Directive No. 05/2005/CT-NHNN on the implementation of loan classification and risk reserve provisioning pursuant to Decision No. 493/2005/QĐ-NHNN

DIRECTIVE OF THE GOVERNOR OF THE STATE BANK

ON IMPLEMENTING DEBT CLASSIFICATION AND PROVISION FOR RISK

Pursuant to Decision No. 493/2005/QD-NHNN

On April 22, 2005, the Governor of the State Bank signed Decision No. 493/2005/QD-NHNN promulgating the Regulations on debt classification, provision for risk, and utilization of provisions for credit risk management in banking operations of credit institutions according to international practices. To accurately assess the current status and quality of the Vietnamese banking system as well as each individual credit institution based on international standards, the Governor of the State Bank issues the following directive:

1. Credit institutions (excluding basic credit funds) must conduct a comprehensive review and assessment of credit quality and the ability to establish risk provisions according to the following contents:

- Debt Classification: Debts are classified from Group 1 to Group 5 as stipulated in Article 6 of the aforementioned Regulations.

- Non-Performing Loan (NPL) Ratio/Totals Loans Outstanding: Non-performing loans include debts classified from Group 3 to Group 5.

- Status of Risk Provision Establishment: Actual provisions made and the capacity to make provisions according to the aforementioned Regulations.

Reporting Data Date: June 30, 2005.

2. The Chairman of the Board of Directors, the Head of the Supervisory Board, and the General Director (Director) of credit institutions must promptly and comprehensively implement the comprehensive review and assessment of credit quality. By July 31, 2005, credit institutions must submit reports to the Governor of the State Bank according to Form 1A of the aforementioned Regulations (through the Department of Banks and Non-Bank Financial Institutions).

3. The State Bank will handle credit institutions that violate the regulations as follows:

- Administrative penalties in the field of currency and banking activities according to current regulations.

- Conducting a full audit of credit institutions suspected of reporting inaccurate data to take appropriate measures.

4. The Department of Banks and Non-Bank Financial Institutions is responsible for coordinating with the Banking Inspection Agency to compile, evaluate data, and present to the Governor of the State Bank for handling cases of credit institutions and individuals violating Point 3 above.

This Directive takes effect fifteen days after its publication in the Official Gazette. Credit institutions strictly implement this Directive; during implementation, any difficulties should be reported promptly to the State Bank (Department of Banks and Non-Bank Financial Institutions) for guidance on resolution./.