Circular No. 08/2016/TT-NHNN amending and supplementing certain provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013, issued by the Governor of the State Bank of Vietnam on the purchase, sale, and handling of non-performing loans of the Asset Management Corporation of Vietnam.

CIRCULAR

Amending and supplementing certain provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013 issued by the Governor of the State Bank of Vietnam

dated September 6, 2013 of the Governor of the State Bank

on the purchase, sale, and handling of non-performing loans of Asset Management Companies

of credit institutions in Vietnam

 __________

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 the Enterprise Law No. 68/2014/QH13 dated November 26, 2014;

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;

Pursuant to Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government on the establishment, organization, and operation of Asset Management Companies of Credit Institutions in Vietnam (which has been amended and supplemented by Decree No. 34/2015/NĐ-CP dated March 31, 2015 of the Government and Decree No. 18/2016/NĐ-CP dated March 18, 2016 of the Government) (hereinafter referred to as Decree No. 53/2013/NĐ-CP); The Governor of the State Bank of Vietnam hereby issues this Circular amending and supplementing certain provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013 of the Governor of the State Bank of Vietnam on the purchase, sale, and handling of non-performing loans of Asset Management Companies of Credit Institutions in Vietnam.

At the proposal of the Director of the Inspectorate and Supervision Department,

Article 1. Amending and supplementing certain provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013 of the Governor of the State Bank of Vietnam on the purchase, sale, and handling of non-performing loans of Asset Management Companies of Credit Institutions in Vietnam (hereinafter referred to as Asset Management Company):

1. Supplement Clause 10, Clause 11 to Article 3 as follows:

Extension of the term of special bonds

"10. is the extension of the term of special bonds that have been issued, ensuring that the total extended term and original term of the special bonds shall not exceed ten years from the date of issuance. Original term of special bonds

11. is the term of special bonds when the Asset Management Company issues them to purchase non-performing loans from credit institutions." 2. Supplement Article 15a following Article 15 as follows:

Article 15a. Extension of the term of special bonds

"1. Credit institutions falling under any of the following cases may request an extension of the term of special bonds issued by the Asset Management Company:

a) Credit institutions implementing restructuring plans approved by competent authorities;

b) Credit institutions facing financial difficulties where the provision for risk of special bonds issued by the Asset Management Company leads to a negative difference between expected pre-tax income and expenses in the year requesting an extension of the term of special bonds.

2. Credit institutions shall prepare a dossier in accordance with Article 17b of this Circular to request the State Bank of Vietnam's approval for an extension of the term of special bonds issued by the Asset Management Company for the credit institution."

3. Supplement Article 17b following Article 17a as follows:

Article 17b. Dossier, procedure, and formalities for requesting an extension of the term of special bonds

"1. Credit institutions shall prepare one set of dossiers to be sent directly or through postal service to the State Bank of Vietnam including:

a) A letter requesting an extension of the term of issued special bonds and a list of special bonds requested for extension, including the following information: special bond code, face value of special bonds, issuance date, original term, extended term, usage of special bonds for refinancing;

b) A report explaining the reasons and necessity for requesting an extension of the term of special bonds, including the following contents:

(i) Reasons and necessity for requesting an extension of the term of special bonds;

(ii) Current income, expenditure, business results, and compliance with limits and safety ratios in the operations of the credit institution in the previous year and at the time of submitting the dossier;

(iii) Report on provisions for special bonds according to Appendix No. 01 and Appendix No. 02 of this Circular;

(iv) Impact of extending the term of special bonds on risk provisions costs, financial situation, limits, and safety ratios in the operations of the credit institution before and after the extension of the term of special bonds;

(v) Other contents as required by the State Bank of Vietnam (if any).

2. Within fifteen working days from the date of receiving complete and valid dossiers from credit institutions in accordance with Clause 1 of this Article, the State Bank of Vietnam shall examine and approve the extension of the term of special bonds based on the request of the credit institution according to the following procedures:

a) Within three working days from the date of receiving complete and valid dossiers from credit institutions, the Banking Inspection and Supervision Department shall seek opinions from the Monetary Policy Department, Trading Department, and Asset Management Company on the request for an extension of the term of special bonds along with the dossier stipulated in Clause 1 of this Article;

b) Within three working days from the date of receiving the request from the Banking Inspection and Supervision Department, the Monetary Policy Department, Trading Department, and Asset Management Company must provide a written response to the Banking Inspection and Supervision Department, including at least the following contents:

(i) The Monetary Policy Department evaluates the impact on monetary policy due to the possible extension of the term of refinancing based on extended special bonds;

(ii) The Asset Management Company and Trading Department assess the ownership and use of special bonds by credit institutions.

c) Within seven working days from the date of receiving complete participation documents from the Monetary Policy Department, Trading Department, and Asset Management Company, the Banking Inspection and Supervision Department shall submit to the Governor of the State Bank of Vietnam for examination and issue a written approval or disapproval of the request for an extension of the term of special bonds. In case of disapproval, the State Bank of Vietnam must provide a written response and specify the reasons.

3. Based on the approval document of the State Bank of Vietnam, credit institutions, the Asset Management Company, and the Trading Department shall implement the extension of the term of special bonds according to the specific term approved."

4. Article 27 is amended and supplemented as follows:

"Article 27. Principles for restructuring purchased bad debts

1. The restructuring of bad debts must comply with the provisions of Decree No. 53/2013/NĐ-CP, this Circular, and agreements in loan contracts, agency contracts, corporate bond purchase contracts, and debt purchase and sale contracts.

4. Strictly prohibit organizations and individuals from taking advantage of debt restructuring to illegally benefit."

2. The Asset Management Corporation shall consider, decide, and be responsible for the restructuring of non-performing debt purchased at market value based on a written request from the borrower.

3. The Asset Management Corporation shall implement the restructuring of non-performing debt purchased with special bonds based on a written request from the borrower and in accordance with this Circular.

5. Article 28 is amended and supplemented as follows:

Article 28 is amended and supplemented as follows:

"Article 28. Adjustment of interest rates for non-performing debts purchased with special bonds

1. The Asset Management Corporation decides and is responsible for adjusting the interest rate applied to each non-performing debt purchased with special bonds.

2. The adjusted interest rate level prescribed in Clause 1 of this Article must be consistent with the borrower's ability to repay and the reference interest rates stipulated in Clause 3 of this Article.

3. Quarterly, based on market conditions, the Asset Management Corporation must publicly announce the reference interest rates and the basis for determining these rates.

4. Within five working days from the date of the decision to adjust the interest rate of the non-performing debt, the Asset Management Corporation shall notify the credit organization selling the debt and the borrower to be informed and cooperate in implementation.

"Article 29. Exemption and reduction of overdue interest, fees, and penalties of non-performing debts purchased with special bonds

1. The Asset Management Corporation considers and reduces part or fully exempts overdue interest, fees, and penalties that the borrower has not paid for non-performing debts when meeting the following conditions:

a) The borrower cooperates well with the Asset Management Corporation and the authorized credit organization in providing information files, receiving collateral assets, and other issues related to the debt and collateral assets;

b) The borrower temporarily faces financial difficulties, and the exemption or reduction of overdue interest, fees, and penalties of the non-performing debt contributes to alleviating the borrower's financial difficulties and restoring production and business operations;

c) The borrower has a feasible repayment plan or restructuring plan for financial activities to have funds to repay the debt.

2. When considering and reducing part or fully exempting overdue interest, fees, and penalties that the borrower has not paid for non-performing debts, the Asset Management Corporation discusses with the credit organization selling the debt before making a decision.

Within ten working days from the date the Asset Management Corporation sends a request for comments, the credit organization selling the debt must reply in writing about the issues the Asset Management Corporation requests comments on. After this period, the Asset Management Corporation makes the decision and is responsible for the exemption or reduction of overdue interest, fees, and penalties.

3. Within five working days from the date of the decision to exempt or reduce overdue interest, fees, and penalties, the Asset Management Corporation shall notify in writing the credit organization selling the debt and the borrower to be informed and cooperate in implementation.

7. Article 30 is amended and supplemented as follows:

"Article 30. Measures to restructure the repayment term of non-performing debts purchased with special bonds

1. The Asset Management Corporation shall review and restructure the repayment term through adjusting the repayment period or extending the debt when the borrower meets the following conditions:

a) The borrower has a feasible repayment plan;
b) In cases where the repayment period for principal and/or interest is adjusted, the borrower does not have the ability to repay the principal and/or interest within the agreed repayment period in the credit contract, agency contract, corporate bond purchase contract, and is assessed by the Asset Management Corporation as having the ability to repay in subsequent periods after restructuring the repayment period;
c) In cases of extending the debt, the borrower does not have the ability to repay the full principal and/or interest within the agreed repayment period in the credit contract, agency contract, corporate bond purchase contract, and is assessed by the Asset Management Corporation as having the ability to repay the full amount within a certain period after the agreed repayment period;
The extension period for non-performing debts shall not exceed the remaining term of the corresponding special bond. In cases where the extension period for non-performing debts exceeds the remaining term of the corresponding special bond, the Asset Management Corporation must reach a written agreement with the credit organization selling the debt regarding the extended period exceeding the remaining term of the corresponding special bond.
2. When considering and restructuring the repayment term of non-performing debts, the Asset Management Corporation discusses with the credit organization selling the debt before making a decision. Within ten working days from the date the Asset Management Corporation sends a request for comments, the credit organization selling the debt must reply in writing about the issues the Asset Management Corporation requests comments on. After this period, the Asset Management Corporation makes the decision and is responsible for restructuring the repayment term, except in the case provided for in Point d Clause 1 of this Article.

3. Within five working days from the date of the decision to restructure the repayment term, the Asset Management Corporation shall notify in writing the credit organization selling the debt and the borrower to be informed and cooperate in implementation.

"Article 34. Principles for Selling Non-Performing Loans Purchased

1. General principles:

a) Comply strictly with legal regulations;

b) Ensure objectivity, transparency, and fairness;

c) Recover the maximum amount of debt, including interest and fees due (if any);

d) Strictly prohibit organizations and individuals from taking advantage of the sale and purchase of non-performing loans to illegally benefit.

2. The Asset Management Corporation conducts the valuation itself or hires an independent valuation organization to determine the starting price (in the case of auction), bidding price (in the case of competitive bidding), and expected sale price (in the case of direct negotiation with the buyer). If deemed necessary, the Asset Management Corporation may refer to the purchase and sale prices of similar non-performing debts on the market (if available) to determine the starting price, bidding price, and expected sale price.

3. The selling price of the debt is the highest price based on comparing and referring to the bidding prices of the non-performing loans to minimize losses in handling non-performing loans.

4. The sale of debts must be documented in a written contract. 5. The Asset Management Corporation may authorize the credit organization selling the debt to sell non-performing debts according to the requirements and conditions determined by the Asset Management Corporation to ensure compliance with this Circular.

9. Article 35 is amended and supplemented as follows:

"Article 35. Sale of Non-performing Debts Purchased with Special Bonds
1. The Unified Asset Management Corporation shall agree with credit institutions on the method of selling debts (auction or competitive bidding) and the conditions for selling non-performing debts (including the starting price or the offered price), except for the sale of debts as stipulated in Clause 5 of this Article.

2. In cases where the auction or competitive bidding as prescribed in Clauses 1 and 3 of this Article fails at least once, the Unified Asset Management Corporation shall again agree with the credit institution on the method of selling non-performing debts (auction, competitive bidding, or direct negotiation with the buyer) and the conditions for selling non-performing debts (including the starting price or the offered price or the expected selling price), except when the Unified Asset Management Corporation has previously agreed with the credit institution on these contents.

3. In cases where the Unified Asset Management Corporation and the credit institution fail to agree on the method or conditions for selling non-performing debts as prescribed in Clauses 1 and 2 of this Article, the Unified Asset Management Corporation shall sell the non-performing debts through auction. The auction of non-performing debts shall be carried out in accordance with the laws on the auction of assets of the Unified Asset Management Corporation.

4. The sale of non-performing debts through competitive bidding must involve at least two unrelated buyers as defined by the Law on Credit Institutions and shall be conducted as follows:

a) The Unified Asset Management Corporation shall either self-assess or hire an independent valuation organization to assess the non-performing debt to determine the offered price of the non-performing debt;

b) The Unified Asset Management Corporation shall publish information about the sale of non-performing debts through competitive bidding on the websites of the State Bank of Vietnam, the Unified Asset Management Corporation, and the credit institution selling the debt. The Unified Asset Management Corporation shall decide on the content of the published information, ensuring transparency and openness, including detailed information about the non-performing debt, the collateral of the non-performing debt intended for sale; the offered price of the non-performing debt; the location, deadline for publishing information and reviewing legal documents; the location, deadline for submitting bidding offers.

The deadline for publishing information and reviewing legal documents shall not be less than five working days for non-performing debts secured by movable assets and not less than fifteen working days for non-performing debts secured by immovable assets. The submission of bidding offers shall be made after the deadline for publishing information and reviewing legal documents and shall not be less than three working days;

c) Within three working days from the end of the deadline for submitting bidding offers, the Unified Asset Management Corporation shall sell the non-performing debt to the highest bidder. If there are two or more bidders offering the same highest price, the Unified Asset Management Corporation shall organize a draw to select the buyer;

d) The sale of non-performing debts through competitive bidding shall be deemed unsuccessful in the following cases: (i) fewer than two bidders submit bidding offers; (ii) the highest bid is lower than the offered price of the Unified Asset Management Corporation; (iii) the highest bidder does not purchase the debt.

e) The Unified Asset Management Corporation shall establish and issue guidelines on the procedures, formalities, and documents for offering non-performing debts through competitive bidding.

5. In cases where special bonds have not yet matured, the Unified Asset Management Corporation may resell the non-performing debts purchased with special bonds to the credit institution that sold those non-performing debts to the Unified Asset Management Corporation based on the principle of agreement on the conditions and prices for buying and selling debts. 6. Within five working days from the date of signing the debt sale contract, the Unified Asset Management Corporation must send one copy of the debt sale contract to the credit institution selling the debt and notify the credit institution selling the debt of the amount the credit institution selling the debt will receive.

"Article 35a. Sale of Non-performing Loans Purchased at Market Value

1. The Asset Management Corporation selects, decides, and bears responsibility for selling non-performing loans purchased at market value through direct negotiation with the buyer, auction, or competitive bidding.

2. In cases where the Asset Management Corporation sells non-performing loans through direct negotiation with the buyer, the sale price must not be lower than the purchase price paid by the Asset Management Corporation.

3. The sale of non-performing loans through auction shall be carried out in accordance with the provisions of the law on asset auctions of the Asset Management Corporation. 4. The sale of non-performing loans through competitive bidding shall be carried out in accordance with the provisions of Clause 4, Article 35 of this Circular.

"3. For collateral assets of non-performing loans purchased with special bonds, the Asset Management Corporation must reach agreement with the credit institution selling the debt regarding the handling of collateral assets of non-performing loans purchased with special bonds, including agreement on:

a) The sale price of collateral assets in cases of sale through direct negotiation with the buyer or the starting price of collateral assets in cases of sale through auction;

b) The value of the collateral asset in the case where the Asset Management Company receives the collateral asset to replace the fulfillment of the guarantor's obligations.

If the Asset Management Corporation cannot reach agreement with the credit institution selling the debt on the contents specified in point a and b of this clause, the sale of collateral assets must be conducted through the auction method prescribed in Clauses 2 and 2a, Article 18 of Decree No. 53/2013/NĐ-CP and the provisions of the law on asset auctions of the Asset Management Corporation."

"a) Within five working days from the date of recovery of the debt amount, the Asset Management Corporation must deposit the recovered debt amount at the credit institution selling the debt in the form of a non-interest-bearing deposit and it may not be withdrawn before the payment date of the special bond, except in the cases provided for in point b of this clause and Article 19 of this Circular;"

13. Supplement Article 43a after Article 43 as follows:

"Article 43a. Handling of Recovered Debt Amounts from Non-performing Loans Purchased at Market Value with Special Bonds

1. When a recovered amount or asset arises from non-performing loans purchased at market value, the Asset Management Corporation handles the corresponding recovered amount or asset as follows:

a) In cases where the special bond holder is the State Bank, the Asset Management Corporation shall follow the guidance of the State Bank;

b) In cases where the special bond holder is a credit institution, within five working days from the date of recovery of the amount or asset from the non-performing loan, the Asset Management Corporation must deposit the corresponding recovered amount or asset (up to the face value of the special bond) at the credit institution holding the special bond in the form of a non-interest-bearing deposit and it may not be withdrawn before the payment date of the special bond, except in the cases provided for in point c of this clause;

c) In cases where the special bond holder has borrowed refinancing funds based on the issuance of special bonds to purchase the non-performing loan, within the first five working days of the next quarter, the Asset Management Corporation uses the corresponding recovered amount or asset from the non-performing loan in that quarter to repay the refinancing loan based on those special bonds and deduct this amount from the total amount the Asset Management Corporation must pay to the credit institution holding the special bond when paying off the special bond.

2. When the recovered amount or asset from the non-performing loan is not less than the face value of the special bond, the Asset Management Corporation and the special bond holder shall carry out the payment of the special bond according to the provisions of Article 44a of this Circular."

14. Supplement Clause 4 to Article 45 as follows:

"4. When a credit institution selling debt repurchases a non-performing loan corresponding to a due special bond, and such non-performing loan shares one or more collateral assets with another non-performing loan already sold to the Asset Management Corporation, the Asset Management Corporation shall negotiate with the credit institution selling the debt regarding the management of collateral assets and related files and papers (if any)."

15. Supplement Clause 2c after Clause 2b of Article 46 as follows:

"2c. Annually, if the actual pre-tax income and expenditure difference of the credit institution, approved by the State Bank for extending the maturity of special bonds, exceeds the pre-tax income and expenditure difference forecast reported to the State Bank (which is Indicator 5 of Appendix 2 of this Circular), the credit institution shall handle it as follows:

a) Use the maximum portion of the difference between the actual pre-tax income and expenditure difference and the forecasted pre-tax income and expenditure difference reported to the State Bank to establish additional provisions for special bonds extended in that year until the provision amount for special bonds after being established is equal to the provision amount required for special bonds calculated based on the original term;

b) The credit institution decides how to use the remaining portion after establishing additional provisions as prescribed in point a of this clause to establish additional provisions for extended special bonds or record the income and expenditure difference."

16. Article 47 is amended and supplemented as follows:

"Article 47. Principles for provisioning and using reserves to address risks associated with non-performing loans purchased at market value

1. The Board of Directors of the Asset Management Corporation shall decide and be responsible for provisioning and using reserves to address risks associated with non-performing loans purchased at market value in accordance with internal regulations on provisioning and using reserves to address risks associated with such loans, as stipulated in this Circular and relevant laws.

2. After addressing risks, the Asset Management Corporation must record off-balance-sheet the remaining principal of the loan that has been risk-provisioned and shall have the responsibility to monitor, urge, and employ all measures prescribed by law to recover the debt, except in cases specified in point a, Clause 1, Article 47b of this Circular. Using reserves to address risks associated with the loan is an internal matter of the Asset Management Corporation and does not change the borrower's obligation to repay the loan after it has been risk-provisioned.

3. After a minimum period of five years from the date of using reserves to address risks and after implementing all measures to recover the debt but failing to do so, the Asset Management Corporation may decide to remove the risk-provisioned debt from the off-balance-sheet upon written approval by the Ministry of Finance and the State Bank of Vietnam.

4. The amount recovered from the risk-provisioned debt shall be recorded as revenue in the period of the Asset Management Corporation.

17. Clause 2 of Article 48 is amended and supplemented as follows:

"2. Trading Department:

a) Guide and organize the issuance of bonds and special bonds according to the authorization of the Asset Management Corporation as stipulated in this Circular;

b) Guide and organize the implementation of bond custody services for the Asset Management Corporation's bonds and special bonds;

c) Implement the freezing of bonds and special bonds related to loans provided under rediscounting when credit institutions own such bonds and special bonds and borrow under rediscounting; cease the freezing of bonds and special bonds when the credit institution's rediscounting loan is fully repaid."

18. Add point e to Clause 4 of Article 50 as follows:

"e) Credit institutions approved by the State Bank of Vietnam to extend the maturity of special bonds without distributing dividends to create resources for handling non-performing loans until the extended special bonds are settled."

"4a. When a credit institution sells debts to the Asset Management Corporation at market value, the selling credit institution handles the difference between the selling price and the book value of the principal balance of the debt as follows:

a) In case the selling price is higher than the book value of the principal balance of the debt, the excess amount shall be recorded as income in the financial year of the selling credit institution;

b) In case the selling price is lower than the book value of the principal balance of the debt, the shortfall shall be covered from compensation payments by individuals or groups (in cases where losses are determined to be caused by individuals or groups and they are required to compensate according to regulations), insurance money from insurance organizations, and the risk reserve fund already established in expenses; any remaining shortfall shall be recorded as operating expenses in the period of the selling credit institution. This provision does not apply to credit institutions selling debts at a loss or when immediately allocating the difference between the book value minus the purchase price of the debt and the risk reserve already established for the purchased debt will result in a loss as stipulated in Clause 2 of Article 14 of Decree No. 53/2013/NĐ-CP."

20. Add Appendix No. 01 and Appendix No. 02 to Circular No. 19/2013/TT-NHNN dated September 6, 2013, issued by the Governor of the State Bank of Vietnam on the purchase, sale, and handling of non-performing loans by the Asset Management Corporation.

Article 2. Effective Date

1. This Circular takes effect from August 1, 2016.

2. For special bonds that have been settled before October 15, 2015, but the non-performing debt has not been fully recovered (including principal, interest, and other financial obligations related to the debt) according to the credit agreement, the entrusted agreement, or the corporate bond purchase agreement, the Asset Management Corporation and the selling credit institution shall proceed as follows:

a) The selling credit institution shall repurchase the non-performing debt from the Asset Management Corporation at a price equal to the book value of the principal balance of the non-performing debt currently recorded on the balance sheet of the Asset Management Corporation. If the non-performing debt no longer has a balance recorded on the balance sheet of the Asset Management Corporation, the purchase price shall be zero (0).

b) The Asset Management Corporation shall provide the selling credit institution with information and documents about the principal balance, overdue interest, overdue penalty interest, and fees; other information and documents related to the debt, the borrower, guarantor, and obligor, and transfer to the selling credit institution all funds received from the debt after the settlement of the special bond (if any).

c) The selling credit institution shall accept the debt from the Asset Management Corporation, record the non-performing debt off-balance-sheet for monitoring and implementing recovery and handling measures according to the law, and record any transferred funds (if any) as other income.

3. Repeal Clauses 16, 17, 18, 19, 20, 21, 24, 25, and 32 of Article 1 and Clause 2 of Article 2 of Circular No. 14/2015/TT-NHNN dated August 28, 2015, issued by the Governor of the State Bank of Vietnam amending and supplementing certain provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013, issued by the Governor of the State Bank of Vietnam on the purchase, sale, and handling of non-performing loans by the Asset Management Corporation.

Article 3. Implementation Organization

The Head of the Office, the Chief Inspector and Supervisor of Banking, Heads of Units under the State Bank of Vietnam, Governors of the State Bank of Vietnam Branches in provinces and cities, Chairmen of the Boards of Directors, Chairmen of the Boards of Members, and General Directors (Directors) of Vietnamese credit institutions; Chairmen of the Boards of Members and General Directors of the Asset Management Corporation are responsible for organizing the implementation of this Circular./.