Circular No. 09/2017/TT-NHNN 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 the Vietnam Asset Management Company.

CIRCULAR

Amending and supplementing certain Articles 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 Vietnamese Credit Institutions

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010;

Pursuant to Resolution No. 42/2017/QH14 dated June 21, 2017 of the National Assembly on piloting the handling of non-performing loans of credit institutions (hereinafter referred to as Resolution No. 42/2017/QH14);

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 Vietnamese Credit Institutions (amended and supplemented by Decree No. 34/2015/NĐ-CP dated March 31, 2015 and Decree No. 18/2016/NĐ-CP dated March 18, 2016 of the Government) (hereinafter referred to as Decree No. 53/2013/NĐ-CP);

Pursuant to Decree No. 61/2017/NĐ-CP dated May 16, 2017 of the Government detailing the valuation of initial prices of non-performing loan balances, collateral for non-performing loan balances, and the formation of Auction Committees for large non-performing loan balances and collateral;

Pursuant to Decree No. 16/2017/NĐ-CP dated February 17, 2017 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 promulgates Circular amending and supplementing certain Articles 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 Vietnamese Credit Institutions.

Article 1. Amending and supplementing certain Articles 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 Vietnamese Credit Institutions (hereinafter referred to as Circular No. 19/2013/TT-NHNN)

1. Clause 7 of Article 3 shall be amended and supplemented as follows:

"7. The debt amount is the principal, interest, and other financial obligations related to the debt that the customer has not repaid according to the credit agreement or credit commission agreement; debt purchase and sale agreements; corporate bond purchase and sale agreements that have not been listed on the stock exchange or registered for trading on the over-the-counter market of unlisted public companies, which are recorded by credit institutions and Asset Management Companies in their balance sheets or off-balance sheet accounts."

2. Clause 7a shall be added after Clause 7 of Article 3 as follows:

"7a. Non-performing debt is a debt determined to be non-performing according to:

a) The regulations of the State Bank on asset classification, provisioning levels, provisioning methods, and the use of provisions to address risks in the operations of credit institutions and foreign bank branches, or

b) Article 4 of Resolution No. 42/2017/QH14."

3. Article 23 shall be amended and supplemented as follows:

"Article 23. Conditions for non-performing debts to be purchased by Asset Management Companies at market value

1. Non-performing debts specified in point a of Clause 7a of Article 3 of this Circular shall be purchased by Asset Management Companies when meeting all of the following conditions:

a) The conditions stipulated in Clause 1 of Article 16 of this Circular;

b) Being assessed by the Asset Management Company as having the potential to fully recover the purchase price of the debt;

c) The collateral for the non-performing debt has the potential to be liquidated or the borrower has prospects for restoring their ability to repay the debt.

2. Non-performing debts specified in point b of Clause 7a of Article 3 of this Circular shall be purchased by Asset Management Companies when meeting all of the following conditions:

a) The conditions stipulated in points b, c, and d of Clause 1 of Article 16 of this Circular;

b) Being assessed by the Asset Management Company as having the potential to fully recover the purchase price of the debt;

c) The collateral for the non-performing debt has the potential to be liquidated or the borrower has prospects for restoring their ability to repay the debt;

d) In cases where non-performing debts previously purchased through special bonds are converted into non-performing debts purchased at market value, the corresponding special bonds must also meet the condition of not being due for payment and not being frozen at the State Bank."

4. Article 26 shall be amended and supplemented as follows:

"Article 26. Implementation of purchasing non-performing debts at market value

1. Based on the approved Plan for Purchasing Debts at Market Value, the financial capacity, economic efficiency, and market conditions, the Asset Management Company decides and is responsible for purchasing non-performing debts at market value.

2. The Asset Management Company may only purchase non-performing debts specified in point a of Clause 7a of this Circular after completing the following tasks:

a) Assessing the non-performing debt to ensure it meets the conditions stipulated in Clause 1 of Article 23 of this Circular;

b) Determining the market value of the non-performing debt, including its collateral. The Asset Management Company must either value the debt itself or engage an independent valuation organization to determine the market value of the debt;

c) Evaluating the economic efficiency, risks, and recovery potential of the capital invested in purchasing the non-performing debt;

d) Analyzing and evaluating the current status and prospects of the non-performing debt, the borrower, guarantors, obligors, and the terms of the debt purchase agreement with the selling credit institution;

đ) Anticipating feasible measures to handle the debt and collateral of the non-performing debt.

3. Except as provided in Clause 4 of this Article, the Asset Management Company may only purchase non-performing debts specified in point b of Clause 7a of this Circular, including converting non-performing debts previously purchased through special bonds into non-performing debts purchased at market value after completing the following tasks:

a) Assessing the non-performing debt to ensure it meets the conditions stipulated in Clause 2 of Article 23 of this Circular;

b) The provisions set out in points b, c, d, and đ of Clause 2 of this Article.

4. In cases where non-performing debts specified in point b of Clause 7a of this Circular are purchased according to Clause 3 of Article 6 of Resolution No. 42/2017/QH14, the Asset Management Company must complete the following tasks before purchasing the debt:

a) Assessing the non-performing debt to ensure it meets the conditions stipulated in Clause 2 of Article 23 of this Circular;

b) The provisions set out in points c, d, and đ of Clause 2 of this Article;

c) Agreeing with the selling credit institution to select an independent valuation organization.

5. The Asset Management Company may only convert non-performing debts previously purchased through special bonds into non-performing debts purchased at market value if they meet the conditions specified in point b of Clause 7a of this Circular. When converting non-performing debts previously purchased through special bonds into non-performing debts purchased at market value, the Asset Management Company and the credit institution agree on the market value purchase price, sign a market value debt purchase contract, and proceed as follows:

a) The Asset Management Company shall reclaim special bonds from credit institutions and settle such special bonds, including the principal balance of non-performing loans recorded in the balance sheet; transfer to credit institutions the amount of recovered debt that they are entitled to according to regulations, the contributed capital, and shares at the borrower's value recorded in the balance sheet for cases where part of the non-performing loan has been converted into the borrower's charter capital or share capital (if applicable). The Asset Management Company shall transfer all rights and obligations related to the contributed capital and share capital at the borrower to the credit institution.

b) The Asset Management Company shall pay to the credit institution the purchase price of the debt according to the market value as agreed upon in the debt purchase contract.

c) Credit institutions shall return special bonds to the Asset Management Company and receive payment for the purchase price of the debt according to the market value, contributed capital, and share capital at the borrower, the amount of recovered debt as stipulated in points a and b of this clause, and handle as follows:

(i) In cases where the purchase price of the debt, the amount of recovered debt, and the value of the contributed capital and share capital received from the Asset Management Company exceed the face value of the special bond, the credit institution shall record the difference as income in the fiscal year.

(ii) In cases where the purchase price of the debt, the amount of recovered debt, and the value of the contributed capital and share capital received from the Asset Management Company are lower than the face value of the special bond, the credit institution shall use the risk reserve already established for the special bond to offset the difference. If there is still a shortfall, the credit institution shall record it as business expenses for the period in accordance with the law.

d) Credit institutions shall refund the remaining risk reserve after implementing the provisions in points c(i) and c(ii) of this clause.

6. The sale and purchase of non-performing loans at market value must be documented in a written contract in compliance with this Circular and other relevant regulations. In cases where non-performing loans purchased with special bonds are converted into non-performing loans purchased at market value as stipulated in Clause 5 of this Article, the special bond debt purchase contract shall terminate from the effective date of the market value debt purchase contract.

7. Credit institutions shall transfer all original documents related to non-performing loans to the Asset Management Company. In cases where non-performing loans purchased with special bonds are converted into non-performing loans purchased at market value as stipulated in Clause 5 of this Article, the Asset Management Company shall transfer all original documents related to the recovered debt amount, contributed capital, and share capital at the borrower to the credit institution.

5. Article 29 is amended and supplemented as follows:

"Article 29. Exemption and Reduction of Overdue Interest, Fees, and Penalties on Non-Performing Loans Purchased with Special Bonds

1. The Asset Management Company shall consider and reduce a portion or exempt the entire overdue interest, fees, and penalties that the borrower has not paid for non-performing loans when the borrower has fully repaid the principal of all non-performing loans at the Asset Management Company or meets the following conditions:

a) The borrower cooperates with the Asset Management Company and the authorized credit institution;

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

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

2. When considering and reducing a portion or exempting the entire overdue interest, fees, and penalties that the borrower has not paid for non-performing loans, the Asset Management Company shall consult with the selling credit institution before making a decision.

Within ten working days from the date the Asset Management Company sends a request for comments, the selling credit institution must respond in writing to the issues raised by the Asset Management Company. After this period, the Asset Management Company shall make the decision and bear responsibility 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 Company shall notify the selling credit institution and the borrower in writing to inform them and coordinate implementation.

6. Article 34 is amended and supplemented as follows:

"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 Company may conduct the valuation itself or hire an independent valuation organization to determine the bidding price in competitive bidding situations or the expected selling price in direct negotiations with the buyer. If deemed necessary, the Asset Management Company may refer to the purchase and sale prices of similar non-performing loans on the market (if available) to determine the bidding price and the expected selling price.

In cases of auctioning non-performing loans, the Asset Management Company shall follow the legal regulations on asset auctions.

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 Company may authorize credit institutions to sell non-performing loans according to the requirements and conditions set by the Asset Management Company to ensure compliance with this Circular.

7. Add Article 35a after Article 35 as follows:

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

1. The Asset Management Company shall select, decide, and be responsible for selling non-performing loans purchased at market value through direct negotiation with the buyer, auction, or competitive bidding."

2. The Asset Management Company may sell non-performing loans directly to the buyer at a price not lower than the book value of the principal balance of the non-performing loan recorded at the Asset Management Company, or after selling the loan through auction or competitive bidding without success.

3. The sale of non-performing loans through auction shall be carried out in accordance with the provisions of the law on the sale of assets by auction of the Asset Management Company.

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.

8. Clause 3, Article 38 shall be amended and supplemented as follows:

"3. For collateral assets of non-performing loans purchased with special bonds, the Asset Management Company must exchange with the credit organization selling the debt before agreeing to handle the collateral asset with the guarantor in accordance with the regulations, including the following contents:

a) The selling price of the collateral asset in the case of selling through direct agreement with the buyer or the starting price of the collateral asset in the case of selling through auction, including cases where the Asset Management Company must re-agree with the guarantor on the starting price of the collateral asset in accordance with the law on auctioning assets, or

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.

Within twenty days from the date the Asset Management Company sends a request for comments, the credit organization selling the debt must reply in writing about the issues proposed by the Asset Management Company. After the above period, the Asset Management Company decides and bears responsibility for handling the collateral asset with the guarantor in accordance with the regulations.

9. Point a, Clause 1, Article 43 shall be amended and supplemented as follows:

"a) Within five working days from the date the amount of recovered debt arises, the Asset Management Company must deposit the recovered debt amount at the credit organization selling the debt in the form of interest-free deposits and cannot withdraw before the payment date of the special bond, except in the cases provided for in point b of this clause, Article 19, and Clause 5, Article 26 of this Circular;"

10. Supplement Article 47b after Article 47a as follows:

"Article 47b. Using reserves to address risks for non-performing loans purchased at market value

1. The Asset Management Company uses reserves to address risks in the following cases:

a) The loan is sold by the Asset Management Company at a value lower than the book value of the principal balance of the loan recorded at the Asset Management Company at the time of risk resolution, or

b) The borrower is an organization that has been dissolved or declared bankrupt; the individual has died or gone missing.

2. Risk resolution files include:

a) Debt purchase, restructuring, recovery, and sale files for debts subject to risk resolution;

b) Collateral asset files and other related documents;

c) Decision or approval of the Board of Members regarding the results of setting aside reserves to address risks;

d) Decision or approval of the Board of Members regarding the use of reserves set aside to address risks;

đ) In the case where the borrower is an organization declared bankrupt or dissolved, in addition to the files specified in points a, b, c, and d of this clause, there must be a certified copy of the court's decision declaring bankruptcy of the enterprise or the decision dissolving the enterprise according to the law;

e) In the case where the borrower is an individual who has died or gone missing, in addition to the files specified in points a, b, c, and d of this clause, there must be a certified copy of the death certificate, confirmation letter, or declaration of disappearance according to the law;

g) Other relevant documents and files.

3. Using reserves to address risks:

a) The Asset Management Company can only use reserves set aside to address risks for loans that fully comply with the provisions of Clauses 1 and 2 of this Article;

b) The Asset Management Company uses reserves to address:

(i) The difference between the selling price and the book value of the principal balance of the loan at the time of risk resolution in the case provided for in point a, Clause 1 of this Article, or

(ii) The book value of the principal balance of the loan at the time of risk resolution in the case provided for in point b, Clause 1 of this Article.

c) The Asset Management Company can record the remaining reserve balance after addressing risks in accordance with point b of this clause as income in the current period. If the reserve balance is insufficient to address risks in accordance with point b of this clause, the Asset Management Company can record the shortfall as expenses in the current period;

d) In the case of selling non-performing loans as stipulated in point b, Clause 7a, Article 3 of this Circular, the Asset Management Company can allocate the difference between the book value of the principal balance of the non-performing loan and the selling price of the non-performing loan and the specific reserve amount established for this loan into annual business results in accordance with Clause 4, Article 16 of Resolution No. 42/2017/QH14.

11. Supplement Clause 4a, 4b after Clause 4, Article 50 as follows:

"4a. When credit organizations sell non-performing loans to the Asset Management Company at market value, except in the cases provided for in Clause 5, Article 26 of this Circular and Clause 4b of this Article, credit organizations handle the difference between the selling price of the non-performing loan and the book value of the principal balance of the non-performing loan as follows:

a) In the case where the selling price of the non-performing loan is higher than the book value of the principal balance of the non-performing loan, the excess portion is recorded as income in the financial year of the credit organization selling the debt;

b) In the case where the sale price of a non-performing loan is lower than the book value of the principal balance of the non-performing loan, the difference shall be offset from the compensation money of individuals or organizations (in cases where losses have been determined to be caused by individuals or organizations and they are required to compensate according to regulations), insurance money of insurance organizations, and risk reserve funds that have been established within expenses; any remaining shortfall shall be recorded as business expenses of the credit institution selling the debt for the period. This provision does not apply to credit institutions selling debts at a loss or when immediately allocating the difference between the book value of the principal balance of the non-performing loan minus the sale price of the non-performing loan and the amount of the risk reserve already set aside for the same non-performing loan would result in a loss as stipulated in Clause 2, Article 14 of Decree No. 53/2013/NĐ-CP.

c) In the case of selling non-performing loans as specified in Point b, Clause 7a, Article 3 of this Circular, credit institutions are allowed to allocate the difference between the book value of the principal balance of the non-performing loan and the sale price of the non-performing loan, minus the specific amount of the risk reserve already set aside for the non-performing loan, into the annual operating results according to Clause 1, Article 16 of Resolution No. 42/2017/QH14.

4b. When credit institutions sell non-performing loans that are recorded outside the balance sheet to the Asset Management Corporation at market value, credit institutions record the proceeds from the sale of the non-performing loan as other income in the fiscal year.

12. Supplement Clause 7 to Article 50 as follows:

"7. In the case of purchasing non-performing loans at market value or repurchasing non-performing loans as stipulated in Clause 5, Article 35 of this Circular from the Asset Management Corporation, credit institutions are responsible for classifying the purchase price of the debt into a risk category that is not lower than the risk category that the debt was classified into before being sold to the Asset Management Corporation."

Article 2. Responsibility for Implementation

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 Board of Directors, Chairmen of the Board of Members and General Directors (Directors) of Vietnamese Credit Institutions, Chairmen of the Board of Members and General Directors of the Asset Management Corporation are responsible for implementing this Circular.

Article 3. Implementation Provisions

1. This Circular takes effect from August 15, 2017.

2. The provisions at Point b, Clause 7a, Article 3, Clause 2, Article 23, Clauses 3, 4, 5, Article 26, Point d, Clause 3, Article 47b, Point c, Clause 4a, Clause 4b, Article 50 of Circular No. 19/2013/TT-NHNN (as amended and supplemented) shall be implemented within five years from August 15, 2017.

3. This Circular abolishes the following provisions:

a) Clause 13, 15, 34, 39, Article 1 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 articles of Circular No. 19/2013/TT-NHNN.

b) Clause 6, 8, 10, 11, 12, 19, Article 1 of Circular No. 08/2016/TT-NHNN dated June 16, 2016 issued by the Governor of the State Bank of Vietnam amending and supplementing certain articles of Circular No. 19/2013/TT-NHNN./.