Circular No. 18/2022/TT-NHNN Amending and supplementing certain provisions of Circular No. 09/2015/TT-NHNN dated July 17, 2015, issued by the Governor of the State Bank of Vietnam on the activities of purchasing and selling debts by credit institutions and foreign bank branches

CIRCULAR

Amending and supplementing certain articles of Circular No. 09/2015/TT-NHNN dated July 17, 2015 issued by the Governor of the State Bank of Vietnam on the activities of buying and selling debts by credit institutions

and foreign bank branches

Vietnam regulates the activities of purchasing and selling debts by credit institutions,

foreign bank branches

Pursuant to the Civil Code dated November 24, 2015;

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 Decree No. 102/2022/NĐ-CP dated December 12, 2022 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of the Department of Credit for Economic Sectors;

The Governor of the State Bank of Vietnam issues this Circular amending and supplementing certain articles of Circular No. 09/2015/TT-NHNN dated July 17, 2015 issued by the Governor of the State Bank of Vietnam on the activities of buying and selling debts by credit institutions and foreign bank branches.

 Article 1. Amending and supplementing certain articles of Circular No. 09/2015/TT-NHNN dated July 17, 2015 issued by the Governor of the State Bank of Vietnam on the activities of buying and selling debts by credit institutions and foreign bank branches

1. Amend Clause 2 of Article 1 as follows:

"2. This Circular does not apply to the activities of buying and selling bad debts between credit institutions and the Asset Management Corporation of Credit Institutions of Vietnam (VAMC); activities of buying and selling debts arising from loan contracts between credit institutions and foreign bank branches."

2. Amend Clause 4 and supplement Clause 7a of Article 3 as follows:

"4. Debtor buyer includes:

a) Credit institutions and foreign bank branches approved by the State Bank of Vietnam (hereinafter referred to as the State Bank) to engage in debt purchasing activities;

b) Other organizations and individuals (including both resident and non-resident organizations and individuals)."

"7a. The book value of the debt being bought and sold: includes the book value of the principal balance, interest balance of the debt and other financial obligations related to the debt (if any) up to the time of buying and selling the debt which is being recorded internally."

3. Amend Clause 3, Clause 4, Clause 6, Clause 7 and supplement Clause 11, 12 of Article 5 as follows:

"3. Credit institutions and foreign bank branches approved by the State Bank to engage in debt purchasing activities must have a non-performing loan ratio below 3% according to the latest classification period under the regulations of the State Bank on asset classification, provisioning levels, provisioning methods for risk and the use of provisions to address risks in the operations of credit institutions and foreign bank branches before the date of requesting approval for debt purchasing activities, except for credit institutions under special control. Credit institutions and foreign bank branches selling debts do not need to seek permission from the State Bank.

Credit institutions and foreign bank branches may only purchase debts when they are approved to engage in debt purchasing activities in their business licenses and have a non-performing loan ratio below 3% according to the latest classification period under the regulations of the State Bank on asset classification, provisioning levels, provisioning methods for risk and the use of provisions to address risks in the operations of credit institutions and foreign bank branches before the date of signing the debt purchasing contract, except for the cases stipulated in Clause 12 of this Article.

4. Before implementing debt purchasing and selling activities as provided for in Clause 3 of this Article, credit institutions and foreign bank branches must issue internal regulations on debt purchasing and selling activities (which clearly specify the delegation of authority according to the principle of responsibility division between the appraisal stage and the decision-making stage for debt purchasing and selling; debt purchasing and selling methods, payment methods; debt purchasing and selling procedures; debt valuation procedures; risk management procedures for debt purchasing and selling activities)."

"6. Repurchasing the debt that has been sold:

a) The seller of the debt does not repurchase the debt that has been sold, except for the following cases:

(i) A credit institution repurchases the debt that has been sold to a credit institution under special control as stipulated in Point a, Clause 12 of this Article;

(ii) A credit institution supports the repurchase of the debt that has been sold to a credit institution under special control according to the recovery plan for the credit institution under special control that has been approved as stipulated in Clause 6, Article 148d of the Law on Credit Institutions;

(iii) A credit institution receives a mandatory transfer to repurchase the debt that has been sold to a commercial bank subject to mandatory transfer as stipulated in Point c, Clause 12 of this Article.

b) A credit institution implements the repurchase of the debt that has been sold as stipulated in Points a(ii), a(iii) of this clause according to the commitment to repurchase the debt at the restructuring plan that has been approved by the competent authority in the following cases:

(i) The repurchased debt is currently being used by the credit institution under special control as collateral for a special loan from the State Bank but is no longer classified as a standard loan according to the regulations of the State Bank and is replaced by another standard loan.

(ii) Upon maturity of the special loan repayment, the credit institution under special control does not have sufficient funds to repay the special loan to the State Bank according to the special loan repayment plan.

7. Credit institutions are not allowed to sell debts to subsidiaries of the same credit institution, except for the following cases:

a) Selling debts to a debt management and asset exploitation company according to a restructuring plan that has been approved by the competent authority;

b) A credit institution is the recipient of a mandatory transfer and sells standard loans to a commercial bank subject to mandatory transfer according to a mandatory transfer plan that has been approved."

"11. Credit institutions and foreign bank branches are not allowed to provide credit to customers to purchase debts owned by the same credit institutions and foreign bank branches.

12. Credit institutions do not need to meet the requirement of having a non-performing loan ratio below 3% when purchasing debts in the following cases:

a) A credit institution under special control purchases standard loans as stipulated in Clause 2, Article 146a of the Law on Credit Institutions;

b) A credit institution under special control purchases standard loans of a supporting credit institution according to the recovery plan for the credit institution under special control that has been approved as stipulated in Clause 1, Article 148b of the Law on Credit Institutions;

c) A commercial bank subject to mandatory transfer purchases standard loans of a credit institution receiving a mandatory transfer according to a mandatory transfer plan that has been approved by the competent authority;

d) The cases of purchasing debts specified in point a(ii), a(iii) of Clause 6 of this Article.

4. Amend Clause 1 of Article 7 as follows:

"1. Credit organizations, foreign bank branches that have the need to be approved for debt purchasing activities shall prepare one (1) set of documents in accordance with Article 6 of this Circular and submit them directly or through postal services to the headquarters of the State Bank of Vietnam (One-Stop Service Department)."

5. Amend Clause 2 of Article 10 as follows:

"2. Auction: The seller of debt signs a service contract for auctioning assets with an auction organization in accordance with the laws on auctioning assets."

6. Add Article 10a as follows:

"Article 10a. Purchase and sale of debts when the buyer of debt has not yet fully paid the purchase price

In the case where the buyer of debt and the seller of debt agree that the buyer of debt will be paid the purchase price (partially or entirely) after the buyer of debt has received the transfer of ownership of the debt from the seller of debt, the parties must ensure the following requirements:

1. The deadline for the buyer of debt to complete payment of the purchase and sale price to the seller of debt shall be a maximum of sixty (60) days, calculated from the date the purchase and sale contract becomes effective.

2. Except for the cases stipulated in Clause 4 of this Article, the amount that the buyer of debt has not fully paid to the seller of debt according to the purchase and sale contract must be guaranteed one hundred percent (100%) of the payment capacity by high liquidity assets, including:

a) Deposits, deposit certificates, bills of exchange, promissory notes denominated in Vietnamese Dong or foreign currency issued by credit organizations, foreign bank branches;

b) Gold bars in accordance with the laws on gold trading activities;

c) Government bonds, government-guaranteed bonds;

d) Corporate bonds rated at level AA- or higher (according to Standard & Poor's or Fitch Ratings) or at level Aa3 or higher (according to Moody's) and listed on the securities market;

đ) Shares listed on the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange (except: shares that are under warning, control, suspended, halted, or restricted trading according to the laws and rules of the Vietnam Stock Exchange at the time of signing the guarantee contract and shares with a daily trading volume below three hundred thousand (300,000) shares over ten consecutive trading days prior to the date of signing the guarantee contract).

3. The value of the assets used to guarantee the purchase price to be paid later as stipulated in Clause 2 of this Article shall be determined based on the principle of determining the value of collateral assets for risk provision deduction at the time of signing the guarantee contract.

4. In the case where a credit organization subject to special supervision, a commercial bank compulsorily purchased debt in accordance with point b, point c of Clause 12 of Article 5 of this Circular and uses the purchased debt as collateral for a special loan from the State Bank, the guarantee for the purchase price that the buyer of debt will pay later after receiving the transfer of ownership of the purchased debt from the seller of debt (if any) shall be agreed upon by the parties in compliance with the laws."

"7. Amend Article 11 as follows:"

"Article 11. Debt Purchase and Sale Council

Credit organizations, foreign bank branches must establish a Debt Purchase and Sale Council in accordance with the laws, charter, and internal regulations on debt purchase and sale activities. The composition, tasks, and powers shall be defined by the credit organizations, foreign bank branches."

8. Amend Article 12 as follows:

"Article 12. Valuation of Debts

Credit organizations, foreign bank branches purchasing and selling debts must conduct a valuation of the debts to determine the starting price for the case of purchasing and selling debts through public auction or the price for negotiating the purchase and sale of debts for the case of purchasing and selling debts through agreement. Credit organizations, foreign bank branches shall consider selecting the debt valuation method as follows:

1. Credit organizations, foreign bank branches may independently determine the debt price based on one or more of the following bases:

a) The book value of the debt, the interest payable by the debtor at the valuation date, classification of the debt group, collateral assets (if any), the financial condition of the borrowing customer, and other factors affecting the value of the debt (if any) at the valuation date;

b) The provisions and guidelines of the Ministry of Finance regarding debt appraisal standards.

2. Credit organizations, foreign bank branches have the right to hire a valuation enterprise to perform the valuation of the purchased and sold debts."

9. Amend Clause 1 of Article 14 as follows:

"1. From the moment the buyer of debt receives the transfer of ownership of the debt from the seller of debt according to the agreement in the purchase and sale contract, the buyer of debt becomes the person entitled to the rights and obligations related to the purchased debt."

10. Add Article 15a as follows:

"Article 15a. Management and monitoring in cases of selling part of a debt or selling a debt to multiple buyers

The management and monitoring in cases of selling part of a debt or selling a debt to multiple buyers as stipulated in Clause 9, Article 5 of this Circular shall be carried out according to the following principles:

1. In cases where the seller still owns a portion of the debt that has been sold, the seller must continue to act as the main contact for managing the debt's files, documents, security measures, and other related matters. For the unsold portion of the debt, the seller continues to manage, monitor, classify the debt, and establish risk provisions in accordance with the law.

In cases where the seller no longer owns the debt that has been sold and has received the full purchase price, the transfer of files, documents, security measures, and other related matters of the debt from the seller to the buyers shall be carried out according to the agreement of the buyers, in compliance with the law.

2. The rights, obligations of the parties and the handling of issues arising when the seller acts as the main contact for managing the debt's files, documents, security measures, and other related matters as stipulated in Clause 1 of this Article shall be implemented according to the agreement of the parties, in compliance with the law.

3. In cases of selling part of a debt or selling a debt to multiple buyers, the financial handling and other related matters concerning the purchased and sold portion of the debt by the buyer and seller shall be carried out as prescribed for the sale and purchase of debts and as stipulated in Clauses 1 and 2 of this Article.

11. Amend Point b, Clause 1 and supplement Clause 2a of Article 20 as follows:

"b) The classification of debts, establishment and use of reserves to address risks for the purchased debt amount, credit institutions, and foreign bank branches shall be carried out in accordance with the law."

"2a. For debts that have been sold but not yet fully recovered, the credit institution or foreign bank branch selling the debt shall classify the debt, establish and use reserves for risks in accordance with the law."

12. Amend Article 21 as follows:

Article 21. Financial treatment and accounting for purchased and sold debts

1. Credit institutions and foreign bank branches selling debts

a) For debts with principal currently recorded on the balance sheet

(i) Debt recovery shall be carried out according to the principle of recovering the principal first, then interest;

(ii) In cases where the selling price is higher than or equal to the book value of the sold debt:

After recovering the principal and interest of the sold debt, the difference (if any) between the selling price and the book value of the sold debt shall be recognized as income by the credit institution or foreign bank branch;

(iii) In cases where the selling price is lower than the book value of the sold debt, in addition to the proceeds from selling the debt, the credit institution or foreign bank branch selling the debt shall use compensation funds (in cases of loss due to subjective reasons and required to compensate under the financial regulations for credit institutions and foreign bank branches) and insurance funds (if any) to recover the debt. After using all the proceeds from selling the debt, compensation funds, and insurance funds mentioned above to recover the debt and still being short, the credit institution or foreign bank branch shall handle it as follows:

For unrecovered principal: The credit institution or foreign bank branch shall use the provision established in expenses, and if insufficient, the shortfall shall be covered by the financial reserve fund of the credit institution or foreign bank branch. If the financial reserve fund is insufficient to cover the shortfall, the shortfall shall be accounted for as other expenses in the period. After completing the financial treatment as mentioned above, the credit institution or foreign bank branch shall write off the unrecovered principal.

For unrecovered interest: If the interest currently recorded on the balance sheet has been recognized as income, the credit institution or foreign bank branch shall reduce income or account for it as an expense according to the financial regulations for credit institutions and foreign bank branches. If the interest currently recorded off-balance-sheet, the credit institution or foreign bank branch shall write off the interest of the sold debt;

b) For debts currently monitored off-balance-sheet

The credit institution or foreign bank branch shall write off the sold debt from the off-balance-sheet and recognize the selling price (based on the selling price) as income of the credit institution or foreign bank branch;

c) For debts already written off from the off-balance-sheet

The selling price of the debt shall be recognized as income of the credit institution or foreign bank branch.

2. Credit institutions and foreign bank branches purchasing debts

a) In cases where the purchase price is less than or equal to the outstanding principal of the purchased debt

The principal recovered according to the loan contract of the purchased debt, the credit institution or foreign bank branch purchasing the debt shall record it as recovery of the purchase price. If the purchase price has been fully recovered, the remaining principal (the difference between the outstanding principal of the purchased debt and the purchase price) shall be recognized as income.

The interest recovered according to the loan contract of the purchased debt, the credit institution or foreign bank branch purchasing the debt shall recognize it as income;

b) In cases where the purchase price is greater than the outstanding principal of the purchased debt

In the event that the full amount of purchased debt cannot be recovered, the credit institution or foreign bank branch shall handle the unrecovered amount in accordance with the financial regulations of the credit institution or foreign bank branch and relevant laws.

3. Accounting and bookkeeping in the activities of purchasing, selling debts; handling amounts arising from exchange rate differences when purchasing, selling, and recovering debts; handling asset losses, credit institutions or foreign bank branches shall implement in accordance with the financial regulations, accounting and bookkeeping rules of the credit institution or foreign bank branch and relevant laws.

4. Credit institutions or foreign bank branches selling debts must monitor and retain information on debts sold as specified in point a(iii) clause 1 and point b clause 1 of this Article to serve inspection and audit work upon request.

5. The buyer of debt who is not a credit institution or foreign bank branch shall handle financial matters and accounting for the purchased debt in accordance with the law.

Article 2. Replacing certain phrases, clauses, and articles of Circular No. 09/2015/TT-NHNN

1. Replace the phrase "has been removed from the balance sheet" in clause 2 and clause 7 of Article 3 with the phrase "has been removed from the off-balance sheet."

2. Replace the phrase "secured transaction" in the phrase "implementing registration of change of secured party according to the law on secured transactions" in clause 2 of Article 14 with the phrase "registration of security measures."

Article 3. Transitional Provisions

Contracts for buying and selling debts established before the effective date of this Circular, the buyer of debt, the seller of debt, and related parties may continue to perform according to the signed contract and the provisions of Circular No. 09/2015/TT-NHNN. In cases where the parties agree to amend or supplement the content of the contract for buying and selling debts, the amendment or supplementation of the contract for buying and selling debts must comply with the provisions of this Circular.

Article 4. Organization of Implementation

The Director of the Office, Heads of the Credit Department for Economic Sectors, Heads of units under the State Bank of Vietnam, credit institutions, and foreign bank branches are responsible for implementing this Circular.

Article 5. Implementation Provisions

This Circular takes effect from February 9, 2023.