Circular No. 24/2013/TT-NHNN on the classification of assets and off-balance sheet commitments of the Vietnam Development Bank

 

CIRCULAR

Regulations on the classification of assets held and off-balance sheet commitments of the Vietnam Development Bank

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Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013, of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Pursuant to Decree No. 75/2011/NĐ-CP dated August 30, 2011 of the Government on state investment credit and export credit;

Article 1. Amending and supplementing certain Articles of Circular No. 07/2019/TT-NHNN

Pursuant to Decision No. 44/2007/QĐ-TTg dated March 30, 2007 of the Prime Minister on the issuance of financial management regulations for the Vietnam Development Bank;

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 issues this Circular on the classification of assets held and off-balance sheet commitments of the Vietnam Development Bank,

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular stipulates the classification of assets held (hereinafter referred to as Debts) and off-balance sheet commitments of the Vietnam Development Bank.

2. Debts subject to classification under this Circular include:

a) Investment development loans and export loans, except for the following items: (i) Debts from ODA loan sources; (ii) Debts received from predecessor organizations before the establishment of the Vietnam Development Bank; (iii) Debts where repayment sources are from central or local government budgets; (iv) Debts for power projects, resettlement projects, transmission lines as directed by the Government or guaranteed by the Government; (v) Debts for restructuring state-owned corporations and conglomerates as directed by the Government or guaranteed by the Government; (vi) Debts under agreements signed between the Government of Vietnam and other governments; (vii) Debts for infrastructure projects (highway projects) as directed by the Government or guaranteed by the Government.

b) Entrusted export loans;

c) Other loans;

d) Off-balance sheet commitments, except for those where the Government pays on behalf of the commitment.

3. Loan guarantees provided to commercial bank borrowers (hereinafter referred to as off-balance sheet commitments) must be classified according to this Circular for the purpose of managing and monitoring the quality of credit activities of the Vietnam Development Bank, except for guarantees provided to commercial bank borrowers pursuant to decisions of

Article 2. Interpretation of Terms

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

1. Credit risk in banking operations (hereinafter referred to as risk) is potential loss to the debts of the Vietnam Development Bank due to customers not fulfilling or being unable to fulfill part or all of their obligations as agreed.

2. A debt is the amount lent out or disbursed in installments as agreed upon for debts specified in Clause 2, Article 1 of this Circular.

3. Overdue debt is debt where a portion or all of the principal and/or interest has become overdue.

4. Restructured debt is debt that the Vietnam Development Bank has approved to adjust the repayment period and/or extend the debt for the customer when the customer is unable to repay the principal and/or interest as stipulated in the contract but the Vietnam Development Bank assesses that the customer can fully repay the principal and interest according to the restructured repayment schedule.

5. Non-performing debt is debt belonging to Groups 3, 4, and 5.

6. Non-performing debt ratio is the ratio of non-performing debt to total debt from Group 1 to Group 5.

7. Bad credit ratio is the ratio of total debt and off-balance sheet commitments from Group 3 to Group 5 to total debt and off-balance sheet commitments from Group 1 to Group 5.

8. Customer is an organization (including credit institutions, foreign bank branches), individual, or other subjects as prescribed by civil law having credit relations with the Vietnam Development Bank.

Article 3. Collection of customer data and information and information technology

The Vietnam Development Bank must implement measures and regularly collect information and data on customers to:

1. Monitor and assess the ability of customers to repay debts in order to manage risks and credit quality appropriately.

2. Implement loan classification and off-balance sheet commitments as prescribed in this Circular.

3. The Vietnam Development Bank must establish an information technology system that meets the requirements for managing customer data and information, risk management, and implementing loan classification and off-balance sheet commitments throughout the system.

Article 4. Internal regulations on credit granting and loan management

1. The Vietnam Development Bank must issue internal regulations on credit granting and loan management.

2. Minimum requirements for internal regulations on credit granting and loan management must be met, including:

a) Based on collected customer information and data;

b) Uniformly applied throughout the system as a basis for reviewing and granting credit and managing loans for specific customers;

c) Including credit policies for customers, which include provisions on credit granting conditions, credit limits, interest rates, documentation, procedures, review and approval processes for credit granting, and loan management;

d) Defining responsibilities and authorities of units and individuals in credit granting and credit quality management;

e) Specifying pre-, during-, and post-granting credit inspection and control procedures and contents;

f) Providing provisions on loan guarantees;

g) Including measures for debt recovery.

Article 5. Reporting on internal regulations on credit granting and loan management

Within ten days from the date of issuance, amendment, or supplementation of internal regulations on credit granting and loan management, the Vietnam Development Bank must directly submit or send via postal service to the State Bank of Vietnam (Supervisory Authority) and the Ministry of Finance the following documents:

1. A report on the issuance, amendment, or supplementation of internal regulations on credit granting and loan management, clearly stating the reasons and basis for implementation.

2. The internal regulations on credit granting and loan management issued, amended, or supplemented.

Article 6. Timing for Loan Classification and Off-Balance Sheet Commitments

1. At least once every quarter, within the first fifteen days of the first month of each quarter, the Vietnam Development Bank shall classify loans and off-balance sheet commitments up to the end of the last working day of the previous quarter according to the provisions of this Circular. For the final quarter of the accounting period, within the first fifteen working days of the last month, the Vietnam Development Bank shall classify loans and off-balance sheet commitments up to the end of the last working day of the second month of the final quarter of the accounting period.

2. In addition to the timing specified in Clause 1 of this Article, the Vietnam Development Bank shall classify loans and off-balance sheet commitments according to its internal regulations.

Chapter II

SPECIFIC PROVISIONS

Section 1

DEBT CLASSIFICATION AND OFF-BALANCE SHEET COMMITMENTS

Article 7. Methods and Principles of Classification

1. The Vietnam Development Bank shall classify loans and off-balance sheet commitments according to the provisions of Article 8 of this Circular.

2. The entire balance of a customer's debt and the value of their off-balance sheet commitments must be classified into the highest risk category among those in which any of the customer's loans or off-balance sheet commitments are classified.

3. For entrusted loans where the entrustee has not disbursed funds according to the entrustment agreement, the Vietnam Development Bank must classify these entrusted loans as loans granted to the entrustee.

Article 8. Classification of Debts and Off-Balance Sheet Commitments

1. The Vietnam Development Bank shall classify debts (excluding contingent liabilities) into five groups as follows:

a) Group 1 (Standard Debts) includes: (i) Debts within the due date and assessed to be fully recoverable both principal and interest on time; (ii) Overdue debts under 10 days and assessed to be fully recoverable both overdue principal and interest and remaining principal and interest on time; (iii) Debts classified into Group 1 according to Clause 2 of this Article.

b) Group 2 (Substandard Debts) includes: (i) Overdue debts from 10 to 90 days; (ii) First-time restructured debt repayment terms; (iii) Debts classified into Group 2 according to Clauses 2 and 3 of this Article.

c) Group 3 (Doubtful Debts) includes: (i) Overdue debts from 91 to 180 days; (ii) First-time restructured debt repayment terms overdue under 30 days according to the first restructuring repayment term; (iii) Second-time restructured debt repayment terms; (iv) Debts exempted or reduced interest due to customers' inability to pay full interest according to credit contracts; (v) Debts classified into Group 3 according to Clauses 2 and 3 of this Article.

d) Group 4 (Loss Debts) includes: (i) Overdue debts from 181 to 360 days; (ii) First-time restructured debt repayment terms overdue from 30 to under 90 days according to the first restructuring repayment term; (iii) Second-time restructured debt repayment terms overdue under 30 days according to the second restructuring repayment term; (iv) Debts classified into Group 4 according to Clauses 2 and 3 of this Article.

đ) Group 5 (Highly Doubtful Debts) includes: (i) Overdue debts over 360 days; (ii) First-time restructured debt repayment terms overdue from 90 days or more according to the first restructuring repayment term; (iii) Second-time restructured debt repayment terms overdue from 30 days or more according to the second restructuring repayment term; (iv) Third-time or subsequent restructured debt repayment terms, including those not yet overdue or already overdue; (v) Debts classified into Group 5 according to Clause 3 of this Article.

2. Debts shall be classified into lower risk groups in the following cases:

a) For overdue debts, the Vietnam Development Bank shall reclassify into lower risk groups (including Group 1) when meeting all of the following conditions: (i) Customers have fully repaid overdue principal and interest (including interest applied to overdue principal) and subsequent principal and interest installments for at least three months for medium and long-term debts, one month for short-term debts, starting from the day they began fully repaying overdue principal and interest; (ii) There are documents and records proving that customers have repaid their debts; (iii) The Vietnam Development Bank has sufficient information and documents to assess that customers have the ability to repay remaining principal and interest on time.

b) For restructured debt repayment terms, the Vietnam Development Bank shall reclassify into lower risk groups (including Group 1) when meeting all of the following conditions: (i) Customers have fully repaid principal and interest according to the restructured repayment terms for at least three months for medium and long-term debts, one month for short-term debts, starting from the day they began fully repaying according to the restructured terms; (ii) There are documents and records proving that customers have repaid their debts; (iii) The Vietnam Development Bank has sufficient information and documents to assess that customers have the ability to repay remaining principal and interest according to the restructured terms.

3. Debts shall be classified into higher risk groups in the following cases:

a) Unfavorable changes in the environment or business sector directly impacting customers' ability to repay debts (natural disasters, enemy attacks, war, economic environment).

b) Indicators of profitability, liquidity, debt-to-equity ratio, cash flow, and debt repayment capability of customers continuously decline or significantly fluctuate towards decline through three consecutive debt assessment and classification periods.

c) Customers fail to provide complete, timely, and truthful financial information as required by the Vietnam Development Bank to evaluate their debt repayment capability.

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 the Vietnam Development Bank assesses that customers have the ability to fulfill all obligations according to the commitment; (ii) Classify into Group 2 or higher if the Vietnam Development Bank assesses that customers lack the ability to fulfill obligations according to the commitment.

b) Classification of contingent liabilities according to off-balance sheet commitments: (i) The overdue date is calculated from the day the Vietnam Development Bank fulfills its obligation according to the commitment. (ii) Contingent liabilities according to off-balance sheet commitments are classified as follows: - Classify into Group 3 if overdue under 30 days; - Classify into Group 4 if overdue from 30 to under 90 days; - Classify into Group 5 if overdue from 90 days or more. In case contingent liabilities according to off-balance sheet commitments are classified into a lower risk group than the off-balance sheet commitment they are covering according to point (ii) of paragraph (a) of this clause, they must be transferred to the group that the off-balance sheet commitment was classified into according to point (ii) of paragraph (a) of this clause.

Section 2

MANAGEMENT OF DEBT CLASSIFICATION AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Management of Loan Classification and Off-Balance Sheet Commitments

1. The Vietnam Development Bank must have a department responsible for managing loan classification and off-balance sheet commitments (a department or equivalent) at its headquarters to oversee the implementation of loan classification and off-balance sheet commitments throughout the system.

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

a) To compile and report to the Management Board the results of loan classification and off-balance sheet commitments; to propose to the Management Board measures to manage non-performing loans and thoroughly recover debts;

b) To provide information and coordinate with functional units (departments or equivalents) at the headquarters in the development, submission to the General Director for approval by the Management Board of internal regulations on credit granting and management of loans by the Vietnam Development Bank for customers;

c) To perform other tasks as prescribed by the Vietnam Development Bank.

Section 3

REPORT

Article 10. Reporting

The Vietnam Development Bank shall report the results of loan classification and off-balance sheet commitments, the establishment and utilization of provisions to address risks according to the statistical reporting regulations applicable to credit institutions and foreign bank branches issued by the State Bank of Vietnam; quarterly reports to the Ministry of Finance and the Ministry of Planning and Investment on the results of loan classification and off-balance sheet commitments according to the annex attached to this Circular.

Chapter III

RESPONSIBILITIES OF STATE BANK OF VIETNAM UNITS AND VIOLATION HANDLING

Article 11. The Banking Inspection and Supervision Authority has the responsibility to:

1. Inspect and audit the implementation of loan classification and off-balance sheet commitments by the Vietnam Development Bank.

2. Inspect and audit the development and implementation of internal regulations on credit granting and loan management by the Vietnam Development Bank.

3. Handle violations of the Vietnam Development Bank according to Article 13 of this Circular.

Article 12. Forecasting and Statistics Department

The Forecasting and Statistics Department bases on the provisions of this Circular to develop and submit to the Governor of the State Bank of Vietnam for issuance of regulations on statistical reporting on loan classification and off-balance sheet commitments, provision establishment and utilization to address risks of the Vietnam Development Bank.

Article 13. Handling Violations

Any violation of the provisions of this Circular by the Vietnam Development Bank and related individuals, in addition to being required to classify loans and off-balance sheet commitments in accordance with the provisions of this Circular, will be subject to administrative penalties according to the nature and severity of the violation in the field of currency and banking activities.

Chapter IV

IMPLEMENTING PROVISIONS

Article 14. Effective Date

This Circular takes effect from January 15, 2014.

Article 15. Implementation Organization

The Chief of the Office, the Chief Inspector and Supervisor of Banks, Heads of Units under the State Bank of Vietnam, Governors of the State Bank of Vietnam Branches in provinces and centrally-administered cities, Chairman of the Management Board, and General Director of the Vietnam Development Bank are responsible for organizing the implementation of this Circular.