Circular No. 05/2003/TT-NHNN guiding the handling of overdue debts of state-owned enterprises at state commercial banks pursuant to Government Decree No. 69/2002/NĐ-CP dated July 12, 2002.

CIRCULAR

Guidelines for handling overdue debts of state-owned enterprises at state commercial banks

 in accordance with Decree

 No. 69/2002/NĐ-CP dated July 12, 2002 of the Government

______________________

To implement Article 12 of Decree No. 69/2002/NĐ-CP dated July 12, 2002 of the Government on the management and resolution of overdue debts of state-owned enterprises; the State Bank of Vietnam guides the implementation of the resolution of overdue debts of state-owned enterprises at state commercial banks as follows:

I. SCOPE AND OBJECTS

1. Scope of application:

State-owned enterprises having overdue debts at state commercial banks that are operating in accordance with Article 1 of the Law on State-Owned Enterprises (referred to as operating enterprises).

State-owned enterprises having overdue debts at state commercial banks that are undergoing restructuring procedures (listed for equitization, transfer, sale, lease, or conversion into a limited liability company with one member) pursuant to decisions of competent state authorities (referred to as restructuring enterprises).

2. Scope of Resolution

- For state-owned enterprises that are operating: The scope of resolution includes overdue debts that were placed on the payment network during Phase I and Phase II and remained outstanding at state commercial banks as of December 31, 2000, and have not been resolved up to the present.

- For state-owned enterprises undergoing restructuring: The scope of resolution includes overdue debts that remained outstanding at state commercial banks up to the time of enterprise restructuring.

3. Overdue Debts:

- Overdue debts of state-owned enterprises that are operating are understood to be debts owed to state commercial banks that were placed on the payment network during Phase I and Phase II and exceeded the payment deadline as of December 31, 2000, where the enterprises have applied debt resolution measures such as reconciliation and confirmation but have not yet paid off, and remain outstanding up to the present. Debts that arose after December 31, 2000, must be settled by the state-owned enterprises themselves.

- Overdue debts of state-owned enterprises undergoing restructuring are understood to be debts owed to state commercial banks that exceeded the payment deadline but remained unpaid up to the time of restructuring and remain outstanding up to the present. Debts that arose after the restructuring date must be settled by the state-owned enterprises themselves.

II. PRINCIPLES OF RESOLUTION

1. For state-owned enterprises that are operating and have overdue debts at state commercial banks that were placed on the payment network and confirmed by the Provincial/Central City Debt Settlement Board, but are suffering losses and classified for resolution as follows:

1.1. For enterprises that have continuously suffered losses and cannot be rectified and must be dissolved or declared bankrupt according to the decision of a competent state authority: The resolution of overdue debts shall be carried out in accordance with the provisions of the law on dissolution and bankruptcy; if the overdue debts do not have collateral, the resolution of debts shall be carried out in accordance with Decision No. 149/2001/QĐ-TTg dated October 5, 2001 of the Prime Minister approving the Project on Resolving Overdue Debts of Commercial Banks and Circular No. 174/NHNN-TD dated February 21, 2002 of the Governor of the State Bank of Vietnam.

1.2. For enterprises that have reorganized production and have the potential for development, the resolution shall be as follows:

a. Enterprises with bank loans from state commercial banks that have been written off may have their unpaid interest waived and the write-off period extended.

b. Enterprises with bank loans from state commercial banks that were placed on the payment network, if due to objective reasons but not yet written off, may have their unpaid interest waived and the principal written off.

c. Regarding the extension of the write-off period mentioned in points a and b above, state commercial banks shall consider and decide, and bear responsibility, creating conditions for enterprises to overcome difficulties and repay bank loans, but not exceeding five years.

2. For state-owned enterprises undergoing restructuring procedures:

2.1. For state-owned enterprises with decisions to undergo restructuring but encountering difficulties in balancing sources to pay off overdue debts, the General Director of state commercial banks shall consider and decide to allow enterprises to extend or write off overdue debts that have reached the restructuring decision date within a period of three to five years. In cases where these enterprises suffer losses and lack the ability to pay, the unpaid interest may be waived up to the amount of remaining losses.

2.2. For enterprises undergoing equity listing, transfer, or sale procedures, in addition to the write-off and waiver of interest measures mentioned in point 2.1 above, state commercial banks shall proactively coordinate with enterprises and organizations responsible for purchasing debts and surplus assets to resolve the remaining overdue principal through the following methods:

a. Selling debts in accordance with Clause 2.2.4, Point 2, Clause 1, Section B of Circular No. 85/2002/TT-BTC dated September 26, 2002 of the Ministry of Finance guiding the implementation of Decree No. 69/2002/NĐ-CP dated July 12, 2002 of the Government on the management and resolution of overdue debts of state-owned enterprises; or

b. Converting debts into capital contributions to the enterprise and transferring this portion of the capital contribution. In this case, the commercial bank must use its charter capital and reserve fund corresponding to the portion of debt converted into capital contribution to the enterprise and must ensure the capital contribution ratio as stipulated in Decision No. 492/2000/QĐ-NHNN5 dated November 28, 2000 of the Governor of the State Bank of Vietnam on the regulations on capital contribution and purchase of shares of credit institutions.

3. Interest on bank loans that cannot be collected in the cases specified in Clause 1, Point 1.2, Subpoint a and Clause 2 above, state commercial banks shall handle as follows:

- If the state commercial bank has recorded the interest on the overdue debt as income in previous years, it shall use the risk reserve to offset it; if insufficient, it shall record it as an expense in the year of resolution.

In the case where the interest on the outstanding debt that the State Commercial Bank does not record in annual income but instead tracks outside the balance sheet, the excess amount tracked outside the balance sheet shall be eliminated.

The difference in losses from selling outstanding debts shall be covered by the risk reserve. If the risk reserve is insufficient to cover the loss, the State Commercial Bank may record the shortfall as an expense.

III. LEGAL DOCUMENTS FOR DEBT HANDLING:

1. For state-owned enterprises currently operating with outstanding debts at State Commercial Banks that have been included in the debt settlement network:

1.1. For enterprises suffering continuous losses that cannot be resolved and must be dissolved or declared bankrupt, debt handling shall be carried out in accordance with the laws on dissolution and bankruptcy.

1.2. For state-owned enterprises that have reorganized production:

- A letter requesting debt handling from the borrowing enterprise

- Financial reports and inspection records of financial reports by authorized state agencies if available (copies)

- Business operation plans and debt repayment plans for banks approved by authorized authorities

- Debt reconciliation statements (principal and interest) signed and stamped by the lending bank and the borrowing enterprise; In cases where the supervising agency of the borrowing enterprise provides a guarantee, signatures and stamps of the supervising agency are required.

- Copies of loan agreements or proof of the enterprise's outstanding debt to the bank, directly provided, guaranteed, or settled, signed and stamped, showing the balance up to the date of debt handling.

2. For state-owned enterprises undergoing transformation:

- A letter requesting debt handling from the borrowing enterprise

- Decision of the authorized state agency regarding the transformation of the state-owned enterprise (copy)

- Valuation report before transformation by the valuation committee (copy)

- Financial reports and inspection records of financial reports by authorized state agencies if available (copies)

- Documentation proving the inability to balance sources to settle overdue debts (copy)

- Report identifying reasons for non-payment and proposing debt handling measures (clearly stating the proposed handling method and responsibilities of all parties), confirmed by the lending bank and the supervising agency of the enterprise.

- Copies of loan agreements or proof of the enterprise's outstanding debt to the bank, directly provided, guaranteed, or settled, signed and stamped, showing the balance up to the date of debt handling.

IV. IMPLEMENTATION

Based on the scope and subjects of this Circular, State Commercial Banks are responsible for directing units within their system to prepare legal documents, guiding customers to prepare requests for debt handling in compliance with regulations.

2. The General Director of State Commercial Banks shall organize inspections, bear responsibility for the legality and rationality of the documents for debts proposed for handling, actively review and handle outstanding debts in accordance with the provisions of this Circular; At the same time, compile and report the results of debt handling to the State Bank of Vietnam..

3. Outstanding debts that must be handled according to Decision No. 149/2001/QĐ-TTg dated October 5, 2001, of the Prime Minister approving the Plan to Handle Outstanding Debts of Commercial Banks and Circular No. 174/NHNN-TD dated February 21, 2002, of the Governor of the State Bank of Vietnam, commercial banks shall aggregate and report to the State Bank and only implement debt handling upon approval from the Prime Minister and notification from the Steering Committee for the Restructuring of Commercial Bank Finance.

4. Based on actual conditions, the State Bank shall establish a working group to inspect the handling of outstanding debts of state-owned enterprises at State Commercial Banks.

This Circular takes effect from the date of signature. During implementation, any issues should be reported to the Central State Bank for consideration and resolution./.