Decree 86/2024/ND-CP levels of provisions, methods of setting aside provisions, use of provisions to handle risks in the operation of credit institutions

DECREE

Regulating the levels of provisions, methods of setting aside provisions, the use of provisions to handle risks in the operation of credit institutions, foreign bank branches, and cases where credit institutions allocate interest receivables that must be written off

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Pursuant to the Law on Organization of the Government dated June 19, 2015; the Law Amending and Supplementing a Number of Articles of the Law on Organization of the Government and the Law on Organization of Local Administration dated November 22, 2019;

Pursuant to the Law on Credit Institutions dated January 18, 2024;

At the proposal of the Governor of the State Bank of Vietnam;

The Government promulgates the Decree regulating the levels of provisions, methods of setting aside provisions, the use of provisions to handle risks in the operation of credit institutions, foreign bank branches, and cases where credit institutions allocate interest receivables that must be written off.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Decree regulates:

a) Levels of provisions, methods of setting aside risk provisions, and the use of provisions to handle credit risks in the operation of credit institutions, foreign bank branches as prescribed in Clause 3, Article 147 of the Law on Credit Institutions for assets prescribed in Clause 2, Article 3 of this Decree;

b) Cases where credit institutions have an allocation period of interest receivables that must be written off exceeding 5 years but not exceeding 10 years as prescribed at Point b, Clause 2, Article 159 of the Law on Credit Institutions.

2. The setting aside and use of provisions for devaluation of inventories, provisions for loss of financial investments, provisions for loss of bad receivable debts, except for those prescribed in Clause 2, Article 3 of this Decree, shall comply with the provisions of law on setting aside and handling of provisions for devaluation of inventories, loss of investments, bad receivable debts, and warranty for products, goods, services, and construction works at enterprises.

3. The setting aside and use of risk provisions for special bonds issued by the Vietnam Asset Management Company to purchase bad debts of credit institutions shall comply with the provisions of law on the purchase, sale, and handling of bad debts of the Vietnam Asset Management Company.

4. For debts that the Government has regulations on the levels of provisions, methods of setting aside risk provisions, and the use of provisions to handle risks differently from the provisions of this Decree, credit institutions and foreign bank branches shall comply with such regulations of the Government.

5. For debts that the Prime Minister decides on the levels of provisions, methods of setting aside risk provisions, and the use of provisions to handle risks as prescribed in Clause 4, Article 147 of the Law on Credit Institutions, credit institutions and foreign bank branches shall comply with such decisions of the Prime Minister.

Article 2. Subjects of application

This Decree applies to:

1. Credit institutions: Commercial banks, non-bank credit institutions, credit institutions that are cooperatives (cooperative banks, people's credit funds), and microfinance institutions.

2. Foreign bank branches, except for cases where foreign bank branches are subject to the risk provision policy of foreign banks as prescribed in Article 16 of this Decree.

3. Other relevant organizations and individuals.

Article 3. Interpretation of terms

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

1. Credit risk in the operation of credit institutions, and foreign bank branches (hereinafter referred to as risk) means the possibility of loss on debts of credit institutions, foreign bank branches due to customers' inability to repay part or all of their debts according to contracts or agreements (hereinafter referred to as agreements) with credit institutions, foreign bank branches.

2. Assets (hereinafter referred to as debts) of credit institutions, 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) Credit extension in the form of credit card issuance;

e) Payments made under off-balance sheet commitments (including payments on behalf of customers' obligations in guarantee activities, operations involving letter of credit (except for cases prescribed at Point n of this Clause), and other payments made under off-balance sheet commitments;

g) Purchase and entrust the purchase of corporate bonds (including bonds issued by other credit institutions) that are not yet listed on the stock market or not yet registered for trading on the Upcom trading system (hereinafter referred to as unlisted bonds), not including the purchase of unlisted bonds using entrusted capital where the entrustor bears the risk;

h) Entrust of credit extension;

i) Depositing money (excluding demand deposits at credit institutions, foreign bank branches, deposits at social policy banks as prescribed by the Governor of the State Bank of Vietnam regarding state-owned credit institutions maintaining deposit balances at social policy banks) at credit institutions, foreign bank branches in accordance with the provisions of law and depositing money (excluding demand deposits) at credit institutions abroad;

k) Purchase and sale of debts as prescribed by the Governor of the State Bank of Vietnam (hereinafter referred to as the State Bank);

l) Repurchase and sale of Government bonds on the stock market in accordance with the provisions of law on issuance, registration, custody, listing, and trading of Government debt instruments on the stock market;

m) Purchase of certificates of deposit issued by other credit institutions, foreign bank branches;

n) Operations involving the issuance of deferred payment letter of credit with terms allowing the beneficiary to be paid at sight or before the maturity date of the letter of credit, and operations involving the reimbursement of letter of credit in the form of agreement with customers to pay using the reimbursing bank's funds from the date the reimbursing bank makes payment to the beneficiary; operations involving negotiating the payment of letters of credit;

o) Purchase of documents presented under a letter of credit without recourse, except for cases where credit institutions or foreign bank branches purchase documents presented under a letter of credit issued by themselves without recourse.

3. Debt amount means the amount of money that credit institutions, foreign bank branches have deposited, paid, disbursed each time according to the agreement (for cases where each disbursement has a different final debt payment time limit and debt payment term) or the amount of money that credit institutions, foreign bank branches have disbursed according to the agreement (for cases where there are multiple disbursements but with the same final debt payment time limit and debt payment term) for the outstanding debt of a customer.

4. Risk provision means the amount of money set aside as a provision for risks that may occur to the debts of credit institutions, foreign bank branches. Risk provisions include specific provisions and general provisions.

5. Specific provision means the amount of money set aside as a provision for risks that may occur to each specific debt.

6. General provision means the amount of money set aside as a provision for risks that may occur but have not been identified when setting aside specific provisions.

7. Customer means an organization (including credit institutions, foreign bank branches), individual, and other entities as prescribed by civil law who have the obligation to repay debts, make payments to credit institutions, foreign bank branches according to agreements.

8. The use of provisions to handle risks means the act of credit institutions, or foreign bank branches changing the accounting for the debts, reclassifying the debts that have been handled for risks to off-balance sheet accounts; the use of provisions to handle risks does not change the customer’s obligations to repay the debts for which the provisions are used to handle risks and the responsibilities of organizations and individuals related to the debts.

9. Debts of groups 1, 2, 3, 4, and 5 prescribed in this Decree shall be debts classified in accordance with the provisions of Clause 2, Article 147 of the Law on Credit Institutions.

Chapter II

SETTING ASIDE PROVISIONS AND THE USE OF PROVISIONS TO HANDLE RISKS

Section 1

LEVELS OF PROVISIONS AND METHODS OF SETTING ASIDE RISK PROVISIONS

Article 4. Level of specific provision

1. The amount of specific provision to be set aside for each customer of a credit institution or foreign bank branch shall be calculated according to the following formula:

Where:

R: The total amount of specific provision to be set aside for each customer;

: is the total amount of the specific provisions for the customer from the 1^st to the nth outstanding debt balance.

Ri: is the amount of specific provision to be set aside for the customer for the outstanding principal balance of the i^th debt. Ri shall be determined by the following formula:

Ri = (Ai - Ci) x r

Where:

Ai: Outstanding principal balance of the i^th debt. For debts that have been sold but for which the full sale proceeds have not been collected, Ai is the amount of sale proceeds not yet fully collected.

Ci: Deductible value of collateral, assets under financial lease, negotiable instruments, other valuable papers in discounting activities, repurchase of Government bonds (hereinafter referred to as collateral) of the i^th debt.

r: The level of specific provision according to the group as prescribed in Clause 2 and Clause 3 of this Article.

In cases where Ci > Ai, Ri shall be calculated as 0.

2. The level of specific provision for debts classified from group 1 to group 5 of credit institutions (excluding microfinance institutions) and foreign bank branches shall be as follows:

a) Group 1: 0%;

b) Group 2: 5%;

c) Group 3: 20%;

d) Group 4: 50%;

dd) Group 5: 100%.

3. The level of specific provision for debts classified from group 1 to group 5 of microfinance institutions shall be as follows:

a) Group 1: 0%;

b) Group 2: 2%;

c) Group 3: 25%;

d) Group 4: 50%;

dd) Group 5: 100%.

4. Collateral to be deducted when calculating the specific provision amount (R_i) as prescribed in Clause 1 of this Article must meet the following conditions:

a) Collateral (excluding assets under financial lease, negotiable instruments, other valuable papers in discounting activities, repurchase of Government bonds) must comply with the provisions of law on securing the performance of obligations and other relevant laws; assets under financial lease, negotiable instruments, other valuable papers in discounting activities, repurchase of Government bonds must comply with the provisions of relevant laws;

b) Credit institutions and foreign bank branches shall have the right to dispose of the collateral according to the agreement and the provisions of law when the customer fails to fulfil their obligations according to the agreement.

5. The deductible value of collateral must be considered as 0 in the following cases:

a) The collateral does not meet the conditions prescribed in Clause 4 of this Article;

b) Exceeding a period of 01 year for non-real estate collateral and exceeding a period of 02 years for real estate collateral, from the time the credit institution or foreign bank branch has the right to dispose of the collateral according to the agreement and the provisions of law.

6. The deductible value of collateral shall be determined by the collateral value, as prescribed in Article 5 of this Decree, multiplied by the deduction rate for each type of collateral, as prescribed in Article 6 of this Decree.

7. In cases where the Government or the Prime Minister has regulations or decisions on the classification of assets of credit institutions or foreign bank branches without regulations on setting aside risk provisions, credit institutions or foreign bank branches shall set aside risk provisions in accordance with the provisions of this Decree based on the debt group classified according to the regulations or decisions of the Government or the Prime Minister.

8. Credit institutions under early intervention shall be allowed to set aside risk provisions as prescribed at Point a, Clause 2, Article 159 of the Law on Credit Institutions after obtaining written approval from the State Bank.

9. Credit institutions under special control shall set aside risk provisions as prescribed in Clause 1, Article 166 of the Law on Credit Institutions.

Article 5. Value of collateral for deduction in setting aside risk provisions

The value of collateral for deduction in setting aside risk provisions shall be determined as follows:

1. Gold bars: The purchase price at the head office of the enterprise or credit institution owning the gold bar brand at the end of the most recent trading day before the date of setting aside specific provision.

2. Listed securities (including listed stocks, fund certificates, derivative securities, and covered warrants): The closing price on the most recent trading day before the date of setting aside specific provision. In cases where listed securities have not been traded within 30 days before the date of setting aside specific provision, or on the date of setting aside specific provision, the securities are delisted, suspended, or halted from trading, credit institutions or foreign bank branches shall determine the value of the collateral as prescribed in Clause 6 of this Article.

3. Stocks registered for trading on the Upcom trading system: The reference price on the most recent trading day before the date of setting aside specific provision as announced by the Stock Exchange. In cases where the stocks of a joint-stock company registered for trading on the Upcom trading system have not been traded within 30 days before the date of setting aside specific provision, or on the date of setting aside specific provision, the shares are delisted, suspended, or halted from trading, credit institutions or foreign bank branches shall determine the value of the collateral as prescribed in Clause 6 of this Article.

4. Government bonds listed on the Stock Exchange: The average price of transactions in the firm commitment offering session as prescribed by the Government on the issuance, registration, custody, listing, and trading of Government debt instruments on the stock market; the guiding documents of the Ministry of Finance and amending, supplementing, or replacing documents (if any). In cases where there is no transaction price in the aforementioned firm commitment offering session, the bond price for deduction shall be the average of the transaction prices on the secondary market within the 10 most recent working days up to the date of setting aside specific provision. In cases where there are no transactions within the 10 most recent working days up to the date of setting aside specific provision, credit institutions or foreign bank branches shall determine the value of the collateral at par value.

5. Local government bonds, government-guaranteed bonds, and corporate bonds (including credit institutions) that have been listed and registered for trading: The average price of transactions on the secondary market within the 10 most recent working days before the date of setting aside specific provision as announced by the Stock Exchange. In cases where there are no transactions within 10 working days up to the date of setting aside specific provision, credit institutions or foreign bank branches shall determine the value of the collateral at par value.

6. Unlisted securities on the Stock Exchange, certificates of deposit issued by enterprises (including credit institutions, foreign bank branches): shall be calculated at par value.

In cases where, at the time of setting aside specific provision, the equity is lower than the actual invested capital of the owners of the issuing organization, the value of the collateral shall be determined as follows:

Par value of securities, valuable papers multiplied (x) by the equity of the issuing organization divided (:) by the actual invested capital of the owners in the issuing organization.

Where: The actual invested capital of the owners in the issuing organization and the equity of the issuing organization are determined on the Balance Sheet of the most recent period before the date of setting aside specific provision in accordance with the Ministry of Finance's regulations on enterprise accounting regime.

In cases where the equity of the issuing organization is negative or zero, the deductible value of collateral (Ci) shall be considered as 0.

7. Assets under financial lease: The value of assets under financial lease shall be valued as prescribed in Clause 10 of this Article or the remaining value of assets under financial lease over the lease term shall be calculated by the formula:

Value of assets under financial lease divided (:) by the lease term under the contract multiplied (x) by the remaining lease term under the contract.

8. Deposits and certificates of deposit: The principal balance of deposits and certificates of deposit on the most recent date before the date of setting aside specific provisions.

9. The value of collateral for deduction in debt sales where full sale proceeds have not been collected shall be the value of collateral according to the debt purchase and sale contract (if any).

10. The determination of the value of collateral for deduction when calculating the specific provision amount for each collateral that is movable property, real estate, or other types of collateral, except for assets prescribed in Clauses 1, 2, 3, 4, 5, 6, 7, 8 of this Article shall be carried out as follows:

a) Credit institutions and foreign bank branches must hire an organization with the function of valuation in accordance with the provisions of law to determine the value of collateral to be deducted when calculating the specific provision amount at the end of the financial year in the following cases:

Collateral for which the credit institution or foreign bank branch determines the collateral value for deduction from VND 50 billion or more for debts of customers who are related persons of the credit institution or foreign bank branch and subjects restricted from credit extension as prescribed in Article 135 of the Law on Credit Institutions; collateral for which the credit institution or foreign bank branch determines the collateral value for deduction from VND 200 billion or more.

The results of collateral valuation by an organization with the function of valuation in accordance with the provisions of law that are still valid on the date of setting aside specific provisions are used by credit institutions and foreign bank branches to determine the deductible collateral value.

In cases where there is no collateral valuation document from an organization with the function of valuation, the deductible value of collateral shall be considered as 0.

b) Except for cases prescribed at Point a of this Clause, credit institutions and foreign bank branches shall determine the value of collateral for deduction when calculating the specific provision amount according to the internal regulations of the credit institutions and foreign bank branches.

Article 6. Deduction rates of collateral

1. Credit institutions and foreign bank branches shall determine the deduction rate for each type of collateral based on the assessment of recoverability when disposing of such collateral; collateral with lower liquidity and higher price volatility shall have a lower deduction rate of the collateral; the maximum deduction rate for each type of collateral shall be as prescribed in Clause 2 of this Article.

2. The maximum deduction rates for collateral shall be determined as follows:

a) Deposit balances (including compulsory savings, voluntary deposits for microfinance institutions), certificates of deposit in Vietnamese Dong at the credit institution or foreign bank branch itself: 100%;

b) Government bonds, gold bars as prescribed by law on gold trading activities; deposit balances, certificates of deposit in foreign currencies at the credit institution or foreign bank branch itself: 95%;

c) Local government bonds, government-guaranteed bonds; negotiable instruments, bonds issued by the credit institution itself; deposit balances, certificates of deposit issued by other credit institutions or foreign bank branches:

With a remaining maturity of less than 1 year: 95%;

With a remaining maturity of 1 year to 5 years: 85%;

With a remaining maturity of over 5 years: 80%;

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

dd) Securities listed on the Stock Exchange issued by enterprises (excluding credit institutions): 65%;

e) Unlisted securities on the Stock Exchange, valuable papers, except for those prescribed at Point c of this Clause, issued by other credit institutions that have listed shares on the Stock Exchange: 50%;

Unlisted securities on the Stock Exchange, valuable papers, except for those prescribed at Point c of this Clause, issued by other credit institutions that have not listed shares on the Stock Exchange: 30%;

g) Unlisted securities on the Stock Exchange, valuable papers issued by enterprises that have listed shares on the Stock Exchange: 30%;

Unlisted securities on the Stock Exchange, valuable papers issued by enterprises that have not listed shares on the Stock Exchange: 10%;

h) Real estate: 50%;

i) Other types of collateral: 30%.

Article 7. Level of general provisions

1. For credit institutions (excluding microfinance institutions) and foreign bank branches, the amount of general provision to be set aside shall be determined as 0.75% of the total outstanding debt balance classified from group 1 to group 4, excluding the following:

a) Deposits at credit institutions, foreign bank branches as prescribed by law and deposits at credit institutions abroad;

b) Loans, term purchases of valuable papers between credit institutions, foreign bank branches in Vietnam;

c) Purchases of certificates of deposit, bonds issued by other credit institutions, foreign bank branches in Vietnam;

d) Repurchase of Government bonds on the stock market in accordance with the law on issuance, registration, custody, listing, and trading of Government debt instruments on the stock market;

dd) Other debts arising from activities prescribed in Clause 2, Article 3 of this Decree between credit institutions, foreign bank branches in Vietnam as prescribed by law.

2. For microfinance institutions, the amount of general provision to be set aside shall be determined as 0.5% of the total outstanding debt balance classified from group 1 to group 4 (excluding deposits at credit institutions, foreign bank branches as prescribed by law).

Article 8. Supplementing and reversing provision amounts

1. In cases where the unused amount of specific and general provisions from the previous accounting period is smaller than the amount of specific and general provisions to be set aside for the current accounting period, credit institutions and foreign bank branches must supplement the shortfall.

2. In cases where the unused amount of specific and general provisions from the previous accounting period is larger than the amount of specific and general provisions to be set aside for the current accounting period, credit institutions and foreign bank branches must reverse the excess.

Article 9. Timing of setting aside risk provisions

1. Commercial banks, non-bank credit institutions, and foreign bank branches shall set aside risk provisions as follows:

a) Within the first 07 days of the month, commercial banks, non-bank credit institutions, and foreign bank branches shall set aside provisions for the end of the last day of the preceding month based on the debt group with the higher risk levels between:

The debt group according to the results of self-classification of debts for the end of the last day of the preceding month as prescribed by the Governor of the State Bank on the classification of assets in the operation of commercial banks, non-bank credit institutions, and foreign bank branches; and

The debt group adjusted according to the debt group of the customer list provided by the National Credit Information Center of Vietnam (CIC) as prescribed by the Governor of the State Bank on the classification of assets in the operation of commercial banks, non-bank credit institutions, and foreign bank branches at the most recent time.

b) For the first month of the quarter, within 03 days from the date of receiving the customer list provided by CIC for the end of the last day of the preceding month, commercial banks, non-bank credit institutions, and foreign bank branches shall base on the debt classification results adjusted according to the debt group of the customer list provided by CIC as prescribed by the Governor of the State Bank on the classification of assets in the operation of commercial banks, non-bank credit institutions, and foreign bank branches to adjust the amount of risk provisions for the end of the last day of the preceding month and present this amount of risk provisions on the financial statements for the end of the last day of the preceding month.

2. Credit institutions that are cooperatives and microfinance institutions shall set aside risk provisions as follows:

Within the first 07 days of the month, credit institutions that are cooperatives and microfinance institutions shall base on the debt classification results as prescribed by the Governor of the State Bank on the classification of assets in the operation of credit institutions that are cooperatives and microfinance institutions to set aside risk provisions for the end of the last day of the preceding month.

Section 2

USING RISK PROVISIONS TO HANDLE RISKS

Article 10. Risk Handling Council

1. Composition of the Risk Handling Council:

a) Commercial banks must establish a Risk Handling Council consisting of 01 member who is a member of the Board of Directors or Members' Council as the Chairperson; 01 other member who is a member of the Risk Management Committee; 01 other member who is the General Director (Director), and at least 02 other members decided by the Board of Directors or Members' Council;

b) Foreign bank branches and non-bank credit institutions must establish a Risk Handling Council consisting of the General Director (Director) as the Chairperson and at least 02 other members decided by the General Director (Director);

c) Microfinance institutions must establish a Risk Handling Council consisting of 01 member who is a member of the Members' Council as the Chairperson; 01 other member who is a member of the Risk Management Committee; 01 other member who is the General Director (Director), and at least 02 other members decided by the Members' Council;

d) Credit institutions that are cooperatives must establish a Risk Handling Council consisting of 01 member who is a member of the Board of Directors as Chairman; 01 other member who is the General Director (Director), and at least 02 other members decided by the Board of Directors.

2. Responsibilities of the Risk Handling Council of credit institutions and foreign bank branches for debts using provisions to handle risks:

a) Approving the system-wide consolidated report on the results of debt recovery that has used provisions to handle risks, including the results of collateral disposal and clearly stating the basis for approval;

b) Deciding or approving the classification of debts, setting aside provisions, and use of provisions to handle risks system-wide for debts using provisions to handle risks;

c) Deciding or approving measures to recover debts for which provisions have been used to handle risks system-wide, including the disposal of collateral.

3. The Risk Handling Council shall work when at least two-thirds of the total number of members are present and shall decide by majority principle.

Article 11. Principles and dossier for handling risks

1. Credit institutions (excluding microfinance institutions) and foreign bank branches may use provisions to handle risks in the following cases:

a) The customer is an organization that is dissolved or bankrupt; an individual who is deceased or missing;

b) Debts classified as Group 5.

2. Microfinance institutions may use provisions to handle risks in the following cases:

a) Customers falling under the cases prescribed in Clause 1 of this Article;

b) Customers who are individuals with permanent disabilities and no longer have the ability to work and generate income.

3. Credit institutions and foreign bank branches shall use provisions to handle risks according to the following principles:

a) In cases where the credit institution or foreign bank branch has disposed of the collateral to recover the debt according to the agreement of the parties and the provisions of law, the credit institution or foreign bank branch shall use specific provisions to handle the risk for the remaining balance of the debt; in cases where the specific provisions are not sufficient to cover the risk of the debt, general provisions shall be used to handle the risk;

b) In cases where the credit institution or foreign bank branch has not disposed of the collateral to recover the debt, the credit institution or foreign bank branch shall use provisions to handle the risk according to the following principles:

(i) Using specific provisions to handle the risk for that debt;

(ii) Promptly proceed with the disposal of collateral according to the agreement with the customer and the provisions of law to recover the debt;

(iii) In cases where the specific provisions and the amount recovered from the disposal of collateral are not sufficient to cover the risk of the debt, general provisions shall be used to handle the risk;

c) Credit institutions and foreign bank branches shall account for the remaining debt balance for which specific and general provisions has been used to handle risks on off-balance sheet as prescribed at Points a and b of this Clause.

4. The use of provisions to handle risks is a form of changing the accounting for the debt, transferring the debt that has been handled for risks to off-balance sheet accounts; it is an internal matter of the credit institution or foreign bank branch; it does not change the customer's obligation to repay the debt or the responsibilities of organizations and individuals related to the debt. Credit institutions and foreign bank branches shall be not allowed to notify customers that provisions have been used to handle risks for their debt. After handling the risks, credit institutions and foreign bank branches must monitor and take full and thorough measures to recover the debt that has been handled for risks, except for cases where the debt, after being handled for risks, is sold to an organization or individual by the credit institution or foreign bank branch, and the full sale proceeds are collected according to the debt purchase and sale contract.

5. The dossier for risk handling includes:

a) The dossier for credit extension and the dossier for debt collection for debts for which provisions have been used to handle risks;

b) The dossier for collateral and other relevant documents (if any);

c) Decision or approval of the Risk Handling Council on the results of debt classification and setting aside risk provisions for the debt for which provisions has been used to handle risks;

d) Decision or approval of the Risk Handling Council on the use of provisions to handle risks;

dd) For cases where the customer is an organization or enterprise that is bankrupt or dissolved, in addition to the dossiers mentioned at Points a, b, c, d of this Clause, there must be an original or certified copy or a copy from the original register of the Court's bankruptcy declaration or the decision to dissolve the enterprise in accordance with the provisions of law;

e) For cases where the customer is an individual who is deceased or missing, in addition to the dossiers prescribed at Points a, b, c, d of this Clause, there must be an original or certified copy or a copy from the original register of the Death Certificate or a document substituting the Death Certificate issued by a competent authority in accordance with the provisions of law, or a decision to declare missing in accordance with the provisions of law;

g) For cases where the customer of a microfinance institution is an individual with a permanent disability and no longer has the ability to work and generate income, in addition to the dossiers prescribed at Points a, b, c, d of this Clause, there must be a copy of the document certifying the permanent disability and inability to work and generate income issued by a competent authority.

Article 12. Monitoring debts for which provisions have been used to handle risks and writing off from off-balance sheet

1. After a minimum period of 05 years from the date of using provisions to handle risks, and after taking all measures to recover the debt but the debt has not been recovered, credit institutions and foreign bank branches may decide to write off the handled debt from off-balance sheet.

Debts written off from off-balance sheet must be monitored in the management system of credit institutions and foreign bank branches in accordance with the regulations on setting aside and handling provisions for devaluation of inventories, loss of investments, bad receivable debts, and warranty of products, goods, services, and construction works at enterprises for a minimum period of 10 years from the date of the decision to write off the handled debt from off-balance sheet, except for debts where the customer is an organization that has been bankrupt or dissolved in accordance with the provisions of law and after the liquidation and disposal of all assets, or the customer is an individual who is deceased or has been declared missing by a court decision and whose estate and obligations have been settled in accordance with the provisions of law.

2. For commercial banks in which the State owns more than 50% of the charter capital or total voting shares, the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article may only be carried out when the following conditions are met:

a) There are dossiers and documents proving that all measures to recover the debt have been taken but the debt has not been recovered;

b) It must be approved in writing by the State Bank after obtaining the opinion of the Ministry of Finance;

c) It must be approved by the General Meeting of Shareholders or the Members' Council.

3. For credit institutions that are joint-stock companies, except for credit institutions prescribed in Clause 2 of this Article, the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article may only be carried out when the following conditions are met:

a) There are dossiers and documents proving that all measures to recover the debt have been taken but the debt has not been recovered;

b) It must be approved by the General Meeting of Shareholders.

4. For credit institutions that are limited liability companies, except for credit institutions prescribed in Clause 2 of this Article, the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article may only be carried out when the following conditions are met:

a) There are dossiers and documents proving that all measures to recover the debt have been taken but the debt has not been recovered;

b) It must be approved by the Members' Council.

5. For foreign bank branches, the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article may only be carried out when the following conditions are met:

a) There are dossiers and documents proving that all measures to recover the debt have been taken but the debt has not been recovered;

b) It must be approved by the foreign bank.

6. For credit institutions that are cooperatives, the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article may only be carried out when the following conditions are met:

a) There are dossiers and documents proving that all measures to recover the debt have been taken but the debt has not been recovered;

b) It must be approved by the General Meeting of Members.

7. The dossier for the write-off of debts from off-balance sheet as prescribed in Clause 1 of this Article includes:

a) The dossier for risk handling as prescribed in Clause 5, Article 11 of this Decree;

b) The decision or approval of the credit institution or foreign bank branch on the write-off from off-balance sheet of debts for which provisions have been used to handle risks; the written approval of the foreign bank as prescribed at Point b, Clause 5 of this Article; the written approval of the State Bank as prescribed at Point b, Clause 2 of this Article for commercial banks in which the State owns more than 50% of the charter capital or total voting shares;

c) The decision or approvals of measures to recover debts for which provisions have been used to handle risks;

d) Documents proving that all measures to recover the debt have been taken but the debt has not been recovered, in accordance with reality and relevant legal provisions.

The dossier for the write-off of handled debts from off-balance sheet must be kept by credit institutions and foreign bank branches in accordance with the provisions of law.

Article 13. Treatment of amounts recovered from debts for which provisions have been used to handle risks

1. Amounts recovered from debts for which provisions have been used to handle risks, including amounts recovered from the disposal of collateral, shall be considered other income in the accounting period of the credit institution or foreign bank branch, except as prescribed in Clause 2 of this Article.

2. Amounts recovered from debts for which provisions have been used to handle risks for off-balance sheet debt balances that have been excluded from the enterprise value during the equitization of state-owned commercial banks shall be treated in accordance with the Prime Minister's Decision on the percentage of fees that equitized credit institutions are entitled to when recovering off-balance sheet debts that are retained and the guidance of the Ministry of Finance.

Article 14. Principles for handling asset losses related to debts

In cases of asset losses related to debts, credit institutions and foreign bank branches shall handle them according to the following principles:

1. Disposing of collateral (if any) according to the agreement of the parties and the provisions of law.

2. Determining the cause, responsibility, and handle the asset losses related to debts in accordance with the Government's regulations on the financial regime for credit institutions and foreign bank branches.

Article 15. Accounting and reporting

1. Credit institutions and foreign bank branches shall account for the amounts of specific and general provisions set aside, used, supplemented, and reversed in accordance with the law on the accounting regime for credit institutions and foreign bank branches.

2. Credit institutions and foreign bank branches shall report the setting aside and use of provisions to handle risks as follows:

a) Credit institutions and foreign bank branches shall report the setting aside and use of provisions to handle risks in accordance with the regulations on the statistical reporting regime applicable to credit institutions and foreign bank branches issued by the State Bank.

b) Credit institutions and foreign bank branches shall report the setting aside and use of provisions to handle risks to the General Department of Taxation and the tax department of the province or city where the credit institution or foreign bank branch is headquartered in accordance with the law on tax reporting.

c) Annually, credit institutions and foreign bank branches shall report to the General Meeting of Shareholders (for joint-stock credit institutions), the General Meeting of Members (for credit institutions that are cooperatives), the owner (for credit institutions that are single-member limited liability companies), the members contributing capital (for credit institutions that are limited liability companies with two or more members), or the parent bank (for foreign bank branches) on the setting aside and use of provisions to handle risks.

Article 16. Foreign bank branches applying the risk provision policy of foreign banks

1. Foreign bank branches may be approved by the State Bank to apply the risk provision policy of their foreign banks for debt classification, setting aside, and use of provisions to handle risks when meeting the condition that, in the 03 most recent financial years before the time of requesting approval from the State Bank, the total annual amount of specific provisions determined according to the risk provision policy of the foreign bank intended to be applied is not lower than the total annual amount of specific provisions set aside in accordance with the provisions of this Decree.

2. Application dossier for approval:

a) A written request to the State Bank for approval to apply the risk provision policy of the foreign bank;

b) A copy of the risk provision policy of the foreign bank;

c) A written confirmation from the foreign bank branch and documents proving that the conditions prescribed in Clause 1 of this Article are met.

3. Approval process and procedure:

a) The foreign bank branch shall prepare 01 dossier as prescribed in Clause 2 of this Article and submit it directly to the Single-window Section or through postal service to the State Bank. In cases where the dossier is incomplete or invalid, within 05 working days from the date of receiving the dossier, the State Bank shall issue a written request for the foreign bank branch to supplement the dossier;

b) Within 30 days from the date of receiving the complete and valid dossier as prescribed in Clause 2 of this Article, the State Bank shall issue a written approval or disapproval for the foreign bank branch to apply the risk provision policy of the foreign bank. In case of disapproval, the State Bank shall issue a written document stating the reasons.

4. For foreign bank branches that have been approved by the State Bank to apply the risk provision policy of their foreign banks, in cases of amending or supplementing the risk provision policy that has been approved by the State Bank, the foreign bank branch must report to the State Bank on the amendment or supplement to the risk provision policy, including an assessment of the compliance with the principle that the total amount of specific provisions determined according to the risk provision policy of the foreign bank after amendment or supplement is not lower than the total amount of specific provisions set aside in accordance with this Decree for the financial year starting to apply the amended or supplemented risk provision policy. In cases where the foreign bank branch assesses that it does not comply with this principle, the foreign bank branch must classify assets, determine level of provision, method of setting aside provision, and the use of provisions to handle risks in accordance with Vietnamese law.

5. For foreign bank branches that have been approved by the State Bank to apply the risk provision policy of their foreign banks, based on the results of check, inspection, and supervision, in cases where the State Bank assesses that the risk provision policy of the foreign bank does not fully reflect the actual level of credit risk in banking operations in Vietnam, the State Bank shall have the right to request the foreign bank branch to set aside and use provisions to handle risks in accordance with this Decree.

Chapter III

ALLOCATION OF INTEREST RECEIVABLES THAT MUST BE WRITTEN OFF

Article 17. Cases of approval for allocation period of interest receivables that must be written off exceeding 5 years but not exceeding 10 years

1. The State Bank shall consider and approve an allocation period of interest receivables that must be written off exceeding 5 years but not exceeding 10 years for credit institutions under early intervention during the implementation of the remedial plan, based on the credit institution's proposal and report on the causes, the inability to fully allocate interest receivables that must be written off within 5 years, the necessity for an allocation period exceeding 5 years but not exceeding 10 years, and the recovery capability according to the roadmap outlined in the remedial plan, which is developed in accordance with the Law on Credit Institutions, when the credit institution falls into one of the following cases:

a) The credit institution under early intervention has been applied with support measures by the State Bank as prescribed at Point b, Clause 2, Article 159 of the Law on Credit Institutions with a maximum allocation period of interest receivables that must be written off of 05 years from the date of approval by the State Bank, and the credit institution has complied with the principles prescribed in Clause 2 of this Article, but at the end of the 05-year period, the credit institution has not yet fully allocated the interest receivables that must be written off according to the approval document of the State Bank, the State Bank shall consider approving an extension of the allocation period, ensuring that the total allocation period does not exceed 10 years.

b) The credit institution under early intervention has accumulated losses equal to or exceeding 100% of the value of its charter capital and reserve funds as recorded in the most recent audited financial statements or according to the inspection and audit conclusions of competent state authorities.

2. Credit institutions shall allocate interest receivables that must be written off based on their financial capacity, with the principle that the total amount of allocated interest receivables that must be written off and the amount to be set aside for risk provisions required shall be equal to the difference between annual revenue and expenditure from the credit institution's business results. This provision shall only apply to receivables arising up to the time the State Bank issues a document as prescribed in Clause 2, Article 156 of the Law on Credit Institutions.

Chapter IV

RESPONSIBILITIES OF STATE MANAGEMENT AGENCIES

Article 18. Responsibilities of the State Bank

1. Checking, inspecting, and supervising credit institutions and foreign bank branches in the setting aside provisions and the use of provisions to handle risks as prescribed in this Decree; handling violations in setting aside provisions and the use of provisions to handle risks within their authority and in accordance with the provisions of law.

2. Processing application dossiers of foreign bank branches for approval to apply the risk provision policy of foreign banks.

3. Presiding over and coordinating with the Ministry of Finance and other relevant ministries and sectors to report to the Government on the implementation of this Decree for submission to the Government for amendment, supplementation, or replacement of this Decree in necessary cases.

Article 19. Responsibilities of the Ministry of Finance and other relevant ministries and sectors

Coordinating with the State Bank to report to the Government on the implementation of this Decree for submission to the Government for amendment, supplementation, or replacement of this Decree in necessary cases.

Chapter V

IMPLEMENTATION PROVISIONS

Article 20. Transitional provisions

1. Credit institutions that have been decided by the Prime Minister or the Governor of the State Bank on specific measures for setting aside provisions and use of provisions to handle risks before the effective date of this Decree shall comply with such decisions of the Prime Minister or the Governor of the State Bank.

2. Foreign bank branches that have been approved by the State Bank to apply the risk provision policy of foreign banks before the effective date of this Decree may continue to set aside and use provisions to handle risks according to the risk provision policy of the foreign bank approved by the State Bank, except for cases prescribed in Clause 4 and Clause 5, Article 16 of this Decree.

3. The setting aside and use of provisions to handle risks for promissory notes and treasury bills issued by credit institutions and foreign bank branches before the effective date of this Decree shall be implemented as the setting aside and use of provisions to handle risks for certificates of deposit as prescribed in this Decree.

4. For debts that remain in the same debt group in cases of rescheduling the debt payment time limit in accordance with the regulations of the State Bank issued before the effective date of this Decree, credit institutions and foreign bank branches may continue to set aside provisions in accordance with the regulations of the Governor of the State Bank.

Article 21. Implementation provisions

This Circular takes effect from July 11, 2024.

Article 22. Implementation

The ministers, the heads of ministerial-level agencies, the heads of the Government-attached agencies; credit institutions, foreign bank branches, and related organizations and individuals shall be responsible for the implementation of this Decree.