Circular No. 11/2021/TT-NHNN stipulates the classification of assets, the level of provisions, the method of establishing risk provisions, and the use of provisions to address risks in the operations of credit institutions and foreign bank branches.

CIRCULAR

Provisions on classification of assets held, provisioning levels, methods for establishing risk provisions, and the use of provisions to address risks in the operations of credit institutions and foreign bank branches

                                                         

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; the Law Amending and Supplementing Certain Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to Government Decree No. 16/2017/NĐ-CP dated February 17, 2017 on the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Pursuant to Decree No. 93/2017/NĐ-CP dated August 7, 2017 of the Government on financial regulations for credit institutions and foreign bank branches and financial supervision, evaluation of state capital investment efficiency at credit institutions wholly owned by the State and credit institutions with state capital

After reaching consensus with the Ministry of Finance;

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

The Governor of the State Bank of Vietnam Vietnam issues this Circular providing for the classification of assets held, provisioning levels, methods for establishing risk provisions, and the use of provisions to address risks in operations of credit institutions and foreign bank branches.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular provides for the classification, provisioning levels, methods for establishing risk provisions, and the use of provisions to address credit risks in banking activities related to assets held (hereinafter referred to as debt) arising from the following activities:

a) Lending;

b) Financial leasing;

c) Discounting, rediscounting transferable instruments and other negotiable instruments;

d) Factoring;

đ) Providing credit in the form of issuing credit cards;

e) Paying off on behalf of off-balance sheet commitments;

g) Purchasing and entrusting the purchase of corporate bonds (including corporate bonds issued by other credit institutions) that have not been listed on the securities market or registered for trading on the Upcom system (hereinafter referred to as unlisted bonds), excluding purchases of unlisted bonds using entrusted funds where the entruster bears the risk;

h) Entrusted lending;

i) Depositing money (excluding demand deposits and deposits at policy banks as prescribed by the State Bank of Vietnam (hereinafter referred to as the State Bank) regarding the maintenance of deposit balances at policy banks by state-owned credit institutions) at credit institutions and foreign bank branches in accordance with the law and deposits at overseas credit institutions;

k) Buying and selling debts in accordance with the State Bank's regulations on debt buying and selling activities;

l) Buying and selling government bonds on the securities market as prescribed by the laws on issuance, registration, custody, listing, and trading of government debt instruments on the securities market;

m) Purchasing promissory notes, bills of exchange, and deposit certificates issued by other credit institutions and foreign bank branches.

2. Off-balance sheet commitments, acceptance of payment, irrevocable loan commitments, and other commitments generating credit risks (hereinafter collectively referred to as off-balance sheet commitments) must be classified in accordance with this Circular to manage and monitor the quality of credit lending activities of credit institutions and foreign bank branches.

3. The establishment and use of inventory valuation reserves, loss reserves for financial investments, loss reserves for non-performing receivables, except for those specified in Clause 1 of this Article, shall be carried out in accordance with the legal provisions on the establishment and handling of inventory valuation reserves, losses for investments, non-performing receivables, and product, goods, service, and construction project warranties.

4. The establishment and use of risk provisions for special bonds issued by the Asset Management Corporation of Credit Institutions of Vietnam to purchase non-performing loans of credit institutions shall be implemented in accordance with the Governor's regulations on the purchase, sale, and handling of non-performing loans of the Asset Management Corporation of Credit Institutions of Vietnam.

5. Debts for which the Government and the Prime Minister have specific provisions on debt classification, risk provisioning, and risk handling different from those stipulated in this Circular, credit institutions and foreign bank branches shall implement according to the provisions of the Government and the Prime Minister.

Article 2. Applicability

1. This Circular applies to:

a) Credit institutions, including commercial banks and non-bank credit institutions, except for credit institutions under special control measures as prescribed by the law on special control of credit institutions;

b) Foreign bank branches.

2. Foreign bank branches apply the parent bank's risk provisioning policy to classify debts, off-balance sheet commitments, establish and use risk provisions, subject to approval by the State Bank provided that the parent bank's risk provisioning policy is more advanced and superior to the provisions of Article 10 of this Circular. The file, procedures, and formalities for obtaining the State Bank's approval to apply the parent bank's risk provisioning policy are stipulated in Clause 3 and Clause 4 of Article 11 of this Circular.

3. Foreign bank branches that have been approved by the State Bank to apply the parent bank's risk provisioning policy before the effective date of this Circular, foreign bank branches approved by the State Bank to apply the parent bank's risk provisioning policy under Clause 2 of this Article shall comply with the parent bank's regulations. During the inspection and supervision process, if the State Bank assesses that the parent bank's risk provisioning policy does not adequately reflect the level of credit risk in actual banking activities in Vietnam, the State Bank may require foreign bank branches to classify debts, off-balance sheet commitments, establish and use risk provisions in accordance with this Circular.

Article 3. Explanation of Terms

In this Circular, the following terms shall be understood as follows:

1. Credit risk in banking activities (hereinafter referred to as risk) is the possibility of loss occurring to the debt of credit institutions and foreign bank branches due to customers being unable to repay part or all of their debt according to the contract or agreement (hereinafter collectively referred to as the agreement) with credit institutions and foreign bank branches.

2. Debt is the amount of money that credit institutions and foreign bank branches have deposited, paid, or disbursed in installments (in cases where each disbursement has a different repayment term) or the amount of money that credit institutions and foreign bank branches have disbursed according to the contract (in cases of multiple disbursements but with the same repayment term) for debts that customers have not repaid.

3. Risk provision is the amount of money set aside and recorded as operational expenses to provide for potential risks that may occur to the debt of credit institutions and foreign bank branches. Risk provisions include specific provisions and general provisions.

4. Specific provision is the amount of money set aside to provide for potential risks that may occur to specific debts.

5. General provision for risk reserve is the amount of money set aside to cover potential risks that may occur but have not yet been identified when setting up specific risk reserves.

6. Overdue debt is a debt that the customer fails to repay on time either partially or entirely the principal and/or interest according to the agreement with the credit institution or foreign bank branch. For credit extended in the form of issuing a credit card, overdue debt is the debt incurred by the customer using the card who fails to repay the due obligation according to the agreement on issuing, using, and paying off the credit card with the credit institution or foreign bank branch.

7. Restructured debt is debt that has been restructured regarding the repayment period according to the regulations of the State Bank.

8. Non-performing loan (NPL) is on-balance sheet non-performing loan, including loans classified under groups 3, 4, and 5.

9. Non-performing loan ratio is the ratio between non-performing loans and the total of all loans from group 1 to group 5.

10. Bad credit ratio is the ratio between the total of non-performing loans and off-balance sheet commitments from group 3 to group 5 compared to the total of all loans and off-balance sheet commitments from group 1 to group 5.

11. Customer is an organization (including credit institutions and foreign bank branches), individual, or other subjects as prescribed by civil law that have obligations or may incur obligations to repay debts and make payments to credit institutions or foreign bank branches according to agreements.

12. Utilization of risk reserve includes utilizing the reserve to handle risks and utilizing the reserve to address asset losses related to debt, specifically:

a) Utilizing the reserve to handle risks involves transferring debt subject to risk management out of on-balance sheet accounts and continuing to monitor and take measures to fully recover the debt according to the agreement signed with the customer as stipulated in Article 16 of this Circular.

b) Utilizing the reserve to address asset losses related to debt as stipulated in Article 18 of this Circular.

Article 4. Collection of Customer Data and Information and Information Technology

1. Credit institutions and foreign bank branches must implement measures and regularly collect and exploit information and data about customers, including information from the National Credit Information Center of Vietnam (CIC) and credit information companies as prescribed by law, to:

a) Develop, modify, and supplement internal credit rating systems, internal regulations on credit granting, debt management, and risk reserve policies;

b) Monitor and assess the financial situation and debt repayment capacity of customers after they have been rated according to the internal credit rating system, and take appropriate risk management and credit quality management measures;

c) Implement self-classification of debt, off-balance sheet commitments, establishment of risk reserves, and utilization of risk reserves as prescribed in this Circular.

2. Credit institutions and foreign bank branches must establish an information technology system throughout their operations to meet the requirements of managing customer data and information, operating and managing internal credit rating systems, risk management, implementing debt classification, off-balance sheet commitments, establishing and utilizing risk reserves.

Article 5. Internal Credit Rating System

1. The internal credit rating system consists of:

a) Financial and non-financial indicators, processes for evaluating the debt repayment and payment capacity of customers based on qualitative and quantitative financial information, business conditions, management, and reputation of customers;

b) Methods for evaluating credit ratings for different customer groups, including restricted credit-granting objects and related parties.

2. The internal credit rating system must be established according to the following principles:

a) Based on data and information collected from all customers over at least one consecutive year prior to the year of establishing the internal credit rating system;

b) At least once a year, the internal credit rating system must be reviewed, modified, and supplemented based on customer data and information collected during the year;

c) Specify rating levels corresponding to risk levels from low to high;

d) Approved and implemented by the Board of Directors (for joint-stock credit institutions), the Board of Members (for limited liability credit institutions), or the General Director or Director (for foreign bank branches).

3. Credit institutions and foreign bank branches must establish an internal credit rating system to rate customers periodically or as necessary, serving as a basis for credit approval, credit quality management, and the development of risk reserve policies suitable for the scope of operations, customer base, and actual conditions of the credit institution or foreign bank branch.

Non-bank credit institutions are not required to have an internal credit rating system.

4. Within ten days from the date of issuance, modification, or supplementation of the internal credit rating system, credit institutions and foreign bank branches must directly submit or send via postal service or electronic means to the State Bank as prescribed in Clause 5 of this Article the following documents:

a) In the case of new issuance:

(i) A report on the issuance and application of the internal credit rating system;

(ii) The internal credit rating system, documentation describing the internal credit rating system, procedures for collecting customer information and rating customers;

(iii) Guidelines for using the internal credit rating system, including the process of authorization and delegation in collecting customer information and rating customers.

b) In case of amendment or supplementation:

(i) A report on the modification and supplementation of the internal credit rating system, clearly stating the reasons for modification and supplementation;

(ii) Documents modifying and supplementing the internal credit rating system and guidelines for using the internal credit rating system.

5. Credit institutions and foreign bank branches shall report to the State Bank as prescribed in Clause 4 of this Article as follows:

a) Credit institutions and foreign bank branches shall report to the State Bank (Bank Inspection and Supervision Authority), except in cases stipulated in point b of this Clause.

b) A foreign bank branch subject to micro-prudential inspection and supervision by the State Bank of Vietnam branch in the province or centrally governed city shall submit reports to that State Bank of Vietnam branch.

Article 6. Internal Regulations on Credit Granting, Debt Management, and Risk Reserve Policy

1. Credit institutions and foreign bank branches must issue internal regulations on credit granting, debt management, and risk mitigation policies.

2. Minimum requirements for internal regulations on credit granting and debt management include:

a) Based on information and data collected from customers and the results of customer ranking according to the internal credit rating system;

b) Uniformly applied throughout the entire system, serving as a basis for evaluating and approving credit granting and managing debts for specific customers;

c) Specifies credit policies for customers, including conditions for granting credit, credit limits, interest rates, documentation, procedures, evaluation and approval processes for granting credit, and debt management;

d) Includes provisions to ensure compliance with the State Bank of Vietnam's regulations on safety ratios in the operations of credit institutions and foreign bank branches;

đ) Specifies responsibilities and authorities of units and individuals in credit assessment and approval, credit quality management, and collateral asset management;

e) Specifies procedures and contents for pre-, during-, and post-grant credit checks and controls;

g) Specifies guarantee measures, collateral asset assessment, and management;

h) Specifies asset valuation rules, including principles, periodicity, methods, procedures, and responsibilities of relevant units and individuals involved in asset valuation according to the law to ensure that the value of collateral assets is consistent with market values when determining specific amounts for risk provisions as stipulated in this Circular;

i) Specifies measures for debt recovery.

3. Minimum requirements for risk reserve policy include:

a) Compliant with legal provisions on accounting systems, financial reporting, and statistics;

b) Includes a process for collecting customer information and data to ensure accurate classification of debts, off-balance sheet commitments, management of bad debts, monitoring of poor credit balances, and full risk provision accruals as required;

c) Specifies detailed provisions on debt classification, off-balance sheet commitments, risk provision accrual levels, methods, and usage in activities for each customer category periodically or unexpectedly;

d) Specifies the authority and responsibility of units and individuals in debt classification, off-balance sheet commitments, risk provision accruals, and usage in activities;

đ) Mechanisms for monitoring, supervising, and reporting on the contents specified from point a to point d of this Clause.

Article 7. Report on Internal Regulations on Credit Granting, Debt Management and Risk Mitigation Policies, preventive risk policy

1. Within ten (10) days from the date of issuance, amendment, or supplementation of internal regulations on credit granting, debt management, and risk mitigation policies, credit institutions and foreign bank branches must directly or via postal service or electronic means submit to the State Bank one set of documents as follows:

a) In the case of new issuance:

(i) A report on the issuance of internal regulations on credit granting, debt management, and risk mitigation policies;

(ii) Internal regulations on credit granting, debt management, and risk mitigation policies.

b) In case of amendment or supplementation:

(i) A report document on the amendment or supplementation of internal regulations on credit granting, debt management, and risk prevention policies, clearly reporting the reasons for amendment or supplementation;

(ii) The amended or supplemented internal regulations on credit granting, debt management, and risk prevention policies.

2. Credit institutions and foreign bank branches shall submit reports to the State Bank as stipulated in Clause 1 of this Article as follows:

a) Credit institutions and foreign bank branches shall report to the State Bank (Bank Inspection and Supervision Authority), except in cases stipulated in point b of this Clause.

b) A foreign bank branch subject to micro-prudential inspection and supervision by the State Bank of Vietnam branch in the province or centrally governed city shall submit reports to that State Bank of Vietnam branch.

Article 8. Time and Procedure for Debt Classification and Risk Provision Accrual

1. At least once a month, within the first seven (7) days of the month, credit institutions and foreign bank branches shall classify debts and off-balance sheet commitments up to the end of the previous month based on the provisions of Clause 5 of Article 1, Articles 9, 10, 11, 12, and 13 of this Circular, and self-report the results of debt classification and off-balance sheet commitments to CIC.

In addition to the aforementioned classification period, credit institutions and foreign bank branches may conduct self-classification of debts and off-balance sheet commitments according to their internal regulations.

2. Within three (3) days from receiving the results of self-classification of debts and off-balance sheet commitments of credit institutions and foreign bank branches as stipulated in Clause 1 of this Article, CIC will compile a list of customers in the highest risk debt categories and provide it to credit institutions and foreign bank branches.

3. Within three (3) days from receiving the customer list provided by CIC as stipulated in Clause 2 of this Article, credit institutions and foreign bank branches:

a) Adjust the debt category according to the customer list provided by CIC.

If the self-classification results of debts and off-balance sheet commitments of customers as stipulated in Clause 1 of this Article are lower than the debt category in the customer list provided by CIC, credit institutions and foreign bank branches must adjust the classification results of debts and off-balance sheet commitments according to the customer list provided by CIC;

b) Adjust the amount of risk provision accrual for the last month of the quarter based on the adjusted debt category at point a of this Clause.

4. Based on inspection and supervision results and related credit information, the State Bank has the right to require credit institutions and foreign bank branches to re-evaluate and reclassify specific debts and fully and appropriately accrue risk provisions according to the level of risk of those debts.

Chapter II

SPECIFIC PROVISIONS

Section 1

DEBT CLASSIFICATION AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Principles for Self-Classification

1. The entire outstanding debt and off-balance sheet commitments of a customer at a credit institution, foreign bank branch must be classified into the same loan category. For customers with two or more debts and/or off-balance sheet commitments at a credit institution, foreign bank branch where any debt or off-balance sheet commitment is classified into a higher risk category than the others, such credit institution, foreign bank branch must reclassify the remaining debts and/or off-balance sheet commitments of that customer into the highest risk category.

2. For syndicated loans, each credit institution, foreign bank branch participating in the syndicated loan has the responsibility to notify other credit institutions, foreign bank branches participating in the syndicated loan about the results of self-classifying the debt according to Clause 1 of Article 8 of this Circular.

3. For entrusted credit facilities where the entrustee has not disbursed the full amount entrusted under the entrustment agreement, the credit institution, foreign bank branch entrusting must classify the undisbursed entrusted amount as a loan to the entrustee. The overdue period is determined from the date the entrustee fails to disburse within the stipulated disbursement period under the entrustment agreement.

4. For sold debts (excluding debts already covered by provisions for risk) but not yet fully recovered, the credit institution, foreign bank branch selling the debt must classify the unrecovered amount as an unsold debt.

5. For purchased debts, at the time of purchase, the credit institution, foreign bank branch purchasing the debt must classify the purchase amount into a loan category with a risk level no lower than the category the debt was previously classified into at the most recent classification prior to purchase and continue classifying the purchase amount as a debt at the same credit institution, foreign bank branch.

6. For amounts purchased and entrusted to another organization (including credit institutions, foreign bank branches) to purchase unlisted corporate bonds, the credit institution, foreign bank branch must classify the bond purchase amount as an unsecured loan to the bond issuer, except when the corporate bond is secured by assets.

7. For discounting transferable instruments and other negotiable securities:

a) In the form of a term purchase: The credit institution, foreign bank branch classifies the discounting amount as a loan to the beneficiary;

b) In the form of a purchase with recourse: the credit institution, foreign bank branch classifies the discounting amount as a loan to the issuer (except for government bonds, government-guaranteed bonds, and local government bonds). Upon exercising the right of recourse, the credit institution, foreign bank branch classifies the discounting amount as a loan to the beneficiary.

8. For debts violating laws as specified in point c(iv) Clause 1 of Article 10 of this Circular, upon discovery of the violation, the credit institution, foreign bank branch must immediately issue a decision to recover the debt in accordance with the law.

For debts required to be recovered based on inspection and audit conclusions, the credit institution, foreign bank branch must issue a recovery decision in accordance with the inspection and audit conclusions.

For debts violating laws as specified in point c(iv) Clause 1 of Article 10 of this Circular, and debts required to be recovered based on inspection and audit conclusions, the credit institution, foreign bank branch shall not restructure the repayment terms and during the period before recovery according to the recovery decision, the credit institution, foreign bank branch must classify the debt and establish risk provisions in accordance with this Circular.

9. For debts in the form of factoring, the credit institution, foreign bank branch classifies the factoring amount as a loan to the buyer during the factoring period. Upon exercising the right of recourse, the credit institution, foreign bank branch classifies the debt as a loan to the seller.

10. For credit facilities and deposits provided by a credit institution to a credit institution under special control as stipulated in Clause 9 of Article 148d of the Law on Credit Institutions (as amended and supplemented), the supporting credit institution may classify it into the standard loan category and does not need to adjust the loan category according to the customer list provided by CIC as specified in Clause 3 of Article 8 of this Circular (if applicable).

11. For transactions involving the resale of government bonds, the credit institution, foreign bank branch classifies the payment amount as a loan to the seller in the purchase transaction (first transaction) in accordance with the law on registration, custody, listing, trading, and settlement of government debt instruments, government-guaranteed bonds issued by policy banks, and local government bonds.

12. For amounts purchased in commercial paper, promissory notes, and deposit certificates issued by another credit institution, foreign bank branch, the credit institution, foreign bank branch classifies the purchase amount as a loan to the issuing credit institution, foreign bank branch.

Article 10. Classification of debts and off-balance sheet commitments by quantitative method

1. Credit institutions and foreign bank branches shall classify debts (excluding substitute payments under off-balance sheet commitments) into five groups as follows:

a) Group 1 (Standard Debts) includes:

(i) Debts within the due date and assessed as fully recoverable both principal and interest on time;

(ii) Overdue debts up to 10 days and assessed as fully recoverable both overdue principal and interest and remaining principal and interest on time;

(iii) A debt is classified into Group 1 in accordance with Clause 2 of this Article.

b) Group 2 (Debts of Concern) includes:

(i) A debt overdue for up to 90 days, except for the debt specified in point a of sub-clause (ii) of this clause and Clause 3 of this Article;

(ii) A debt whose repayment term has been adjusted for the first time and remains within the due period, except for the debt specified in point b of Clause 2 and Clause 3 of this Article;

(iii) A debt is classified into Group 2 in accordance with Clause 2 and Clause 3 of this Article.

c) Group 3 (Substandard Debts) includes:

(i) Overdue debts from 91 to 180 days, except for debts specified in Clause 3 of this Article;

(ii) A debt extended for the first time and remains within the due period, except for the debt specified in point b of Clause 2 and Clause 3 of this Article;

(iii) Debts exempted or reduced in interest due to the borrower's inability to pay full interest as agreed, except for debts specified in Clause 3 of this Article;

(iv) A debt belonging to one of the following cases that has not been recovered within less than 30 days from the date of the recovery decision:

- A debt violating the provisions of Clauses 1, 3, 4, 5, and 6 of Article 126 of the Law on Credit Institutions (amended and supplemented);

- A debt violating the provisions of Clauses 1, 2, 3, and 4 of Article 127 of the Law on Credit Institutions (amended and supplemented);

- A debt violating the provisions of Clauses 1, 2, and 5 of Article 128 of the Law on Credit Institutions (amended and supplemented);

(v) Debts within the recovery period according to audit conclusions, inspections;

(vi) A debt that must be recovered according to the early loan recovery decision of credit institutions and foreign bank branches due to customers' breach of agreements with credit institutions and foreign bank branches, which have not been recovered within less than 30 days from the date of the recovery decision;

(vii) A debt is classified into Group 3 in accordance with Clause 2 and Clause 3 of this Article;

(viii) A debt must be classified into Group 3 in accordance with Clause 4 of Article 8 of this Circular.

d) Group 4 (Doubtful Debts) includes:

(i) Overdue debts from 181 to 360 days, except for debts specified in Clause 3 of this Article;

(ii) Debts restructured in terms of the repayment period for the first time and overdue up to 90 days according to the restructured repayment period, except for debts specified in Clause 3 of this Article;

(iii) A debt restructured for the second time and remains within the due period, except for the debt specified in point b of Clause 2 and Clause 3 of this Article;

(iv) Debts specified at point c(iv) Clause 1 of this Article that have not been recovered within 30 to 60 days from the recovery decision date;

(v) Debts that need to be recovered according to audit conclusions, inspections but have not been recovered within 60 days beyond the recovery period according to the audit conclusions, inspections;

(vi) A debt that must be recovered according to the early loan recovery decision of credit institutions and foreign bank branches due to customers' breach of agreements with credit institutions and foreign bank branches, which have not been recovered within 30 to 60 days from the date of the recovery decision;

(vii) A debt is classified into Group 4 in accordance with Clause 2 and Clause 3 of this Article;

(viii) A debt must be classified into Group 4 in accordance with Clause 4 of Article 8 of this Circular.

đ) Group 5 (Loss Probable Debts) includes:

(i) Overdue debts over 360 days;

(ii) Debts restructured in terms of the repayment period for the first time and overdue for 91 days or more according to the restructured repayment period;

(iii) Debts restructured in terms of the repayment period for the second time and overdue according to the restructured repayment period for the second time;

(iv) Debts restructured in terms of the repayment period for the third time or more, except for debts specified in point b of Clause 2 of this Article;

(v) Debts specified at point c(iv) Clause 1 of this Article that have not been recovered within 60 days from the recovery decision date;

(vi) Debts that need to be recovered according to audit conclusions, inspections but have not been recovered within 60 days beyond the recovery period according to the audit conclusions, inspections;

(vii) A debt that must be recovered according to the early loan recovery decision of credit institutions and foreign bank branches due to customers' breach of agreements with credit institutions and foreign bank branches, which have not been recovered over 60 days from the date of the recovery decision;

(viii) Debts of customers who are credit institutions currently under special supervision, branches of foreign banks currently having their capital and assets frozen.

(ix) The debt is classified into Group 5 according to the provisions of Clause 3 of this Article;

(x) A debt must be classified into Group 5 in accordance with Clause 4 of Article 8 of this Circular.

2. The debt shall be classified into a lower risk group in the following cases:

a) For overdue debts, credit institutions and foreign bank branches shall reclassify into a lower risk debt group (including Group 1) when meeting all of the following conditions:

(i) The customer has fully repaid the overdue principal and interest (including interest applied to overdue principal) and the principal and interest of subsequent repayment periods for at least three months for medium-term and long-term debts, and one month for short-term debts, starting from the date of full repayment of overdue principal and interest;

(ii) There are documents and records proving the customer's repayment;

(iii) Credit institutions and foreign bank branches have sufficient information and documents to assess the customer's ability to repay the remaining principal and interest on time.

b) For restructured debts, credit institutions and foreign bank branches shall reclassify into a lower risk debt group (including Group 1) when meeting all of the following conditions:

(i) The customer has fully repaid the principal and interest according to the restructured repayment schedule for at least three months for medium-term and long-term debts, and one month for short-term debts, starting from the date of full repayment of principal and interest according to the restructured schedule;

(ii) There are documents and records proving the customer's repayment;

(iii) Credit institutions and foreign bank branches have sufficient information and documents to assess the customer's ability to repay the remaining principal and interest on time according to the restructured schedule.

3. The debt shall be classified into a higher risk group in the following cases:

a) Indicators of profitability, solvency, debt-to-equity ratio, cash flow, and debt repayment capacity of the customer continuously decline through three consecutive debt assessment and classification periods;

b) The customer does not provide complete, timely, and truthful information requested by credit institutions and foreign bank branches to evaluate the customer's debt repayment capacity;

c) A debt has been classified into Group 2, Group 3, or Group 4 in accordance with point a and b of this clause for one year or more but does not meet the conditions to be reclassified into a lower risk debt group;

d) A debt where the lending behavior is subject to administrative penalties under the law.

4. Classification of off-balance sheet commitments and substitute payments under off-balance sheet commitments:

a) Classification of off-balance sheet commitments:

(i) Classify into Group 1 if credit institutions and foreign bank branches assess that the customer has the ability to fulfill all obligations under the commitment;

(ii) Classify into Group 2 or higher if credit institutions and foreign bank branches assess that the customer does not have the ability to fulfill the obligations under the commitment;

(iii) Classify into Group 3 or higher for off-balance sheet commitments falling under one of the cases specified in point c of sub-clause (iv) of Clause 1 of this Article.

b) Classification of substitute payments under off-balance sheet commitments:

(i) The overdue date is calculated from the day credit institutions and foreign bank branches perform their obligations under the commitment;

(ii) Substitute payments under off-balance sheet commitments are classified as follows:

- Classify into Group 3 if overdue for less than 30 days;

- Classify into Group 4 if overdue from 30 days to less than 90 days;

- Classify into Group 5 if overdue for 90 days or more.

In case a substitute payment is classified into a lower risk group than the off-balance sheet commitment it replaces, as specified in point a (ii) and point a (iii) of this clause, it must be transferred to the group into which the off-balance sheet commitment was classified.

Article 11. Classification of debts and off-balance sheet commitments by qualitative method

1. Credit institutions, foreign bank branches classify debts and off-balance sheet commitments into five groups as follows:

a) Group 1 (Standard Debts) includes:

Debts that credit institutions, foreign bank branches assess as having the ability to fully recover both principal and interest on time.

Off-balance sheet commitments that credit institutions, foreign bank branches assess as customers having the ability to fully perform their obligations under the commitment.

b) Group 2 (Debts of Concern) includes:

Debts that credit institutions, foreign bank branches assess as having the ability to fully recover both principal and interest but show signs of reduced ability to repay.

Off-balance sheet commitments that credit institutions, foreign bank branches assess as customers having the ability to perform their obligations under the commitment but show signs of reduced ability to fulfill the commitment.

c) Group 3 (Substandard Debts) includes:

Debts that credit institutions, foreign bank branches assess as not having the ability to recover principal and interest when due. These debts are assessed by credit institutions, foreign bank branches as potentially loss-making.

Off-balance sheet commitments that credit institutions, foreign bank branches assess as customers not having the ability to fully perform their obligations under the commitment.

Debts must be classified into Group 3 as prescribed in Clause 4, Article 8 of this Circular.

d) Group 4 (Doubtful Debts) includes:

Debts that credit institutions, foreign bank branches assess as highly likely to result in losses.

Off-balance sheet commitments where the likelihood of customers not fulfilling the commitment is very high.

Debts must be classified into Group 4 as prescribed in Clause 4, Article 8 of this Circular.

đ) Group 5 (Loss Probable Debts) includes:

Debts that credit institutions, foreign bank branches assess as no longer able to recover, with potential capital loss.

Off-balance sheet commitments where customers are no longer able to perform their commitment obligations.

Debts must be classified into Group 5 as prescribed in Clause 4, Article 8 of this Circular.

2. Credit institutions, foreign bank branches implementing debt classification and off-balance sheet commitment classification as prescribed in Clause 1 of this Article must meet the following requirements:

a) Having an internal credit rating system suitable for business operations, customer types, nature of credit risk, and with a minimum trial period of one year;

b) Having a risk reserve policy as prescribed in Clause 3, Article 6 of this Circular;

c) Having a credit risk management policy, credit risk monitoring model, methods for identifying and measuring credit risk (including ways to evaluate customer repayment ability under loan contracts, collateral, and debt recovery), and debt management;

d) Clearly defining the responsibilities and authorities of the Board of Directors, Board of Members, General Director (Director) in approving, implementing, and supervising the implementation of the internal credit rating system, risk reserve policy of credit institutions, foreign bank branches, and the independence of risk management units.

3. Credit institutions, foreign bank branches directly send or through postal service to the headquarters of the State Bank (One-Stop Service Department) one set of documents requesting the State Bank's approval for debt classification as prescribed in Clause 1 of this Article and Clause 2 of Article 2 of this Circular, including the following documents:

a) A document from the foreign bank branch requesting the State Bank's approval to apply the foreign bank's risk reserve policy as prescribed in Clause 2, Article 2 of this Circular; or a document from the credit institution, foreign bank branch requesting the State Bank's approval to implement debt classification and off-balance sheet commitment classification according to the qualitative method prescribed in Clause 1 of this Article, which must prove compliance with all conditions prescribed in Clause 2 of this Article;

b) A copy of the foreign bank's risk reserve policy for the case prescribed in Clause 2, Article 2 of this Circular; a copy of the internal credit rating system, risk reserve policy, credit risk management policy, and draft guidance documents for implementing debt classification, off-balance sheet commitments, and establishing risk reserves of credit institutions, foreign bank branches for the case prescribed in Clause 2 of this Article.

4. Within thirty days from the date of receiving complete valid documents as prescribed in Clause 3 of this Article, the State Bank will issue a document approving credit institutions, foreign bank branches. In case of non-approval, the State Bank will issue a document stating the reasons.

5. The internal credit rating system, risk reserve policy, and credit risk management policy must be reviewed annually by credit institutions, foreign bank branches as prescribed in this Circular and regulations of the State Bank regarding the internal control system of commercial banks, foreign bank branches.

6. Credit institutions, foreign bank branches approved to implement debt classification and off-balance sheet commitment classification as prescribed in Clause 1 of this Article must simultaneously implement debt and off-balance sheet commitment classification as prescribed in Article 10 of this Circular. In cases where the classification results for a debt and off-balance sheet commitment according to Article 10 of this Circular and Clause 1 of this Article differ, the debt and off-balance sheet commitment must be classified into the group with higher risk level. The minimum time required to simultaneously implement debt and off-balance sheet commitment classification according to Articles 10 and 11 of this Circular is five years from the date of State Bank approval.

Section 2

ESTABLISHING RISK RESERVES

Article 12. Specific Provisions for Provisioning Reserves

1. The amount of specific provisioning reserves to be set aside for each customer shall be calculated according to the following formula:

Where:

- R: Total amount of specific provisioning reserves to be set aside for each customer;

: Is the total amount of specific risk provisions of the customer from the first outstanding debt balance to the nth outstanding debt balance.

Ri: is the amount of specific provisioning reserve to be set aside for the principal balance of the i-th debt. Ri is determined according to the formula:

Ri = (Ai - Ci) x r

Where:

Ai: Principal balance of the i-th debt.

Ci: Deductible value of collateral assets, financial lease assets, transferable instruments, other securities in discounting and government bond repurchase activities (hereinafter referred to collectively as collateral assets) of the i-th debt.

F: Specific provisioning ratio according to group as stipulated in Clause 2 of this Article.

In case Ci > Ai, Ri is calculated as 0 (zero).

2. The specific provisioning ratio for each group of debts is as follows:

a) Group 1: 0%;

b) Group 2: 5%;

c) Group 3: 20%;

d) Group 4: 50%;

đ) Group 5: 100%.

3. Collateral assets to be deducted when calculating the specific provisioning reserve (R) as provided for in Clause 1 of this Article must meet the following conditions:

a) Credit institutions and foreign bank branches have the right to dispose of collateral assets in accordance with the guarantee contract and the provisions of the law when the customer fails to fulfill their obligations as agreed;

b) The time frame for disposing of collateral assets as planned does not exceed 01 (one) year for non-real estate collateral assets and does not exceed 02 (two) years for real estate collateral assets, counted from the date when credit institutions and foreign bank branches have the right to dispose of collateral assets;

c) Collateral assets must comply with the provisions of the law on secured transactions and related laws;

d) In case collateral assets do not meet the conditions stipulated in points a, b, and c of this Clause, the deductible value of such collateral assets must be considered as 0 (zero).

4. The deductible value of collateral assets is determined by multiplying the value of collateral assets as specified in Clause 5 of this Article with the deduction rate applicable to each type of collateral asset as specified in Clause 6 of this Article.

Credit institutions and foreign bank branches shall determine the deduction rate applicable to each type of collateral asset based on their assessment of the recovery potential when disposing of such collateral assets but shall not exceed the maximum deduction rate applicable to each type of collateral asset as specified in Clause 6 of this Article.

5. The value of collateral assets for calculating deductions when setting aside risk reserves is determined as follows:

a) Gold bars: Purchase price at the headquarters of the enterprise or credit institution owning the gold bar brand at the end of the day of the transaction day before the specific provisioning reserve is set aside;

b) Listed securities (including shares, fund certificates, derivative securities, guaranteed warrant securities listed): Closing price on the nearest trading day before the specific provisioning reserve is set aside. In cases where listed securities traded on the market have no transactions within 30 (thirty) days prior to the specific provisioning reserve date and on the specific provisioning reserve date, the securities are delisted, suspended, or halted from trading, the credit institution or foreign bank branch shall determine the value of collateral assets as provided for in point e of this Clause;

c) Shares registered for trading on the Upcom trading system: Reference price on the nearest trading day before the risk reserve is set aside as announced by the Stock Exchange. In cases where shares of joint-stock companies registered for trading on the Upcom trading system have no transactions within 30 (thirty) days prior to the specific provisioning reserve date and on the specific provisioning reserve date, the shares are delisted, suspended, or halted from trading, the credit institution or foreign bank branch shall determine the value of collateral assets as provided for in point e of this Clause;

d) Government bonds listed on the Stock Exchange: Average price of transactions during the session of firm commitment bids as prescribed by the Government regarding the issuance, registration, custody, listing, and trading of government debt instruments on the securities market; guiding documents of the Ministry of Finance and any amendments or replacements thereof (if any). In case there are no transaction prices during the session of firm commitment bids mentioned above, the bond price for deduction purposes is the average of transaction prices on the secondary market within the 10 (ten) working days closest to the risk reserve setting date. In case there are no transactions within the 10 (ten) working days closest to the risk reserve setting date, the credit institution or foreign bank branch shall determine the value of collateral assets based on face value;

đ) Local government bonds, government-guaranteed bonds, and corporate bonds (including credit institutions) listed or registered for trading: Average price of transactions on the secondary market within the 10 (ten) working days closest to the specific provisioning reserve date as announced by the Stock Exchange. In case there are no transactions within the 10 (ten) days leading up to the specific provisioning reserve date, the credit institution or foreign bank branch shall determine the value of collateral assets based on face value;

e) Unlisted securities, promissory notes, bills of exchange, deposit certificates issued by enterprises (including credit institutions and foreign bank branches): Based on face value.

In cases where, at the specific provision setting date, the equity capital is lower than the actual investment capital of the owners in the issuing organization, the value of the collateral shall be determined as follows:

The face value of the securities, valuable papers multiplied (x) by the equity capital of the issuing organization divided (: ) by the actual investment capital of the owners in the issuing organization.

In which: The actual investment capital of shareholders in the issuing entity and the equity capital of the issuing entity is determined based on the most recent balance sheet before the specific provisioning reserve date in accordance with the accounting regulations for enterprises as guided by the Ministry of Finance.

In case the equity capital of the issuing entity is negative, the deductible value of collateral assets (Ci) must be considered as 0 (zero);

g) Financial lease assets: The value of financial lease assets is valued according to the provisions of point h of this Clause or the remaining value of financial lease assets over the lease period is calculated using the formula:

Value of financial lease assets divided (:) by the lease period according to the contract multiplied (x) by the remaining lease period according to the contract;

h) The determination of the value of collateral assets for deduction when calculating the specific provision amount for movable property, immovable property, and other types of collateral assets, except for those specified in points a, b, c, d, đ, e of this Clause shall be carried out as follows:

(i) Credit institutions and foreign bank branches must engage an organization with appraisal functions as prescribed by law to determine the value of collateral assets to be deducted when calculating the specific provision amount at the end of the fiscal year in the following cases:

Collateral assets that credit institutions and foreign bank branches appraise at VND 50 billion or more for customer debts that are related parties of credit institutions and foreign bank branches and restricted lending objects as stipulated in Article 127 of the Law on Credit Institutions (amended and supplemented); collateral assets that credit institutions and foreign bank branches appraise at VND 200 billion or more.

The appraisal results of collateral assets by organizations with appraisal functions as prescribed by law shall be used by credit institutions and foreign bank branches to determine the value of collateral assets to be deducted when calculating the specific provision amount.

In case the organization with appraisal functions lacks the capacity or there is no organization with appraisal functions to appraise the collateral assets, credit institutions and foreign bank branches shall use the internal appraisal results as stipulated in point h, Clause 2, Article 6 of this Circular. In case there is no appraisal document from the appraisal organization and the value of the collateral asset cannot be determined according to the internal regulations, the value of the collateral asset for deduction must be considered as zero (0).

(ii) Except for the cases specified in point h(i) of this Clause, credit institutions and foreign bank branches shall determine the value of collateral assets for deduction when calculating the specific provision amount according to the internal regulations as stipulated in point h, Clause 2, Article 6 of this Circular.

6. Credit institutions and foreign bank branches shall determine the specific deduction ratio for each type of collateral asset based on the principle that the lower the liquidity of the collateral asset and the greater the price fluctuation, the lower the deduction ratio of the collateral asset. Among which, the maximum deduction ratio for collateral assets shall be determined as follows:

a) Customer deposit balances and certificate of deposit balances denominated in Vietnamese Dong at the same credit institution or foreign bank branch: 100%;

b) Government bonds, gold bars as regulated by laws on gold trading activities; customer deposit balances and certificate of deposit balances denominated in foreign currencies at the same credit institution or foreign bank branch: 95%;

c) Local government bonds, government-guaranteed bonds; transferable instruments, promissory notes, bills of exchange, bonds issued by the credit institution itself; deposit balances, certificate of deposit balances, promissory notes, bills of exchange issued by other credit institutions or foreign bank branches:

- Remaining term under 1 year: 95%;

- Remaining term from 1 year to 5 years: 85%;

- Remaining term over 5 years: 80%.

d) Securities issued by other credit institutions listed on the Stock Exchange: 70%;

đ) Securities issued by enterprises (excluding credit institutions) listed on the Stock Exchange: 65%;

e) Unlisted securities, negotiable instruments, except for those specified in point c of this Clause, issued by other credit institutions that have registered securities listing on the Stock Exchange: 50%;

Unlisted securities, negotiable instruments, except for those specified in point c of this Clause, issued by other credit institutions that have not registered securities listing on the Stock Exchange: 30%;

g) Unlisted securities, negotiable instruments issued by enterprises that have registered securities listing on the Stock Exchange: 30%;

Unlisted securities, negotiable instruments issued by enterprises that have not registered securities listing on the Stock Exchange: 10%;

Real estate: 50%;

Other types of collateral assets: 30%.

7. During the implementation period of restructuring plans, mergers, and acquisitions of credit institutions as approved by the Prime Minister, if credit institutions face financial difficulties, they shall report to the State Bank for consideration and decision on risk provisions; in case the amount of risk provisions exceeds the difference between income and expenditure from annual business results (excluding temporarily provisioned risk provisions in the year), the minimum level of risk provisions shall be equal to the income-expenditure difference and credit institutions must fully track the amount of risk provisions according to the provisions of this Circular.

Article 13. General Provision Reserve Rate

The amount of general provision reserve to be set aside shall be determined at 0.75% of the total balance of loans from Group 1 to Group 4, excluding the following items:

1. Deposits with credit institutions, foreign bank branches in accordance with the provisions of the law and deposits with credit institutions abroad.

2. Loans and purchases of securities with fixed terms between credit institutions, foreign bank branches in Vietnam.

3. Purchases of commercial papers, promissory notes, deposit certificates, and government bonds issued by other credit institutions, foreign bank branches in Vietnam.

4. Resale of government bonds in accordance with point l, Clause 1, Article 1 of this Circular.

Article 14. Supplementing and Reversing the Provision Amount

1. In cases where the specific provision and general provision remaining from the previous accounting period is less than the specific provision and general provision required to be set aside for the current accounting period, the credit institution, foreign bank branch must supplement the difference.

2. In cases where the specific provision and general provision remaining from the previous accounting period is more than the specific provision and general provision required to be set aside for the current accounting period, the credit institution, foreign bank branch must reverse the excess.

Section 3

USE OF PROVISIONS FOR RISK MANAGEMENT

Article 15. Risk Management Council

1. Composition of the Risk Management Council:

a) Commercial banks must establish a Risk Management Council consisting of one member who is a member of the Board of Directors or the Board of Members as chairman; one other member who is a member of the Risk Management Committee; one other member who is the General Director (Director), and at least two other members decided by the Board of Directors or the Board of Members;

b) Foreign bank branches, non-bank credit institutions must establish a Risk Management Council consisting of the General Director (Director) as chairman and at least two other members decided by the General Director (Director).

2. Responsibilities of the Risk Management Council:

a) Approving the consolidated system-wide report on the results of collecting debts that have used provisions to manage risks, including the results of handling collateral assets and clearly stating the basis for approval;

b) Deciding or approving the classification of debts, off-balance sheet commitments, setting aside provisions, using provisions to manage risks throughout the system;

c) Deciding or approving measures to collect debts that have used provisions to manage risks system-wide, including the handling of collateral assets.

Article 16. Principles and Documentation for Managing Risks

1. Credit institutions, foreign bank branches may use provisions to manage risks in the following cases:

a) The customer is an organization that has been dissolved or declared bankrupt; an individual who has died or gone missing;

b) Debts classified into Group 5.

2. Credit institutions, foreign bank branches use provisions to manage risks according to the following principles:

a) In cases where credit institutions, foreign bank branches have processed collateral assets to recover debts in accordance with agreements among parties and in compliance with the law, credit institutions, foreign bank branches use specific provisions to manage risks for the remaining debt balance; if the use of specific provisions is insufficient to cover the risk of the debt, then general provisions must be used to manage risks;

b) In cases where credit institutions, foreign bank branches have not processed collateral assets to recover debts, credit institutions, foreign bank branches use provisions to manage risks according to the following principles:

(i) Using specific provisions established in accordance with Article 12 of this Circular to manage risks for that debt;

(ii) Promptly proceed to dispose of collateral assets in accordance with agreements with the customer and the provisions of the law to recover debts;

(iii) If the use of specific provisions and the amount received from processing collateral assets is insufficient to cover the risk of the debt, then general provisions must be used to manage risks.

c) Credit institutions, foreign bank branches record off-balance-sheet the residual debt balances that have been managed risks using specific provisions and general provisions as stipulated in points a and b of this clause.

3. Using provisions to manage risks is a form of changing accounting treatment for debts, transferring debts managed risks out of on-balance-sheet accounts; it is an internal process of credit institutions, foreign bank branches; it does not change the obligation of customers to repay the debt managed risks and the responsibility of related organizations and individuals towards the debt. Credit institutions, foreign bank branches are not allowed to inform customers about the debt being managed risks through the use of provisions. After managing risks, credit institutions, foreign bank branches must monitor and take full and thorough measures to recover the debt managed risks, except in cases where the debt managed risks is sold by credit institutions, foreign bank branches to organizations or individuals, and the full sale price is received according to the Debt Purchase and Sale Contract.

4. Risk management documentation includes:

a) Loan application files and debt collection files for debts managed by provisions;

b) Collateral asset files and other relevant documents (if any);

c) Decision or approval of the Risk Management Council on the results of debt classification and risk provision establishment;

d) Decision or approval of the Risk Management Council on the use of provisions to manage risks;

đ) For cases where the customer is an organization or enterprise declared bankrupt or dissolved, in addition to the documents specified in points a, b, c, d of this clause, there must be an original or certified copy or a copy from the original Register of the Bankruptcy Declaration Decision of the Court or the dissolution decision of the enterprise in accordance with the law;

e) For cases where the customer is an individual who has died or gone missing, in addition to the documents prescribed in points a, b, c, d of this clause, there must be an original or certified copy or a copy from the original Death Certificate or a written confirmation by the local authority of the commune regarding the death of the customer in case there is no Death Certificate, or the declaration of disappearance decision in accordance with the law.

Article 17. Monitoring of Debt Already Utilized for Risk Provisioning and Written Off from Off-Balance Sheet

1. After a minimum period of five (5) years from the date of utilizing risk provisions and after implementing all measures to recover the debt but failing to do so, credit institutions and foreign bank branches may decide to write off risk-provisioned debt from the off-balance sheet.

Debts written off from the off-balance sheet must be monitored within the credit institution's management system according to regulations on setting aside provisions for inventory markdowns, investment losses, difficult-to-collect receivables, and product warranty claims for a minimum period of ten (10) years from the date of the decision to write off risk-provisioned debt from the off-balance sheet, except for debts where the debtor is an organization that has been declared bankrupt or dissolved in accordance with the law, and after liquidation and disposal of all assets, or where the debtor is an individual who has died or been declared missing by a court decision and their estate and obligations have been settled in accordance with the law.

2. For state-owned commercial banks and joint-stock commercial banks in which the State holds more than fifty percent (50%) of the charter capital, the write-off of debt from the off-balance sheet as stipulated in Clause 1 of this Article can only be implemented when the following conditions are met:

a) There must be documentation proving that all measures to recover the debt were taken but the debt was not recovered;

b) It must be approved in writing by the State Bank after obtaining the opinion of the Ministry of Finance.

3. For credit institutions that are joint-stock companies, the write-off of debt from the off-balance sheet as stipulated in Clause 1 of this Article can only be implemented when the following conditions are met:

a) There must be documentation proving that all measures to recover the debt were taken but the debt was not recovered;

b) It must be approved by the Shareholders' Meeting.

4. For credit institutions that are limited liability companies, the write-off of debt from the off-balance sheet as stipulated in Clause 1 of this Article can only be implemented when the following conditions are met:

a) There must be documentation proving that all measures to recover the debt were taken but the debt was not recovered;

b) It must be approved by the Board of Members.

5. For foreign bank branches, the write-off of debt from the off-balance sheet as stipulated in Clause 1 of this Article can only be implemented when the following conditions are met:

a) There must be documentation proving that all measures to recover the debt were taken but the debt was not recovered;

b) It must be approved by the foreign bank.

6. The documentation for writing off debt from the off-balance sheet as stipulated in Clause 1 of this Article shall include:

a) Documentation for risk handling as prescribed in Clause 4 of Article 16 of this Circular;

b) Decision or approval of the credit institution or foreign bank branch regarding the write-off of risk-provisioned debt from the off-balance sheet.

c) Decision or approval of measures to recover the debt that has been utilized for risk provisioning;

d) Documentation proving that all measures to recover the debt were taken but the debt was not recovered, consistent with reality and relevant laws.

The documents for writing off risk-provisioned debt from the off-balance sheet must be retained by the credit institution or foreign bank branch in accordance with the law.

Article 18. Principles for Handling Cases Where There Is Clear Evidence of Asset Losses for a Debt

During operations, including cases as provided for in Articles 16 and 17 of this Circular, if there is clear evidence of asset losses for a debt, credit institutions and foreign bank branches shall handle it according to the following principles:

1. Dispose of collateral in accordance with the agreement of the parties in compliance with the law, except in the case specified in point a, Clause 2 of Article 16 of this Circular.

2. Determine the cause, responsibility, and handle as follows:

a) In cases due to subjective reasons, the person causing the loss must compensate. The authority to determine the amount of compensation is carried out according to the Charter of the credit institution or foreign bank branch. The handling of the responsibility of the person causing the loss is carried out in accordance with the law;

b) In cases where the asset has been insured, handle according to the insurance contract;

c) Use the provision set aside in expenses to offset the loss in accordance with the law, except in the case specified in Clause 2 of Article 16 of this Circular;

d) The value of the loss after being offset by compensation from individuals, groups, organizations, and insurance, and using the provision set aside in expenses, any shortfall will be offset by the financial reserve fund of the credit institution or foreign bank branch. If the financial reserve fund is insufficient to offset the shortfall, the deficit will be recorded as other expenses in the current accounting period.

Article 19Handling of amounts recovered from debt already utilized for risk provisioning

Amounts recovered from debt already utilized for risk provisioning, including amounts recovered from the disposal of collateral, shall be considered as revenue in the current accounting period of the credit institution or foreign bank branch.

Section 4

MANAGEMENT OF DEBT, OFF-BALANCE SHEET COMMITMENTS, PROVISIONING AND UTILIZATION OF RISK RESERVES

Article 20Management of debt, off-balance sheet commitments, provisioning and utilization of risk reserves

1. Credit institutions and foreign bank branches must have a department responsible for managing debt and off-balance sheet commitments (department, division, or equivalent) at the headquarters of the credit institution or foreign bank branch to manage the implementation of debt classification, off-balance sheet commitments, provisioning, and utilization of risk reserves throughout the system.

2. Responsibilities of the department managing debt and off-balance sheet commitments:

a) Develop and submit to the General Director (Director) for submission to the Board of Directors, Board of Members (for credit institutions) or submit directly to the General Director (Director) (for foreign bank branches) for issuance:

(i) Internal credit rating system, supplementing and amending the internal credit rating system; regulations on managing and operating the internal credit rating system, data collection and customer information supplementation;

(ii) Risk provisioning policy, amendment, and supplementation of the risk provisioning policy.

b) Manage and operate the internal credit rating system;

c) Aggregate and report to the Risk Management Committee the results of debt classification, off-balance sheet commitments, provisioning, utilization of risk reserves, and debt recovery after utilizing risk reserves of the previous month throughout the system; propose to the Risk Management Committee the classification of debt, off-balance sheet commitments, provisioning, and utilization of risk reserves, management measures for non-performing debt, and thorough debt recovery;

d) Manage and monitor units and individuals in the implementation of point d, Clause 3 of Article 6 of this Circular;

đ) Provide information and coordinate with functional units at the headquarters in developing and submitting to the General Director (Director) for submission to the Board of Directors, Board of Members (for credit institutions) or submit directly to the General Director (Director) (for foreign bank branches) for issuance or amendment and supplementation of internal regulations on credit granting and debt management of credit institutions and foreign bank branches;

e) Perform other tasks as prescribed by the credit institution or foreign bank branch.

Section 5

ACCOUNTING AND REPORTING

Article 21Accounting

Credit institutions and foreign bank branches shall account for the amounts set aside, utilized, supplemented, and reinstated for specific provisions and general provisions in accordance with the legal regulations on accounting systems for credit institutions and foreign bank branches.

Article 22.

1. Credit institutions and foreign bank branches must report the results of loan classification, off-balance sheet commitments, provision setting, and risk management, as well as loss handling, in accordance with the reporting and statistical system applicable to credit institutions and foreign bank branches as prescribed by the State Bank of Vietnam.

2. Credit institutions and foreign bank branches are responsible for providing the Credit Information Center with information on their credit activities in compliance with the regulations issued by the State Bank of Vietnam and as stipulated in this Circular.

3. Credit institutions and foreign bank branches must report the results of loan classification, off-balance sheet commitments, provision setting and utilization, and debt recovery outcomes to the General Department of Taxation and the provincial or municipal tax office where the credit institution or foreign bank branch is headquartered, in accordance with the tax reporting regulations.

4. Annually, credit institutions and foreign bank branches must report to the Shareholders' Meeting (for joint-stock credit institutions), the owner (for single-member limited liability credit institutions), and shareholders (for credit institutions with two or more members) regarding the results of loan classification, off-balance sheet commitments, provision setting, the results of utilizing provisions, and the results of loss handling.

Chapter III

RESPONSIBILITIES OF THE STATE BANK AND VIOLATION HANDLING

Article 23.

1. The Banking Inspection and Supervision Authority is responsible for:

a) The State Bank shall receive internal regulations on credit granting, debt management, and risk reserve policies of credit institutions and foreign bank branches as provided for in Article 6 of this Circular to support micro-prudential supervision and inspection work.

b) The State Bank shall inspect and audit the implementation of internal regulations on credit granting, debt management, and risk reserve policies by credit institutions and foreign bank branches.

c) The State Bank shall inspect and audit the implementation of loan classification, off-balance sheet commitments, provision setting, and utilization by credit institutions and foreign bank branches.

d) The State Bank shall handle violations committed by credit institutions and foreign bank branches according to the provisions of Article 24 of this Circular within its authority.

đ) The State Bank shall process applications from foreign bank branches to apply foreign bank risk reserve policies and applications from credit institutions and foreign bank branches to implement loan classification and off-balance sheet commitments using qualitative methods.

2. The Forecasting and Statistics Division shall be the lead unit, coordinating with relevant units to submit to the Governor of the State Bank for issuance of regulations on the reporting and statistical system for loan classification, off-balance sheet commitments, provision setting, utilization, and loss handling in the operations of credit institutions and foreign bank branches.

3. The Finance and Accounting Department shall base on this Circular to develop and submit to the Governor of the State Bank guiding documents for implementing related accounting systems in accordance with the law.

4. The Credit Information Center shall have the responsibility to compile and provide lists of customers in the highest risk categories to credit institutions and foreign bank branches in accordance with Clause 2 of Article 8 of this Circular.

5. The State Bank branch at the provincial or central city level shall have the responsibility:

a) To receive internal regulations on credit granting, debt management, and risk reserve policies of credit institutions and foreign bank branches as provided for in Article 6 of this Circular to support micro-prudential supervision and inspection work.

b) To inspect and audit the implementation of internal regulations on credit granting, debt management, and risk reserve policies by branches of credit institutions within its jurisdiction and foreign bank branches subject to micro-prudential supervision.

c) To inspect and audit the implementation of loan classification, off-balance sheet commitments, provision setting, and utilization by branches of credit institutions within its jurisdiction and foreign bank branches subject to micro-prudential supervision.

d) To handle violations committed by branches of credit institutions within its jurisdiction and foreign bank branches subject to micro-prudential supervision according to the provisions of Article 24 of this Circular within its authority.

Article 24.

Credit institutions, foreign bank branches, and related individuals who violate the provisions of this Circular, in addition to being required to classify loans, make off-balance sheet commitments, set aside risk reserves, and utilize risk reserves for debts in accordance with the provisions of this Circular, will be subject to administrative penalties in the field of currency and banking activities based on the nature and severity of the violation.

Chapter IV

ARTICLE TRANSITION PROVISIONS

Article 25. Transitional provisions

1. Credit institutions that have been decided by the Governor of the State Bank of Vietnam on specific measures regarding loan classification, off-balance sheet commitments, provision setting and utilization for risk management before this Circular takes effect shall implement such decisions of the Governor of the State Bank of Vietnam.

2. Credit institutions and foreign bank branches approved by the State Bank of Vietnam to implement loan classification and off-balance sheet commitments using qualitative methods before this Circular takes effect shall continue to implement according to the approval documents issued by the State Bank of Vietnam.

Article 26. Implementation Provisions

1. This Circular shall take effect from October 1, 2021.

2. The following provisions shall cease to be effective from the date this Circular takes effect:

a) Circular No. 02/2013/TT-NHNN dated January 21, 2013, issued by the Governor of the State Bank of Vietnam, stipulating the classification of assets, levels of provisioning, methods for setting up risk provisions, and the use of provisions to manage risks in the operations of credit institutions and foreign bank branches.

b) Circular No. 09/2014/TT-NHNN dated March 18, 2014, issued by the Governor of the State Bank of Vietnam, amending and supplementing certain articles of Circular No. 02/2013/TT-NHNN dated January 21, 2013, issued by the Governor of the State Bank of Vietnam, concerning the classification of assets, levels of provisioning, methods for setting up risk provisions, and the use of provisions to manage risks in the operations of credit institutions and foreign bank branches.

Article 27. Implementation Organization

The Director of the Office, the Director of Banking Inspection and Supervision, Heads of Units under the State Bank of Vietnam, credit institutions, and foreign bank branches are responsible for organizing the implementation of this Circular./.