Circular No. 06/2016/TT-NHNN amending and supplementing certain articles of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam on limits and ratios ensuring safety in the operations of credit institutions and foreign bank branches.

CIRCULAR

Amending and supplementing certain articles of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank of Vietnam

Decision No. 20/2014/ND-BH dated November 20, 2014 of the Governor of the State Bank stipulates on the limits and safety ratios in the operations of credit institutions and foreign bank branches.

This Decision sets forth the limits and safety ratios in the operations of credit institutions and foreign bank branches.

Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

No. 06/2013/UBTVQH13 dated March 18, 2013;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013, of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of Banking Inspection and Supervision;

The Governor of the State Bank of Vietnam issues this Circular amending and supplementing certain provisions of Circular No. 36/2014/TT-NHNN dated November 20, 2014 of the Governor of the State Bank stipulating the limits and safety ratios in the operations of credit institutions and foreign bank branches (Circular No. 36/2014/TT-NHNN).

Article 1. Amending and supplementing certain provisions of Circular No. 36/2014/TT-NHNN:

1. Supplementing the end of point a, Clause 15, Article 3 as follows:

"(xi) A company or credit institution that owns 5% or more of the charter capital or voting shares;

(xii) A company or credit institution that has the authority to appoint managers or members of the supervisory board of the company or credit institution;

(xiii) A company or credit institution that has the authority to appoint managers or members of the supervisory board of the parent company of the company or credit institution."

2. Supplementing point i, Clause 18, Article 3 as follows:

"i) Granting loans or discounting negotiable instruments for customers to entrust individuals or organizations to purchase stocks."

3. Supplementing Clauses 19, 20, 21, 22, 23, and Clause 24 of Article 3 as follows:

"19. Credit institutions and foreign bank branches are credit institutions and foreign bank branches established and operating in Vietnam in accordance with Vietnamese laws.

20. State-owned commercial banks are commercial banks established and organized under the form of a limited liability company with 100% state ownership of the charter capital.

21. Financial organizations are organizations defined under the law on anti-money laundering.

22. Foreign financial organizations are financial organizations established abroad in accordance with foreign laws.

23. Average short-term capital for the month is calculated by dividing the total daily balances of short-term capital at the end of each day in the month by the total number of days in the month.

24. A term negotiable instrument trading transaction is a transaction involving the purchase or sale of negotiable instruments accompanied by the condition of transferring ownership of the negotiable instruments before their maturity date and a commitment to sell or buy back the negotiable instruments after a specified period of time."

4. Amending and supplementing Clause 2, Article 11 as follows:

"2. Credit institutions and foreign bank branches shall not grant credit to customers for investing in or trading in unlisted corporate bonds."

5. Amending and supplementing point a, Clause 1, Article 12 as follows:

"a) Auditing organizations (including auditing enterprises, branches of foreign auditing enterprises in Vietnam), auditors (including auditors of auditing organizations, state auditors) currently auditing at credit institutions and foreign bank branches; inspectors currently inspecting at credit institutions and foreign bank branches;"

6. Amending and supplementing point c, Clause 3, Article 13 as follows:

"c) Loans secured fully by the term and value of individual savings deposits at the time of lending;"

7. Amending and supplementing point h, Clause 3, Article 13 as follows:

"h) Guarantees and commitments to issue under documentary credit forms fully secured by the term and value of Vietnamese dong, foreign currency, gold, government bonds of the guaranteed party and/or third parties at the time of issuing guarantees and/or commitments. Credit institutions and foreign bank branches determine the specific value of collateral but ensure the maximum value according to the following principles:

(i) Vietnamese dong deposits: 100% of the deposit amount used to secure such guarantees and commitments;

(ii) Foreign currency deposits: 95% of the deposit amount used to secure such guarantees and commitments;

(iii) Gold bars, except for gold bars specified in sub-item (iv) of this point: 95% of the value based on the buying price listed at the headquarters of the enterprise or credit institution owning the gold bar brand at the end of the day immediately preceding the valuation date;

(iv) Gold bars without a listed buying price, other gold: 30% of the value based on the price assessed by a valuation organization at the nearest time before the valuation date of the collateral or based on the internal valuation regulations of the credit institution or foreign bank branch if not assessed by a valuation organization;

(v) Government bonds: 95% of the value of government bonds with remaining maturity of less than one year or 85% of the value of government bonds with remaining maturity from one year to less than five years or 80% of the value of government bonds with remaining maturity of five years or more. The value of government bonds is calculated based on face value at the valuation date."

8. Amending and supplementing Clause 4, Article 14 as follows:

"4. Commercial banks shall not grant credit or agency services to subsidiaries or associated companies of the commercial bank for:

a) Investing in or trading in stocks;

b) Lending to invest in or trade in stocks."

9. Amending and supplementing Clause 6, Article 14 as follows:

"6. Commercial banks shall not grant credit to customers for investing in or trading in stocks of the commercial bank itself, except in cases where state-owned commercial banks lend to employees of the state-owned commercial bank itself to purchase shares issued for the first time when converting the state-owned commercial bank into a joint-stock commercial bank."

10. Amending and supplementing point b, Clause 2, Article 15 as follows:

"b) The liquidity reserve ratio is determined according to the following formula:

Where:

(i) High liquidity assets as prescribed in Appendix 3 of this Circular;"

(ii) Total Liabilities is the Total Liabilities item on the Balance Sheet minus loans from the State Bank (including sale with repurchase agreements through open market operations; discounting, pledging securities, overnight inter-bank electronic payment lending) and loans from other credit institutions and foreign bank branches in the form of rediscounting of securities used in transactions of the State Bank.

11. Amend and supplement Point d Clause 2 Article 15 as follows:

“d) Credit institutions and foreign bank branches must maintain the minimum liquidity reserve ratio as follows:

(i) Commercial banks: 10%;

(ii) Foreign bank branches: 10%;

(iii) Non-bank credit institutions: 1%;

(iv) Cooperative banks: 10%.”

12. Amend and supplement Points b, c, d Clause 3 Article 15 as follows:

“b) The 30-day liquidity coverage ratio is determined according to the following formula:

Where:

(i) High liquidity assets as prescribed in Appendix 3 of this Circular;"

(ii) Net cash outflow for the next 30 days is the difference between the cash outflows of the next 30 consecutive days starting from the day after and the cash inflows of the next 30 consecutive days starting from the day after as specified in Appendix 3 of this Circular.

c) In case credit institutions and foreign bank branches determine that the net cash outflow for the next 30 days in Vietnamese dong is positive, credit institutions and foreign bank branches must maintain the 30-day liquidity coverage ratio for Vietnamese dong as prescribed in Point b of this Clause at a minimum as follows:

(i) Commercial banks: 50%;

(ii) Foreign bank branches: 50%;

(iii) Non-bank credit institutions: 20%;

(iv) Cooperative banks: 50%.”

d) In case credit institutions and foreign bank branches determine that the net cash outflow for the next 30 days in foreign currency is positive, credit institutions and foreign bank branches must maintain the 30-day liquidity coverage ratio for foreign currency as prescribed in Point b of this Clause at a minimum as follows:

(i) Commercial banks: 10%;

(ii) Foreign bank branches: 5%;

(iii) Non-bank credit institutions: 5%;

(iv) Cooperative banks: 5%.”

13. Amend and supplement Clause 2 Article 16 as follows:

“2. In case the calculation result of the 30-day liquidity coverage ratio of credit institutions and foreign bank branches on the day after does not meet the provisions of Point c, Point d Clause 3 Article 15 of this Circular, the State Bank will examine and handle according to the regulations on administrative penalties in the field of monetary policy and banking while implementing supervision on liquidity. Credit institutions and foreign bank branches must immediately apply self-management measures including: borrowing from other credit institutions and foreign bank branches, borrowing from foreign financial organizations or signing with other credit institutions and foreign financial organizations non-cancellable deposit agreements, non-cancellable loan agreements and other non-cancellable measures to ensure the 30-day liquidity coverage ratio. In case credit institutions and foreign bank branches have to use the above self-management measures at a level of 20% or more of high liquidity assets, the State Bank will apply additional supervisory and handling measures according to the law.”

14. Amend and supplement Clause 2 Article 17 as follows:

“2. Total medium and long-term loan balances include:

a) The following items with remaining terms over 01 (one) year:

(i) Loans and financial leasing (including loans and financial leasing to other credit institutions and foreign bank branches in Vietnam), except for loan and financial leasing balances funded by entrusted funds from the Government, individuals, and other organizations (including: other credit institutions and foreign bank branches in Vietnam; parent banks, overseas branches of parent banks) where the risks related to these loans and financial leasing are borne by the Government, individuals, and these organizations;

(ii) Entrusted loans to other credit institutions and foreign bank branches for lending and financial leasing where the risk is borne by the entrusting credit institution or foreign bank branch;

(iii) Purchases and investments in securities, except for securities used in transactions of the State Bank (excluding bonds issued by the Asset Management Company of Credit Institutions of Vietnam (VAMC)).”

b) Loan balances, financial leasing balances, and balances of purchases and investments in overdue securities.”

15. Amend and supplement Clause 3 Article 17 as follows:

“3. Medium and long-term sources of funds include the balances of the following items with remaining terms over 01 (one) year:

a) Deposits from domestic and foreign organizations, except for the following items:

(i) Various types of State Treasury deposits;

(ii) Deposits from other credit institutions and foreign bank branches in Vietnam;

b) Borrowings from domestic and foreign financial organizations (excluding borrowings from other credit institutions and foreign bank branches in Vietnam);

c) Individual deposits;

d) Funds raised from issuing promissory notes, bills, deposit certificates, and bonds;

đ) Registered capital, contributed capital, supplementary registered capital reserve fund, business development investment fund, and remaining financial reserve fund after deducting the original value of purchases and investments in fixed assets, capital contributions, and share purchases as prescribed by law;

e) Capital surplus, undistributed profits after purchasing treasury shares;

g) Deposits and loans from other financial institutions or foreign bank branches in Vietnam for non-bank financial institutions;

h) Deposits from people's credit unions in the case of cooperative banks.”

16. Amend and supplement Clause 4 Article 17 as follows:

“4. Short-term sources of funds include the balances of the following items with remaining terms up to 01 (one) year (including demand deposits):

a) Deposits from domestic and foreign organizations, except for the following items:

(i) Various types of State Treasury deposits;

(ii) Deposits from other credit institutions and foreign bank branches in Vietnam;

(iii) Customer margin deposits and dedicated capital deposits.

b) Borrowings from domestic and foreign financial organizations (excluding borrowings from other credit institutions and foreign bank branches in Vietnam);

c) Individual deposits, excluding customer margin deposits and dedicated capital deposits;

đ) Funds raised from issuing promissory notes, bills, deposit certificates, and bonds;

đ) Deposits and borrowings from other credit institutions and foreign bank branches in Vietnam in the case of non-bank credit institutions;

e) Deposits from people's credit unions in the case of cooperative banks.”

17 ||| 17. Amend and supplement Clause 5 Article 17 as follows:

“5. Credit institutions and foreign bank branches may use short-term sources of funds to provide medium and long-term loans according to the maximum ratio with the following schedule:

a) From July 1, 2016 to December 31, 2016:

(i) Commercial banks: 60%;

(ii) Branches of foreign banks: 60%;

(iii) Non-bank credit institutions: 100%;

(iv) Cooperative banks: 60%;

b) From January 1, 2017 to December 31, 2017:

(i) Commercial banks: 50%;

(ii) Foreign bank branches: 50%;

(iii) Non-bank credit institutions: 90%;

(iv) Cooperative banks: 50%;

c) From January 1, 2018:

(i) Commercial banks: 40%;

(ii) Branches of foreign banks: 40%;

(iii) Non-bank credit institutions: 80%;

(iv) Cooperative banks: 40%.”

18. Amend and supplement Clause 6 of Article 17 as follows:

“6. Credit institutions and branches of foreign banks may purchase and invest in government bonds up to the following ratios compared to the average short-term capital of the previous month:

a) Maximum ratio:

(i) State commercial banks: 25%;

(ii) Joint-stock commercial banks, joint venture banks, and wholly foreign-owned banks: 35%;

(iii) Branches of foreign banks: 35%;

(iv) Non-bank credit institutions: 5%;

(v) Cooperative banks: 35%.

b) The balance of purchasing and investing in government bonds to determine the maximum ratio prescribed in Point a of this Clause includes all balances of government bonds owned by credit institutions and branches of foreign banks, including entrusted purchases and investments in government bonds by other organizations, but excluding purchases and investments in government bonds using entrusted funds from individuals and organizations where the credit institution or branch of a foreign bank does not bear the risk;

c) Short-term capital shall be determined according to the provisions of Clause 4 of this Article;

d) Credit institutions and branches of foreign banks without short-term capital may purchase and invest in government bonds at the corresponding maximum ratios prescribed in Point a of this Clause compared to charter capital or authorized capital.”

19. Amend and supplement Point a and Point b of Clause 4 of Article 21 as follows:

“a) Deposits from domestic and foreign organizations, except for the following items:

(i) Various types of State Treasury deposits;

(ii) Customer margin deposits and dedicated capital deposits;

b) Deposits from individuals, except for margin deposits and dedicated capital deposits.”

Article 2. Repeal Clause 5 of Article 16 of Circular No. 36/2014/TT-NHNN.

Article 3. Replace the appendices issued together with Circular No. 36/2014/TT-NHNN with Appendix 1, Appendix 2, and Appendix 3 issued together with this Circular.

Article 4. Transitional Provisions

1. General transitional provisions:

a) At the time this Circular takes effect, credit institutions and branches of foreign banks that have not complied with the limits and ratios prescribed in Circular No. 36/2014/TT-NHNN due to amendments and supplements to the provisions in Appendix 2; Point a of Clause 15, Point i of Clause 18 of Article 3; Clauses 2, 5, and 6 of Article 17 of Circular No. 36/2014/TT-NHNN must develop and immediately implement measures to comply with the regulations;

b) Within a maximum period of 30 days from the date this Circular takes effect, credit institutions and branches of foreign banks must directly submit or send by post the measures for compliance as stipulated in Point a of this Clause to the State Bank of Vietnam (Supervisory Authority);

In case the State Bank requests modifications, supplements, or adjustments to the measures, implementation progress, or deadlines, credit institutions and branches of foreign banks are responsible for implementing them according to the State Bank's requirements;

c) Credit institutions and branches of foreign banks are responsible for incorporating the measures for compliance mentioned in Points a and b of this Clause and their implementation schedules into the restructuring plans of credit institutions and branches of foreign banks (if any) to implement synchronously as required by the State Bank.

2. Transitional provisions for the minimum capital adequacy ratio

The transitional measures for the minimum capital adequacy ratio must include at least the following contents:

a) Specific ratios that do not meet the regulations;

b) Measures and plans to ensure compliance with the regulations by January 1, 2017.

3. Transitional provisions for credit granting

a) At the time this Circular takes effect, if credit institutions and branches of foreign banks have granted credits to a customer and related parties that do not meet the credit limit regulations stipulated in Article 13 of Circular No. 36/2014/TT-NHNN due to amendments and supplements to Point a of Clause 15 of Article 3 of Circular No. 36/2014/TT-NHNN, the credit institutions and branches of foreign banks and customers may continue to implement the signed agreements until the end of the contract term. Any modification, supplementation, or extension of the contract can only be carried out if the modified, supplemented, or extended content complies with the regulations of Article 13 of Circular No. 36/2014/TT-NHNN and relevant regulations;

b) At the time this Circular takes effect, if commercial banks and branches of foreign banks have granted credits to customers for stock investment and trading that violate the conditions and ratios stipulated in Article 14 of Circular No. 36/2014/TT-NHNN due to amendments and supplements to Point a of Clause 15 and Point i of Clause 18 of Article 3 of Circular No. 36/2014/TT-NHNN, they may not grant additional credits for stock investment and trading until they fully meet the conditions stipulated in Clause 1 of Article 14 and comply with the ratios stipulated in Clause 3 of Article 14 of Circular No. 36/2014/TT-NHNN, and must develop a remediation plan, which must include at least the following contents:

(i) A list of customers and loan balances for stock investment and trading by each customer; current non-compliance status;

(ii) Specific remediation measures and plans, including debt recovery, increasing charter capital, and authorized capital.

4. Transitional provisions regarding the maximum ratio of short-term capital to be used for medium- and long-term loans

a) As of the date this Circular takes effect, credit institutions and foreign bank branches that have not met the maximum ratio of short-term capital used for medium- and long-term loans as prescribed in Clause 17, Article 1 of this Circular due to the amendment of Clause 2, Article 17 of Circular No. 36/2014/TT-NHNN shall not grant any additional medium- and long-term loans until they comply with the ratio prescribed in Clause 5, Article 17 of Circular No. 36/2014/TT-NHNN and must develop a remediation plan, which must include at least the following contents:

(i) The specific ratio that does not meet the requirement;

(ii) Measures and plans to address the situation to ensure compliance with the regulations within a maximum period of three months from the date this Circular takes effect.

b) As of the date this Circular takes effect, non-bank credit institutions that have not met the maximum ratio of short-term capital used for medium- and long-term loans as prescribed in Clause 5, Article 17 of Circular No. 36/2014/TT-NHNN shall not grant any additional medium- and long-term loans until they comply with the ratio and must develop a remediation plan, which must include at least the following contents:

(i) The specific ratio that does not meet the requirement;

(ii) Measures and plans to address the situation to ensure compliance with the regulations within a maximum period of three months from the date this Circular takes effect.

5. Transitional provisions regarding the ratio of government bond investment to short-term capital

As of the date this Circular takes effect, credit institutions and foreign bank branches that have not met the ratio of government bond investment to short-term capital as prescribed in Clause 6, Article 17 of Circular No. 36/2014/TT-NHNN shall not purchase or invest in additional government bonds until they comply with the ratio prescribed in Clause 6, Article 17 of Circular No. 36/2014/TT-NHNN and must develop a remediation plan, which must include at least the following contents:

a) Specific ratios that do not meet the regulations;

b) Measures and plans to address the situation to ensure compliance with the regulations within a maximum period of three months from the date this Circular takes effect.

6. Post-transition handling

After the transitional period specified in Clause 2 and Clause 4 of this Article, if credit institutions and foreign bank branches fail to rectify the violation, the State Bank of Vietnam will apply necessary measures, including restructuring according to the law and revoking the business license of the credit institution and foreign bank branch, depending on the severity and nature of the risk.

Article 5. Implementation Provisions

This Circular takes effect from July 1, 2016.

Article 6. Implementation Organization

The Director of the Office, the Inspector General, the Heads of units under the State Bank of Vietnam, the Governors of the State Bank of Vietnam Branches in provinces and centrally-run cities, the Chairmen of the Board of Directors, the Chairmen of the Board of Members, and the General Managers (Directors) of credit institutions and foreign bank branches are responsible for implementing this Circular.