Directive No. 08/2003/CT-NHNN on Improving the Quality of Credit of Credit Institutions

DIRECTIVE

On improving the quality of credit of credit institutions

The credit activities of credit institutions in recent times have shown positive changes. Credit institutions have correctly recognized and complied with the lending regulations for customers issued by the Governor of the State Bank. Government management over credit activities has been strengthened, controlling the increase in credit volume at a reasonable level, contributing to promoting economic growth and monetary stability, and improving credit quality towards reducing the proportion of non-performing loans in total outstanding loans.

However, non-performing loans continue to arise, and many loans still contain risks. The main cause is that some credit institutions do not strictly comply with the lending regulations, such as failing to properly assess projects before lending, not determining repayment sources realistically; there are cases of concealing overdue debts to avoid risk provisions and extend loan terms widely and for long periods without transferring overdue debts, and incorrectly accounting for overdue debts. Internal inspection and supervision work of credit institutions and inspections by the State Bank in detecting and handling violations are not strict enough, and do not sufficiently focus on monitoring and warning about loans with potential risks.

To address the above issues, improve credit quality, and minimize risks to the lowest possible level, the Governor of the State Bank instructs the implementation of the following measures:

1. Credit institutions must strictly comply with the lending regulations for customers issued together with Decision No. 1627/2001/QĐ-NHNN dated December 31, 2001 and Decision No. 688/2002/QĐ-NHNN dated July 1, 2002 of the Governor of the State Bank regarding the transfer of overdue debts of customer loans at credit institutions, particularly the following matters:

1.1. Review and amend the guidance for implementing the lending regulations, establish a process for inspecting and supervising the borrowing, use of borrowed funds, and repayment by customers in accordance with the regulations of the State Bank, conditions of the credit institution, and the borrowing customer to ensure compliance with the lending regulations while being flexible and proactive but ensuring safety.

1.2. During the loan review process, it is necessary to enhance project evaluation capabilities, especially carefully examining the financial capacity and repayment sources of the customer, utilizing information from the Credit Information Center and other sources to fully understand the customer's debt situation, particularly customers borrowing from multiple places, long-term investment loans, large project loans, short-term loans for construction projects, to prevent the transfer of bad debts and risks from other units to the banking system.

1.3. Loan contracts must be complete according to the law, specifying the date, month, and year of each installment for principal and interest repayments to provide a basis for adjusting repayment terms, extending loans, and transferring overdue debts accurately.

1.4. Determining repayment terms for principal and interest must be based on the capital turnover cycle of the borrower, consistent with the repayment ability of each customer and the lending method; avoiding mechanical determination of repayment terms, excessively short repayment periods in household production loans, consumption loans, and installment loans leading to loan extensions and inaccurate reflection of overdue debts.

1.5. Adjusting loan terms and extending loans must carefully consider the reasons why the customer cannot repay on time; only in exceptional cases due to objective reasons can loans be extended beyond the prescribed period, avoiding widespread adjustments and extensions that make loans difficult to recover but are not reflected in overdue debt accounts.

1.6. For loans that have been extended beyond the prescribed period, credit institutions must immediately report to the Governor of the State Bank (sent to the State Bank Inspectorate, branch inspectorates under central cities and provinces) according to the provisions on the classification of supervised and inspected objects in Section III Chapter II Circular No. 04/2000/TT-NHNN3 dated March 28, 2000 of the Governor of the State Bank guiding the implementation of Decree No. 91/1999/NĐ-CP dated September 4, 1999 of the Government on the organization and operation of the State Bank Inspectorate. On the 5th day of each month, credit institutions must compile reports on loans extended beyond the prescribed period in the previous month and report to the Governor of the State Bank (sent to the State Bank Inspectorate at the central level).

1.7. Strictly comply with the transfer of overdue debts as stipulated. Principal and interest loans that are due for repayment and which the customer cannot repay and are not extended by the credit institution must be promptly and completely transferred to the overdue debt account to accurately reflect the quality of credit for risk warning and risk provision, strictly prohibiting any form of concealing overdue debts.

2. Credit institutions must improve the quality of pre-loan, during-loan, and post-loan inspection work; internal inspection and supervision of credit activities, detecting and strictly handling violations; detecting and taking measures to handle loans with risks.

3. Strengthen the inspection and supervision work of the State Bank on credit activities:

3.1. The State Bank Inspectorate needs to regularly carry out inspection and supervision work on credit activities to manage credit quality well, detect and warn in a timely manner about loans with risks; strictly handle organizations and individuals who violate the law.

3.2. The State Bank of Vietnam Inspectorate and its branches in centrally governed cities and provinces shall consolidate, monitor, analyze loans with extended debt repayment periods exceeding the prescribed time limits based on reports from credit institutions to warn credit institutions about risks associated with long-term extended loans that have not been recovered.

3.3. The State Bank of Vietnam Inspectorate (at the central level) shall be responsible for monitoring, consolidating, analyzing, and evaluating the situation of bad debts (including overdue debts, written-off debts, debts awaiting resolution), the results of handling accumulated debts across the entire system of credit institutions, and proposing measures to the Governor of the State Bank of Vietnam for handling such issues; warning credit institutions in cases where there are risks.

3.4. Credit institutions, departments, bureaus, and units under the State Bank of Vietnam within their respective functions shall be responsible for providing information related to credit quality to the State Bank of Vietnam Inspectorate.

4. This Directive shall take effect fifteen days after its publication in the Official Gazette.

5. Heads of units under the State Bank of Vietnam, branch directors of centrally governed cities and provinces, boards of management, and general managers (directors) of credit institutions shall be responsible for implementing this Directive./.