Circular No. 22/2023/TT-NHNN Amending and supplementing certain Articles of Circular No. 41/2016/TT-NHNN dated December 30, 2016 of the Governor of the State Bank of Vietnam on capital adequacy ratio for banks and foreign bank branches

CIRCULAR

Amending and supplementing certain Articles of Circular No. 41/2016/TT-NHNN dated December 30, 2016 issued by the Governor of the State Bank of Vietnam on capital adequacy ratios for banks 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, and the Law Amending and Supplementing Certain Provisions 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 Banking Inspection and Supervision;

The Governor of the State Bank of Vietnam issues this Circular to amend and supplement certain Articles of Circular No. 41/2016/TT-NHNN dated December 30, 2016 issued by the Governor of the State Bank of Vietnam on capital adequacy ratios for banks and foreign bank branches.

Article 1. Amending and supplementing certain Articles of Circular No. 41/2016/TT-NHNN

1. Amending and supplementing Clause 11 of Article 2 as follows:

"11. Mortgage loan for housing means a loan secured by real estate for individuals to purchase a house, including:

a) A mortgage loan for individuals to purchase a house that meets the following conditions:

i) The source of funds for debt repayment is not rental income from the property purchased with the loan; 

ii) The house has been completed and handed over according to the sales contract; 

iii) The bank or foreign bank branch has the lawful right to dispose of the mortgaged house when the customer fails to repay the debt in accordance with the laws on secured transactions and the laws on housing;

iv) The property formed from this mortgage loan must be independently appraised (by a third party or by an independent department within the bank or foreign bank branch separate from the credit approval department) with prudence (the value does not exceed the market price at the time of loan approval) in accordance with the regulations of the bank or foreign bank branch.

b) A loan to purchase social housing or houses under government support programs shall be determined in accordance with the laws on housing and shall meet the conditions set forth in points a(i), a(iii), and a(iv) of this clause."

2. Amending and supplementing Point c Clause 12 of Article 2 as follows:

"c) The bank or foreign bank branch has the right, pursuant to the credit facility agreement, to control all payments and disbursements according to the project progress, investment in machinery and equipment, purchase of goods, and management of income and cash flow from the operation and exploitation of the project, machinery, and equipment to recover the debt according to the credit facility agreement;"

3. Amending and supplementing Clause 15 of Article 2 as follows:

"15. Reverse Repo Transaction is a transaction in which one party purchases and receives the transfer of ownership of financial assets from another party, while committing to resell and transfer ownership of those financial assets after a specified period at a predetermined price, including term repurchase transactions of transferable instruments and other securities as prescribed by the State Bank regarding discounting activities of transferable instruments and other securities."

"3. In special administrative-economic zones without local government levels, the People's Committee of the special zone shall perform the responsibilities of the Standing Body of the People's Council at the commune level as stipulated in Clauses 1 and 2 of this Article."

"3. The balance value of claims (including principal balance; interest receivable, fees receivable if recorded as income in accordance with the law) of the bank or foreign bank branch shall be calculated using the formula:

 Ei = Eoni + Eoffi x CCFi

Where:

- Ei: The balance value determined based on the original cost of claim i;

- Eoni: On-balance sheet portion of the balance of claim i;

- Eoffi: Off-balance sheet committed portion of the balance of claim i;

- CCFi: Conversion factor of the off-balance sheet committed portion of claim i as stipulated in Article 10 of this Circular."

5. Amending and supplementing Clause 7 of Article 9 as follows:

"7. For assets that are claims against financial institutions (including credit institutions), the credit risk weight shall be applied as follows:

a) For foreign financial institutions (including foreign credit institutions) that are not international financial institutions as defined in Clause 20 of Article 2 of this Circular, the credit risk weight shall be applied according to the credit rating as follows:

b) For foreign bank branches operating in Vietnam, foreign bank branches operating in other countries, and Vietnamese bank branches operating abroad, the credit risk weight shall be applied according to the credit rating of the parent bank as a credit institution.

c) For assets that are claims against domestic credit institutions, excluding claims in the form of reverse repo transactions already subject to counterparty credit risk treatment as provided for in Clause 4 of Article 8 of this Circular, the credit risk weight shall be applied as follows:

d) Banks that are mandatory transferees and other credit institutions shall apply a credit risk weight of 0% for loans, guarantees, and deposits at the mandatory transferee bank according to the approved mandatory transfer plan."

6. Amending and supplementing Point b Clause 9 of Article 9 as follows:

"b) For other enterprises, the bank or foreign bank branch must determine the revenue indicator, leverage ratio, and equity capital based on the financial statements of the most recent year (consolidated financial statements audited) for enterprises required to have an independent audit; financial statements of the most recent year (audited, if available) or financial statements submitted to the tax authority (with evidence of submission to the tax authority) for enterprises not required to have an independent audit in accordance with the law as follows:

- Revenue is taken from the Statement of Financial Performance;

- Leverage Ratio = Total Debt / Total Assets;

Where: Total Debt (total debt) is determined by the sum of short-term borrowing and finance lease liabilities and long-term borrowing and finance lease liabilities according to the current accounting regulations.

- Equity Capital is taken from the Balance Sheet.

(i) The credit risk weight shall be applied according to the enterprise's revenue indicator, leverage ratio, and equity capital as follows:

(ii) A credit risk coefficient of 200% shall be applied to enterprises that do not provide financial statements to banks or foreign bank branches for calculating revenue indicators, leverage ratio, and equity capital.

(iii) For newly established enterprises (excluding cases of establishment due to restructuring, change in legal form, etc.), which have been operating for less than one year, the credit risk coefficient is 150%."

7. Amend and supplement Clause 10 of Article 9 as follows:

"10. For assets that are loans secured by real estate, the credit risk coefficient shall be applied as follows:

a) Banks and foreign bank branches must determine the Loan-to-Value Ratio (LTV) for claims secured by real estate as follows:

(i) The Loan-to-Value Ratio (LTV) = Total outstanding claim balance / Value of collateral asset. In which:

- The total outstanding claim balance (on-balance sheet principal balance and off-balance sheet commitments) includes the total outstanding balance of the claim and the outstanding balance of other claims secured by the same real estate at the bank or foreign bank branch;

- The value of the collateral asset is the value of the real estate securing the claims determined at the time of loan approval.

(ii) The value of the collateral asset shall be reassessed when the bank or foreign bank branch has information indicating that the value of the collateral asset has decreased by more than 30% compared to the value at the time of loan approval (for the first reassessment) or compared to the most recent reassessed value.

b) The credit risk coefficient applied to claims secured by non-operational real estate based on the Loan-to-Value Ratio (LTV) is as follows:

c) For claims secured by operational real estate, the credit risk coefficient is applied according to the Loan-to-Value Ratio (LTV) for claims secured by operational real estate as follows:

d) For claims secured by mixed real estate consisting of operational and non-operational real estate, the credit risk coefficient is determined separately for each operational and non-operational real estate according to the proportion of the total floor area of the real estate;

đ) A credit risk coefficient of 150% shall be applied to claims secured by real estate where the bank or foreign bank branch does not have information about the Loan-to-Value Ratio (LTV);

e) A credit risk coefficient of 200% shall be applied to assets that are specialized credit facilities provided in the form of project financing for real estate development. In the case of assets that are specialized credit facilities provided in the form of project financing for industrial real estate development, the credit risk coefficient is 160%."

8. Amend and supplement Point b of Clause 11 of Article 9 as follows:

"b) The credit risk coefficient applied to mortgage loans for housing based on the Loan-to-Value Ratio (LTV) and Debt Service Coverage Ratio (DSC) is as follows:

(i) For loans to purchase social housing or housing under government support programs:

(ii) For loans not covered by point b(i) of Clause 11 of this Article:

9. Supplement Clause 12a following Clause 12 of Article 9 as follows:

"12a. For claims that are individual loans for agricultural and rural development in accordance with the Government's credit policy for agricultural and rural development, the credit risk coefficient is 50%."

10. Amend and supplement Point e of Clause 3 of Article 11 as follows:

"e) In the case of combining two or more different credit risk mitigation measures for a claim or transaction, the bank or foreign bank branch must separate the transaction or claim portions according to each credit risk mitigation measure to calculate the outstanding balance of each portion of the claim or transaction separately in accordance with this Circular. If it is not possible to separate the transaction or claim portions according to each credit risk mitigation measure, the bank or foreign bank branch shall apply the measure with the highest risk reduction value."

11. Amend and supplement Clause 4 of Article 11 as follows:

"4. The adjusted outstanding balance of claims or transactions with credit risk mitigation is calculated using the following formula:

Ei* = max{0,[Ej - ∑Cj*(1-Hcj-Hfxcj)]} + max{0,[Ek - ∑Lk*(1-Hfxlk)]} + max{0,[El - ∑Gl (1-CRWgtorl/CRWl)]} + max{0,[En - ∑CDn*(1- Hfxcdn)]} + Ex

Where:

Ei = Ej + Ek + El + En + Ex

- Ei*: The adjusted outstanding balance of the i-th claim or transaction after applying credit risk mitigation measures;- Ei: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular;

- Ei - Ej: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular, adjusted for credit risk mitigation through collateral;

- - Ek: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular, adjusted for credit risk mitigation through netting of on-balance sheet positions;- El: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular, adjusted for credit risk mitigation through third-party guarantees;

- - En: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular, adjusted for credit risk mitigation through credit derivative products;- Ex: The outstanding balance of the i-th claim or transaction calculated in accordance with Article 8 of this Circular without adjustment for credit risk mitigation;

- - Cj*: The adjusted value of the collateral asset according to the term mismatch;- Hcj:

- En: The residual value of the receivable, transaction i calculated in accordance with Article 8 of this Circular shall be adjusted to mitigate credit risk by credit derivative products;

- Ex: The residual value of the receivable, transaction i calculated in accordance with Article 8 of this Circular shall not be adjusted to mitigate credit risk;

- Cj*: The collateral asset value is adjusted according to the term deviation;

- Hcj: Adjustment factor for collateral assets;

- Lk*: The on-balance sheet debt value adjusted for time lag;

- Gl: The third-party guarantee value;

- CRWgtorl: The credit risk weight of the guarantor;

- CRWl: The credit risk weight of the customer;

- CDn*: The value of credit derivative products adjusted for time lag;

- Hfxc, Hfxl, Hfxcd: The corresponding currency mismatch adjustment factors for receivables, transactions, and risk mitigation measures. The currency mismatch adjustment factor is zero (0) when the receivables, transactions, and risk mitigation measures are in the same currency.

12. Amend and supplement Article 12 as follows:

"Article 12. Risk Mitigation through Collateral Assets

1. Risk mitigation through collateral assets shall only apply to the following collateral assets:

a) Cash, negotiable instruments, and savings cards issued by credit institutions and foreign bank branches;

b) Gold (standard gold, physical gold, jewelry gold with value converted to 99.99 gold);

c) Negotiable instruments issued or guaranteed for payment by the Government of Vietnam, State Bank of Vietnam, People's Committees of provinces and centrally governed cities, policy banks;

d) Debt securities issued by governments or public organizations of governments rated from BB- upwards by independent credit rating agencies;

đ) Debt securities issued by enterprises rated from BBB- upwards by independent credit rating agencies;

e) Shares listed on the Vietnam Stock Exchange.

2. Collateral assets specified in Clause 1 of this Article must ensure the following:

a) Compliance with legal regulations on secured transactions;

b) Negotiable instruments, debt securities, and shares not issued or guaranteed for payment by the customer and/or their parent company, subsidiary, or associated company;

c) Collateral assets specified in Points đ and e of Clause 1 of this Article must have matching transactions within ten consecutive working days prior to the calculation date and be valued according to the daily market reference price (daily mark-to-market).

3. The adjustment factor for collateral assets (Hc) expressed as a percentage (%) is determined as follows:

a) Cash, savings cards, and negotiable instruments issued by the same bank or foreign bank branch, negotiable instruments issued or guaranteed for payment by the Government of Vietnam, State Bank of Vietnam, People's Committees of provinces and centrally governed cities, policy banks have an adjustment factor of 0;

b) Savings cards, negotiable instruments, securities, and gold have an adjustment factor as follows:

4. The value of collateral assets adjusted for time lag (C*) is calculated using the following formula:

C* = C x (t - 0.25) / (T - 0.25)

Where:

- C: The value of collateral assets;

- T: Determined as the minimum value of (5 years, remaining term of the transaction, receivable amount calculated annually);

- organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.: Determined as the minimum value of (T calculated annually, remaining term of the collateral asset calculated annually).

5. The currency mismatch adjustment factor between receivables, transactions, and collateral assets (Hfxc) is 8%.

13. Supplement Point d after Point c of Clause 2 of Article 14 as follows:

"d) International financial organizations."

14. Amend and supplement Article 17 as follows:

"Article 17. Provisions and procedures for determining market risk status to manage market risks

1. To determine the capital requirement for market risk, banks and foreign bank branches must have written provisions regarding the conditions and criteria for identifying items within the scope of trading accounts to calculate market risk statuses on trading accounts, ensuring separation from banking accounts. Banks and foreign bank branches must:

a) Distinguish transactions on trading accounts and banking accounts. Transaction data must be accurately, completely, and promptly recorded in the risk management database system and the accounting books of the bank or foreign bank branch;

b) Identify the business unit directly executing transactions;

c) Transactions on trading accounts and banking accounts must be reflected in the accounting books and must be reconciled with the transaction records of the business unit (transaction journal or other recording methods);

d) The internal audit department must regularly review and evaluate items on trading accounts and banking accounts.

2. Banks and foreign bank branches are only permitted to reclassify and transfer items from trading accounts to banking accounts when such items no longer meet the conditions and criteria stipulated in Clause 1 of this Article, and financial instruments may not be transferred from banking accounts to trading accounts.

3. Banks and foreign bank branches must have policies and procedures for determining risk status to calculate the capital requirement for market risk. Minimum policies and procedures include:

a) A proprietary trading strategy for each currency, financial instrument, derivative product, ensuring that there are no restrictions on buying or selling or the ability to hedge risks;

b) Market risk limits as prescribed by the State Bank of Vietnam concerning the internal control system of commercial banks and foreign bank branches; these limits must be reviewed and evaluated at least once a year or at times of significant changes affecting market risk status;

c) Risk management procedures must ensure:

(i) Market risk statuses are identified, measured, monitored, managed, and closely supervised;

(ii) A separate department to conduct proprietary trading transactions, where traders have autonomy to execute transactions within the limits and proprietary trading strategies; there must be a management and accounting department to track proprietary trading transactions and items on trading accounts;

(iii) Risk statuses and risk measurement results must be reported to authorized levels according to the bank's risk management regulations;

(iv) All financial positions on trading accounts must be measured and valued at market prices or market data at least once a day to determine profit or loss and market risk status;

(v) Input market data must be collected from appropriate sources and regularly reviewed for the suitability of input market data.

d) Regulations on the conditions and criteria for recording items on trading accounts and transferring items between trading accounts and banking accounts as prescribed by law;

đ) Methods for measuring market risk (fully describing assumptions and parameters used); market risk measurement methods must be reviewed and evaluated annually or when there are unusual changes affecting market risk status;

e) Procedures for monitoring risk statuses and compliance with market risk limits according to the bank's proprietary trading strategy.

4. The provisions and procedures stipulated in Clause 1 and Clause 3 of this Article must be approved, issued, amended, and supplemented by authorized levels of the bank or foreign bank branch at least once a year and subject to internal audit according to the State Bank of Vietnam's regulations on the internal control system of credit organizations and foreign bank branches.

5. Banks and foreign bank branches must submit the provisions in Clause 1 and Clause 3 of this Article to the State Bank of Vietnam (Bank Inspection and Supervision Department) for supervision before implementation. If necessary, the State Bank of Vietnam (Bank Inspection and Supervision Department) will provide written comments to the bank or foreign bank branch to amend and supplement these provisions and procedures.

15. Amend and supplement Clause 4 of Article 18 as follows:

"4. Capital requirement for foreign exchange risk  and stamped)_FXR) shall only apply in cases where the total net value of foreign exchange positions (including gold) of banks and foreign bank branches exceeds 2% of the bank's or foreign bank branch's own capital. The capital requirement for foreign exchange risk and the total net foreign exchange position including gold shall be calculated according to the guidelines set out in Appendix 4 attached to this Circular."

16. Amend and supplement Clause 1 of Article 21 as follows:

"1. Supervision, inspection, and auditing of banks and foreign bank branches in accordance with the law and the division of responsibilities assigned by the Governor of the State Bank of Vietnam in implementing this Circular."

17. Amend and supplement Clause 2 of Article 22 as follows:

"2. The State Bank of Vietnam provincial and municipal branches shall supervise, inspect, and audit banks and foreign bank branches within their jurisdiction in accordance with the law and the division of responsibilities assigned by the Governor of the State Bank of Vietnam in implementing this Circular."

Article 2. Replace Appendix 01, Appendix 02, Appendix 03, Appendix 04, and Appendix 06 of Circular No. 41/2016/TT-NHNN with Appendix 01, Appendix 02, Appendix 03, Appendix 04, and Appendix 06 issued together with this Circular.

This Circular takes effect from December 25, 2025/.

The Director of the Office, the Head of the Bank Inspection and Supervision Department, the Heads of units under the State Bank of Vietnam, banks, and foreign bank branches are responsible for organizing the implementation of this Circular.

Article 4. Effective date

This Circular takes effect from July 1, 2024./.