Joint Circular No. 03/1997/TTLT/NHNN-BTC guiding the handling of overdue debts of state-owned commercial banks through rectifying banking operations following inspection.

 

JOINT CIRCULAR

Guidelines for handling overdue debts of state-owned commercial banks through rectifying banking operations following inspection

To implement the conclusions of the Prime Minister's statement in Notification No. 25/TB dated March 17, 1997, and the Prime Minister's letter No. 4086/KTTH dated August 15, 1997 regarding the handling of overdue debts of state-owned commercial banks, after exchanging and reaching consensus with the State Inspectorate, the Ministry of Finance and the State Bank now issue the following guidelines for implementation:

I. GENERAL PROVISIONS:

1. Scope of handling overdue debts

1.1. Overdue debts up to December 31, 1996 of state-owned commercial banks that still remain as of September 30, 1997.

1.2. Debts that became overdue after December 31, 1996 and those debts that were overdue as of December 31, 1996 but were subsequently recovered by the commercial bank are not within the scope of this Circular.

1.3. Debts that were allowed to be written off from 1995 onwards by the Government will be handled during phase II of the settlement of public debts and other regulations issued by the Government and the Ministry.

2. Entities subject to handling of overdue debts

2.1. State-owned enterprises.

2.2. Agricultural cooperatives, small-scale industrial cooperatives, forestry cooperatives, salt industry cooperatives, fisheries cooperatives, construction cooperatives...

2.3. Private individuals, households, farmers in agricultural, forestry, fishery, and salt industries.

II. CLASSIFICATION AND METHODS OF HANDLING OVERDUE DEBTS

A. OVERDUE DEBTS DUE TO SUBJECTIVE REASONS.

1. Overdue debts due to subjective reasons on the part of lending banks:

1.1. Reasons include:

a. Violation of credit regulations;

b. Bank staff colluding with customers, borrowing on behalf of others, failing to deposit collected loans to the bank.

1.2. Handling method: Must apply all measures to collect the debt, and the remaining amount must be assigned specific responsibility (including leaders and bank employees).

1.3. Procedures for handling: The State Bank of Vietnam will guide the examination and specific handling of such debts, reporting results to the Prime Minister and the Steering Committee.

2. Overdue debts due to customers intentionally defrauding or stealing:

2.1. Handling method: By all means to collect the debt.

2.2. Procedures for handling: After applying all collection measures, state-owned commercial banks shall request prosecution and report results to the State Bank.

3. Overdue debts due to state-owned enterprises misusing borrowed funds:

3.1. Handling method: Ensure recovery of the debt.

3.2. Procedures for handling: State-owned commercial banks shall compile and report to the State Bank and the Ministry of Finance for verification, clarification of causes, and direction of appropriate recovery measures or other suitable actions.

B. OVERDUE DEBTS DUE TO OBJECTIVE REASONS:

1. Overdue debts due to objective reasons, eligible for debt write-off:

1.1. Reasons include:

a. Force majeure reasons: natural disasters, floods, crop failures, epidemics affecting borrowers as defined in point 2, Section I above and who are unable to repay the bank.

b. There is a court decision declaring bankruptcy or dissolution of the borrower as defined in points 2.1 and 2.2, Section I above, who are now unable to repay the bank.

c. Borrowers as defined in point 2.3, Section I above have died or been declared dead by the court according to civil law (Article 91 of the Civil Code) or declared missing (Article 88), unable to repay the bank and without heirs as provided by law.

1.2. Documentation and procedures.

a. Documentation for requesting debt write-off due to reasons under paragraph a, point 1.1, Section B, Part II above, includes:

- Request from the borrower.

- Record of damage caused by natural disasters, floods, crop failures, accidents, epidemics, specifying the extent and amount of loss, with confirmation or recommendation from local authorities at the time of the incident, specifically as follows:

+ State-owned enterprises: confirmation from provincial or city People's Committees; confirmation from the Department of State Capital Management and Asset Management (for local state-owned enterprises) or the Central Department of State Capital Management and Asset Management (for central state-owned enterprises); confirmation from relevant local authorities; confirmation from the provincial or city State Bank and the lending bank.

+ Cooperatives: confirmation from village or ward People's Committees; district or urban district People's Committees; finance departments of districts or urban districts; relevant local authorities; lending bank.

+ Private individuals, households, production households (as defined in point 2.3, Section I above): confirmation from village or ward People's Committees; village or ward police stations; lending bank.

- Loan agreement (signed and certified by the branch manager of the lending bank).

b. Documentation for requesting debt write-off due to reasons under paragraph b, point 1.1, Section B, Part II above, includes:

- Court decision declaring bankruptcy or dissolution order (with notarization).

- Dissolution plan, asset distribution plan of the enterprise, final report on the dissolution process of the enterprise (or liquidation report and enterprise assets).

- Loan agreement (signed and certified by the branch manager of the lending bank).

c. Documentation and procedures for requesting debt write-off due to reasons under paragraph c, point 1.1, Section B, Part II above, include: Documents proving that the borrower has died or been declared dead according to the law (in cases of death or declaration of disappearance, death of the court according to Articles 60, 63, 88, 91 of the Civil Code).

1.3. Debt write-off accounting.

Based on the decision to write off debts by the central committee for handling overdue debts and related legal documentation, the accountant of the state-owned commercial bank shall prepare journal entries for recording:

Debit: Appropriate account (depending on designated capital source and specific payment relationship).

Credit: Overdue debt account (corresponding to the written-off debt account).

Write-off: Off-balance sheet account: accrued interest on the written-off debt.

2. Overdue debts due to objective reasons, eligible for debt write-off over three to five years, during which the debtor does not need to pay interest.

2.1. Object: State-owned enterprises.

2.2. Determine the causes, including:

a. Due to direct import-export business customers being affected by changes in state mechanisms and policies (such as bans on wood and rice exports, loss of markets...);

b. Due to corporate restructuring;

c. Loans made according to directives or decisions from superiors (mainly occurring at the Investment and Development Bank, loans according to state plans, loans for purchasing silkworm cocoons and live pigs to stabilize prices...).

2.3. Documents and procedures include:

a. Relevant documents directly related to the occurrence of overdue debts of enterprises.

b. The enterprise's request, confirmed by the specialized state management agency (for central enterprises: the relevant ministry; for local enterprises: the People's Committee at the level that established the enterprise), and the state-owned commercial bank regarding the cause of the overdue debt.

c. An effective business plan and repayment schedule to the bank after the grace period, agreed upon by the specialized management agency and the lending bank.

d. Loan agreement (signed and certified by the branch manager of the lending bank).

3. Overdue debts due to objective reasons may be extended for 3 to 5 years, with interest still calculated and collected during the extension period.

3.1. Object: State-owned enterprises;

3.2. Determining the causes:

These are overdue debts of banks where the borrowing enterprises are state-owned enterprises operating at a loss, but due to economic requirements or local needs, these enterprises must continue their operations.

3.3. Documents, procedures, and conditions for requesting an extension, include:

a. The enterprise's request document, confirmed by the specialized state management agency (as in Section II, Part B, Point 2.3, Subpoint b above) about the necessity to maintain the operation of the enterprise, to resolve difficulties for the enterprise, and the lending bank.

b. An effective production-business plan and repayment schedule to the bank after the extension period, agreed upon by the specialized management agency and the lending bank.

c. Loan agreement with the bank (signed and certified by the branch manager of the lending bank).

III. ORGANIZATION AND IMPLEMENTATION GUIDANCE

1. Establish a Steering Committee to handle overdue debts:

1.1. At the Central level: The Governor of the State Bank of Vietnam shall head the committee; members include leaders of the Ministry of Finance and the State Inspectorate. Each department mentioned above shall appoint one officer at the Department level and some specialists to assist.

1.2. At Provincial and Municipal levels: The Chairman of the People's Committee of the province or city shall establish a Steering Committee comprising: the Deputy Chairman of the People's Committee of the province or city as Chairperson; members include the Director of the Department of Finance and Price Control, the Director of the Branch of the State Bank of Vietnam (Permanent Member), the Director of the State Capital and Asset Management Agency at Enterprises, and the Provincial State Inspector. Each sector shall appoint some specialists to assist.

2. Tasks of sectors and levels in establishing, inspecting, and compiling overdue debt classification reports:

2.1. Chairman of the Board of Directors and General Director of the State-Owned Commercial Banks of Vietnam:

2.1.1. Direct subordinate branches to implement the collection of documents, procedures, and reporting according to the guidelines in this Circular. The branches are responsible for the following specific tasks:

a. Being the unit responsible for identifying customer objects to be handled according to Article 1 and 2, Section I of this Circular. Specifically:

- Checking and accurately determining the customer objects within the scope to be considered for overdue debt handling;

- Accurately determining the scope and amount of overdue debt to avoid overlap in handling overdue debt.

b. Collecting all necessary documents and procedures as stipulated in Section II of this Circular, organizing overdue debt files according to each type of cause.

c. Based on the customer objects, the scope of overdue debt to be handled, and the documents and procedures above, prepare the attached forms according to this Circular, obtaining confirmation from competent authorities as guided in this Circular. Attached forms include:

+ Form X1, X2: Detailed Summary of Overdue Debts Considered for Debt Write-off;

+ Form K1, K2: Summary of Overdue Debts Considered for Debt Write-off;

+ Form G1, G2: Summary of Overdue Debts Considered for Extension.

d. State-owned Commercial Bank branches send documents to the provincial steering committee, simultaneously sending them to the headquarters of the State-Owned Commercial Bank of Vietnam, to be completed before December 15, 1997.

2.1.2. Receive and organize inspections to ensure the accuracy, correctness, and completeness of legal documents on overdue debt classification sent up by subordinate branches after obtaining confirmation from competent authorities on the documents as stipulated in Part B, Section II of this Circular.

2.1.3. Compile and submit overdue debt classification reports of their banking system to the Central Steering Committee according to the guidelines in this Circular. Deadline: Before December 31, 1997.

2.1.4. Inspect and clearly identify overdue debts caused by borrowers' fraudulent intentions, and cooperate with functional agencies to take measures to recover or propose prosecution (if necessary). Completion time: Within January 1998.

2.2. Provincial and Municipal Steering Committees:

2.2.1. Direct state-owned commercial bank branches in their jurisdiction to establish files according to the guidelines in Part B, Section II of this Circular.

2.2.2. Organize inspections to confirm the accuracy, completeness, and sign confirmation on legal documents on overdue debt classification as guided in this Circular. Deadline: Before December 15, 1997.

2.3. The Central State Bank:

2.3.1. Guide the inspection and specific handling of overdue debts due to subjective reasons in Part A, Section II of this Circular.

2.3.2. Take the lead and coordinate with the Ministry of Finance and the State Inspectorate on the following work contents:

a. Submit to the Prime Minister for approval of funds to compensate the State Bank for losses incurred from writing off debts of state-owned commercial banks.

b. Inspect and provide specific guidance on the handling (capital transfer, accounting entries, bookkeeping) to implement Point 3 of Circular No. 4086/KTTH dated August 15, 1997, of the Prime Minister regarding the implementation of debt write-off methods stipulated in Point 1, Part B, Section II: "For debts that are written off, state-owned commercial banks may gradually account for them as expenses or risk reserve funds of the bank, or they may be reduced from loans borrowed from the State Bank."

Guide the method for setting aside non-performing loans as specified in Point 2, Part B, Section II, and the method for extending repayment periods as specified in Point 3, Part B, Section II of this Circular for state-owned commercial banks.

Clarify and recommend to competent authorities to handle borrowers who have misused loan funds for purposes other than those intended and are at risk of loss.

2.4. Central Steering Committee:

2.4.1. Direct provincial and municipal steering committees and state-owned commercial banks to implement in accordance with the contents of this Circular.

2.4.2. Organize the review of files, procedures, and overdue loan classification reports; consolidate data from state-owned commercial banks submitted for debt write-offs, setting aside, and extension of repayment periods under Part B, Section II of this Circular; unify measures to address each specific case, and instruct the State Bank to guide implementation according to the content of (2.3.2 b) Point 2, Section III of this Circular.

2.4.3. Report the results of handling overdue loans to the Prime Minister in the first quarter of 1998.

This Circular takes effect fifteen days after its date of issuance. During implementation, any difficulties or obstacles should be reported to the Central Steering Committee's Standing Office (State Bank of Vietnam) for study and resolution.

Note: Branches of state-owned commercial banks shall only list overdue loans arising from December 31, 1996, but still outstanding as of September 30, 1997, for enterprises eligible for extended repayment periods.

 

 

SCHEDULE G1

Branch...

DETAIL OF OVERDUE LOANS OF STATE ENTERPRISES ELIGIBLE FOR EXTENDED REPAYMENT PERIODS
(as of September 30, 1997)

Remarks: Branches of state-owned commercial banks shall only list overdue loans arising from December 31, 1996, but still outstanding as of September 30, 1997, for state enterprises eligible for extended repayment periods.

Date... Month... Year 1997

Chairman of Provincial People's Committee Director Director Director

of Finance Branch of State Bank Branch of Commercial Bank

SCHEDULE G2

Banks...

DETAIL OF OVERDUE LOANS OF STATE ENTERPRISES ELIGIBLE FOR EXTENDED REPAYMENT PERIODS
(as of September 30, 1997)

Unit: 1 million VND, 1,000 USD

Note: Based on Schedule G1, the state-owned commercial bank prepares this consolidated schedule.

Date... Month... Year 1997

Prepared by General Director