Circular No. 14/2017/TT-NHNN on the method for calculating interest in deposit-taking and lending activities between credit institutions and customers

CIRCULAR

Regulations on the method of calculating interest in deposit-taking and lending activities between credit institutions and customers

between credit organizations and customers

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

At the proposal of the Head of the Financial and Accounting Department;

The Governor of the State Bank of Vietnam issues this Circular to regulate the method of calculating interest arising from deposit-taking and lending activities between credit institutions and customers.

Article 1. Scope of Regulation

This Circular stipulates the method of calculating interest arising from deposit-taking and lending activities between credit institutions, foreign bank branches and customers.

Article 2. Applicability

1. Credit institutions, foreign bank branches receiving deposits from customers, providing loans to customers (hereinafter referred to as credit institutions).

2. Customers depositing money, receiving loans from credit institutions (hereinafter referred to as customers).

Article 3. Explanation of Terms

1. Interest amount: is the amount of money that credit institutions must pay to deposit customers or loan customers must pay to credit institutions for the use of received funds.

2. Interest calculation period: is the entire agreed time between credit institutions and customers to calculate the interest amount of deposits, loans in accordance with this Circular.

3. Interest calculation cycle: is the period within the interest calculation period that credit institutions and customers agree to use to calculate the interest amount. The interest calculation cycle can be determined by hour, day, week, month, year according to the agreement between credit institutions and customers in compliance with the law.

Article 4. Principles of interest calculation

1. Interest rate: is converted at a percentage per annum (annual interest rate); one year is three hundred sixty-five days. The time used to convert the interest rate at a percentage per month, per week, per hour to the interest rate at a percentage per day; converting the interest rate at a percentage per day to the interest rate at a percentage per annum and vice versa is calculated as follows:

a) One year is three hundred sixty-five days;

b) One month is thirty days;

c) One week is seven days;

d) One day is twenty-four hours.

2. For deposits, loans with a term of one day or more: Credit institutions may agree with customers about the interest calculation period and the balance determination date for interest calculation according to one of the following two methods:

a) The interest calculation period is determined from the day following the disbursement date of the loan or the day following the receipt of the deposit to the last day of the repayment of the loan, deposit (excluding the first day, including the last day of the interest calculation period) and the balance determination date for interest calculation is the beginning of each day during the interest calculation period.

b) The interest calculation period is determined from the disbursement date of the loan or the receipt of the deposit to the day immediately preceding the last day of the repayment of the loan, deposit (including the first day, excluding the last day of the interest calculation period) and the balance determination date for interest calculation is the end of each day during the interest calculation period.

3. For deposits, loans where the interest calculation period from the receipt of the deposit or from the disbursement of the loan to the repayment of the deposit, loan is less than one day: Credit institutions agree with customers about the interest calculation period starting from the receipt of the deposit or the disbursement of the loan to the repayment of the deposit, loan, but not exceeding one day.

4. Credit institutions and customers may agree on the interest rate level, interest calculation method in compliance with the law on deposit-taking and lending and the provisions of this Circular.

Article 5. Transparency of Interest Rates

1. Method of Calculating Interest

a) Factors for Calculating Interest:

(i) Interest Calculation Period: Is determined according to point a, Clause 2, Article 4 of this Circular.

(ii) Actual Balance: Is the opening balance on the interest calculation date of deposit balances, overdue principal balances within the term, overdue principal balances beyond the term, and actual arrears balances that the deposit recipient, credit provider must pay to the depositor, credit recipient, as agreed upon and stipulated by laws on receiving deposits and providing credits.

(iii) Number of Days Maintaining Actual Balance: Is the number of days during which the actual balance at the beginning of each day remains unchanged.

(iv) Interest Rate for Calculating Interest: Is calculated based on the percentage per annum as prescribed in Clause 1, Article 4 of this Circular.

b) Formula for Calculating Interest:

The amount of interest for each interest calculation period is determined as follows:

- The daily interest amount is calculated as follows:

The total interest amount for the interest calculation period equals the sum of the daily interest amounts for all days within the period.

- For deposits and credits with an actual balance maintenance period exceeding one (01) day within the interest calculation period, the following simplified formula is used to calculate interest:

2. Transparency of Interest Rates

a) For Deposits and Credits with Agreements Established in Writing in the Form of Specific Agreements or Framework Agreements and Specific Agreements:

(i) The written agreement between the credit institution and the customer regarding receiving deposits and providing credits must include information on the method of calculating interest and the interest rate for calculating interest; if an adjustable interest rate is applied, the agreement must contain provisions on the principles and factors for determining the adjustable interest rate, and at the time of adjusting the interest rate, the credit institution must notify the customer in writing about the specific adjusted interest rate.

(ii) For deposits and credits with a term of one day or more and agreements on methods of calculating interest different from those prescribed in Clause 1 of this Article: In addition to complying with point a(i) of this clause, the credit institution must clearly state the annual interest rate corresponding to the method of calculating interest prescribed in Clause 1 of this Article in the written agreement on receiving deposits and providing credits; if an adjustable interest rate is applied, at the time of adjusting the interest rate, in the notification about the specific adjusted interest rate, the credit institution must clearly state the annual interest rate corresponding to the method of calculating interest prescribed in Clause 1 of this Article.

b) For Deposits and Credits Using Standard Contracts or General Terms and Conditions in Establishing Agreements on Receiving Deposits and Providing Credits:

(i) Credit institutions must comply with the transparency requirements for standard contracts or general terms and conditions as stipulated by laws on receiving deposits and providing credits. Additionally, credit institutions must publicly display information on the method of calculating interest at their headquarters and post it on their electronic information website (if available). Before conducting transactions, credit institutions must provide customers with complete information on the method of calculating interest and the interest rate for calculating interest; if an adjustable interest rate is applied, the provided information must also include the principles and factors for determining the adjustable interest rate, and at the time of adjusting the interest rate, the credit institution must notify the customer about the specific adjusted interest rate. Credit institutions must obtain confirmation from the customer that they have been provided with complete information as required by laws on receiving deposits and providing credits.

(ii) For deposits and credits with a term of one day or more and agreements on methods of calculating interest different from those prescribed in Clause 1 of this Article: In addition to complying with point b(i) of this clause, credit institutions must provide customers with the annual interest rate corresponding to the method of calculating interest prescribed in Clause 1 of this Article; if an adjustable interest rate is applied, at the time of adjusting the interest rate, the credit institution must notify the customer about the specific adjusted interest rate and the annual interest rate corresponding to the method of calculating interest prescribed in Clause 1 of this Article.

Article 6. Accounting Treatment

Credit institutions must comply with accounting regulations and other relevant laws when recording income and expenses related to interest.

Article 7. Responsibilities of State Bank Units

1. The Financial and Accounting Department shall be responsible for handling issues related to the implementation of this Circular.

2. Banking inspection agencies shall be responsible for inspecting and supervising the implementation of this Circular and dealing with violations within their authority.

Article 8. Transitional Provisions

1. Interest calculation on deposits and credit provision based on agreements between credit institutions and customers regarding interest calculation methods prior to the effective date of this Circular shall continue to be implemented according to the signed agreements in compliance with the laws at the time of signing; if credit institutions and customers agree to amend or supplement the interest calculation method, it must comply with the provisions of this Circular.

2. Interest calculation on deposits without an agreement between credit institutions and customers regarding interest calculation methods prior to the effective date of this Circular shall be carried out as follows:

a) For deposits without an agreed term: From the date this Circular becomes effective, credit institutions shall switch to calculating interest according to the provisions of this Circular and notify depositors.

b) For deposits with an agreed term: From the date this Circular becomes effective, credit institutions shall continue to calculate interest according to the existing method before the effective date of this Circular until the end of the deposit period; if credit institutions and customers agree to supplement the interest calculation method, it must comply with the provisions of this Circular.

Article 9. Implementation Organization

2. This Circular abolishes Circular No. 31/2016/TT-NHNN dated November 15, 2016 of the Governor of the State Bank of Vietnam amending and supplementing certain provisions of Circular No. 24/2015/TT-NHNN dated December 8, 2015 of the Governor of the State Bank of Vietnam on foreign currency loans by credit institutions and branches of foreign banks to resident borrowers./.

1. This Circular takes effect from February 26, 2018.

a) Decision No. 652/2001/QĐ-NHNN dated May 17, 2001 of the Governor of the State Bank on the issuance of regulations on the method of calculating and accounting for income and expenditure of the State Bank and credit institutions;

b) Decision No. 51/2006/QĐ-NHNN dated October 6, 2006 of the Governor of the State Bank on the cancellation of Article 4 of the regulations on the method of calculating and accounting for income and expenditure of the State Bank and credit institutions issued together with Decision No. 652/2001/QĐ-NHNN dated May 17, 2001 of the Governor of the State Bank;

c) Clause 2, Article 13 of Decision No. 1160/2004/QĐ-NHNN dated September 13, 2004 of the Governor of the State Bank on the issuance of the Savings Deposit Regulations.

3. The Director of the Office, Heads of the Financial and Accounting Department, Heads of Banking Inspection Agencies, Heads of relevant units under the State Bank, Governors of State Bank Branches in provinces and centrally-administered cities, Chairmen of Management Boards, Chairmen of Board Members, and General Directors (Directors) of credit institutions are responsible for organizing the implementation of this Circular./.