to fulfill committed obligations.

Loans that must be classified into group 5 in accordance with Clause 4, Article 8 of this Circular.

2. A bank or non-bank credit institution that classifies loans and off-balance sheet commitments as prescribed in Clause 1 of this Article must fully satisfy the following requirements:

a) Having an internal credit-rating system suitable to its business operations, customers and types of risk of loans, and having tested this system for at least 01 (one) year;

b) Having a risk provisioning policy as prescribed in Clause 3, Article 6 of this Circular;

c) Having a credit risk management policy, credit risk supervision model, credit risk identifying and measuring methods (including methods of assessing the loan payment ability of customers under credit contracts, security assets and loan recoverability), and loan management methods;

d) Having clearly defined responsibilities and powers of the Board of Directors, Members Council and General Director (Director) for approving, operating and inspecting the operation of its internal credit-rating system and risk provisioning policy of the bank or non-bank credit institution, and independence of risk management sections

3. A bank or non-bank credit institution shall submit directly or send via postal service to the head office of the State Bank (the single-window section) 01 (one) set of dossiers of request for the latter’s approval of the loan classification under Clause 1 of this Article, which comprises:

a) A written request of the bank or non-bank credit institution for the State Bank’s approval on the classification of loans and off-balance sheet commitments according to the qualitative method specified in Clause 1 of this Article, which must prove that all conditions specified in Clause 2 of this Article are fully satisfied;

b) A copy of the internal credit rating system, risk provisioning policy, credit risk management policy and draft documents guiding the implementation of loan classification, off-balance sheet commitments and risk provision of the bank and non-bank credit institution and documents proving that they fully meet the conditions specified in Clause 2 of this Article.

4. Within a period of 30 (thirty) days after receiving a complete and valid dossier specified in Clause 3 of this Article, the State Bank shall issue a written approval to the bank or non-bank credit institution to classify loans and off-balance sheet commitments according to the qualitative method specified in this Article. In cases of disapproval, the State Bank shall reply in writing, clearly stating the reasons.

5. The internal credit rating system, risk provisioning policy and credit risk management policy must be re-evaluated annually by banks and non-bank credit institutions in accordance with this Circular and the State Bank's regulations on the internal control system of banks, non-bank credit institutions.

6. Banks and non-bank credit institutions that are approved to classify loans and off-balance sheet commitments under the provisions of Clause 1 of this Article must comply as follows:

a) Within a minimum period of 03 (three) years from the date of approval by the State Bank, banks and non-bank credit institutions shall simultaneously classify loans and make off-balance sheet commitments as prescribed in Clause 1 of this Article and Article 10 of this Circular. In case the classification results of a loan and off-balance sheet commitment as prescribed in Article 10 of this Circular and Clause 1 of this Article are different, the off-balance sheet loan or commitment must be classified into the group with a higher level of risk.

Within the time limit specified at this Point, banks and non-bank credit institutions shall consider amending and supplementing the internal credit rating system, risk provisioning policy, credit risk management policy (if necessary) in order to implement the principles specified at Point b(ii) of this Clause;

b) Within 02 (two) years after the time specified at Point a of this Clause, banks and non-bank credit institutions must comply with the following:

(i) At the same time, the loan classification and off-balance sheet commitments shall be carried out as prescribed in Clause 1 of this Article and Article 10 of this Circular;

(ii) To ensure in principle that the total amount of specific provisions for each fiscal year is determined on the basis of the results of loan classification as prescribed in Clause 1 of this Article is not lower than the total amount of specific provisions determined on the basis of the results of loan classification as prescribed in Article 10 of this Circular;

(iii) In case each financial year a bank or non-bank credit institution satisfies the principles specified at Point b(ii) of this Clause, the bank or non-bank credit institution shall use the loan classification results as prescribed in Clause 1 of this Article to make a provision for risk in accordance with the Decree on setting aside a provision for risk;

c) After the time specified at Point a and Point b of this Clause and ensuring the principles specified at Point b(ii) of this Clause, banks and non-bank credit institutions shall apply the method of classifying loans and off-balance sheet commitments as prescribed in Clause 1 of this Article, except for the cases specified in Clause 7 and Clause 8 of this Article.

In case after the time specified at Point a of this Clause, the bank or non-bank credit institution fails to comply with the principles specified at Point b(ii) of this Clause, the bank or non-bank credit institution must implement the quantitative method as prescribed in Article 10 of this Circular;

d) During the period specified at Point a and Point b of this Clause, banks and non-bank credit institutions shall annually report in writing to the State Bank on the implementation of the provisions at Point a and Point b of this Clause.

7. With regard to banks and non-bank credit institutions that have applied the method of loan classification and off-balance sheet commitments specified in Clause 1 of this Article as prescribed at Point c, Clause 6 of this Article, in case of amendment and supplementation of the internal credit rating system, risk provisioning policy, credit risk management policies, banks and non-bank credit institutions must report to the State Bank on the amendment and supplementation of the internal credit rating system, risk provisioning policies and credit risk management policies, in which the assessment of the satisfaction of the total amount of specific provisions is determined on the basis of the loan classification results specified in Clause 1 of this Article, after amendment and supplementation, shall not be lower than the total amount of specific provisions determined on the basis of the loan classification results as prescribed in Article 10 of this Circular for the fiscal year in which the internal credit rating system is applied, the risk provisioning policy and credit risk management are amended and supplemented. In case the banks or non-bank credit institutions assess that they do not meet this principle, the banks or non-bank credit institutions must implement the quantitative method as prescribed in Article 10 of this Circular.

8. Based on the results of examination, inspection and supervision, in case the State Bank assesses that the application of the qualitative method as prescribed in Clause 1 of this Article does not fully reflect the actual level of credit risk in banking activities of banks and non-bank credit institutions, the State Bank has the right to request banks and non-bank credit institutions to implement the quantitative method as prescribed in Article 10 of this Circular.

Section 2

MANAGEMENT OF LOANS AND OFF-BALANCE SHEET COMMITMENTS, SETTING ASIDE AND USE OF RISK PROVISIONS

Article 12. Management of loans and off-balance sheet commitments, setting aside and use of risk provisions

1. Banks and non-bank credit institutions must have sections in charge of management of loans and off-balance sheet commitments (divisions, departments or equivalent units) at the head offices of commercial banks, non-bank credit institutions and foreign bank branches to manage the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in the entire system in accordance with law.

2. Responsibilities of the section in charge of management of loans and off-balance sheet commitments:

a) Elaborating and submitting to the General Director (Director) for submission to the Board of Directors or Members’ Council (for commercial banks and non-bank credit institutions) or to the General Director (Director) (for foreign bank branches) for approval for application and promulgation:

(i) Internal credit rating system, supplements and amendments to the internal credit rating system;

(ii) Risk provisioning policy, amendments and supplements to risk provisioning policy;

b) Elaborating and submitting to the General Director (Director) for promulgation regulations on management and operation of the internal credit rating system, the collection and supplementation of data and customer information;

c) Managing and operating the internal credit rating system;

d) Managing the implementation of loan classification, off-balance sheet commitments, setting aside and using risk provisions in the entire system;

dd) Summarizing, reporting and proposing to the Risk Handling Council the contents falling under the decision-making competence of the Risk Handling Council in accordance with the Decree on setting aside risk provisions;

e) Managing and monitoring units and individuals in the implementation of the provisions at Point dd, Clause 3, Article 6 of this Circular;

g) Providing information, coordinating with functional units at the head office in formulating and submitting to the General Director (Director) for submission to the Board of Directors, the Members' Council (for commercial banks, non-bank credit institutions) or to the General Director (Director) (for foreign bank branches) for promulgating or amending, supplementing internal regulations on credit extension and loan management of banks and non-bank credit institutions;

h) Performing other tasks according to internal regulations of banks and non-bank credit institutions.

Article 13. Reporting

1. Banks, non-bank credit institutions shall report results of the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in accordance with law provisions issued by the State Bank on reporting and statistical mechanism applicable to credit institutions, foreign bank branches.

2. Banks, non-bank credit institutions shall be responsible for provide information to the CIC in accordance with the State Bank’s regulations on credit information activities and this Circular.

3. Every year, banks, non-bank credit institutions must report to the General Meeting of Shareholders (for credit institutions which are joint-stock companies), and the owners (for credit institutions which are single-member limited liability companies), capital contributors (for credit institutions that are limited liability companies with two or more members), parent banks (for foreign bank branches) on the results of loan classification, off-balance sheet commitments, risk provisioning, results of use of risk provisions and results of handling losses.

Chapter III

RESPONSIBILITIES OF THE STATE BANK

Article 14. Responsibilities of the State Bank

1. The Bank Supervision Agency shall be responsible for:

a) Receiving internal regulations on credit extension, loan management, risk provisioning policy of banks, non-bank credit institutions as prescribed in Article 6 and Article 7 of this Circular for micro-prudential supervision and inspection;

b) Inspecting, supervising, examining and handling violations in the implementation of loan classification, off-balance sheet commitments, setting aside and using risk provisions of banks and non-bank credit institutions according to their competence and in accordance with law;

c) Processing dossiers of requests of foreign bank branches for the application of risk provisioning policies of foreign banks and requests of banks and non-bank credit institutions to allow the classification of loans and off-balance sheet commitments by the qualitative method.

2. The Department for Monetary Forecasts and Statistics shall work with relevant units to submit to the State Bank Governor for promulgation of regulations on statistical reporting on the classification of loans and off-balance sheet commitments, setting aside and use of provisions to handle risks in operations of banks and non-bank credit institutions.

3. The Finance and Accounting Department shall base on this Circular to elaborate and submit to the State Bank Governor for promulgation of documents guiding the relevant accounting regime in accordance with law provisions.

4. The CIC shall summarize and provide lists of their customers involved in the group of loans with the highest risk level for banks and non-bank credit institutions in accordance with Clause 2, Article 8 of this Circular.

5. The State Bank branches in provinces and centrally-run cities shall be responsible for:

a) Receiving internal regulations on credit extension, loan management, risk provisioning policy of banks and non-bank credit institutions as prescribed in Article 6 and Article 7 of this Circular for micro-prudential supervision, investigation and inspection;

b) Inspecting, supervising, investigating and handling violations in the implementation of loan classification, off-balance sheet commitments, setting aside and using risk provisions of banks and non-bank credit institutions in their localities according to their competence and in accordance with law.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 15. Transitional provisions

1. Foreign bank branches that have been approved by the State Bank for the application of foreign banks’ risk provisioning policies before the effective date of this Circular may continue to classify loans according to the risk provisioning policies of foreign banks already approved by the State Bank, except for the cases specified in Clause 4, Article 2 of this Circular.

2. Banks and non-bank credit institutions that have been approved by the State Bank to classify loans and off-balance sheet commitments by the qualitative method before the effective date of this Circular may continue to comply with such written approval of the State Bank, except for the cases specified in Clause 7 and Clause 8, Article 11 of this Circular.

3. For payments made for the purchase of promissory notes, bills issued by other credit institutions or foreign bank branches before the effective date of this Circular, a credit institution or foreign bank branch shall classify the payments as loans for purchasing deposit certificates as prescribed in Clause 12 Article 9 of this Circular.

Article 16. Effect

1. This Circular takes effect from July 1, 2024.

2. The State Bank Governor’s Circular No. 11/2021/TT-NHNN dated July 30, 2021 providing the classification of assets, risk provisioning levels and methods and use of provisions for handling risks in operations of credit institutions and foreign bank branches ceases to be effective from the effective date of this Circular, except for the provisions of Clause 3 of this Article.

3. The classification of loans and off-balance sheet commitments in the classification period of July 2024 for the end of June 30, 2024, banks and non-bank credit institutions shall comply with the provisions of the State Bank Governor’s Circular No. 11/2021/TT-NHNN dated July 30, 2021 providing the classification of assets, risk provisioning levels and methods and use of provisions for handling risks in operations of credit institutions and foreign bank branches.

Article 17. Organization of implementation

The Chief of the Office, Chief Bank Inspector-Supervisor, heads of the units under the State Bank, banks and non-bank credit institutions shall be responsible for implementing this Circular./.