Circular No. 31/2024/TT-NHNN on the classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches.

CIRCULAR

Regulations on the classification of assets held in the operations of commercial banks, non-bank credit institutions and foreign bank branches., foreign bank branches

_________________

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Based on the Law on Credit Institutions dated January 18, 2024;

Decree No. 102/2022/NĐ-CP date 12 month 12(VND/kWh); 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 regulate the classification of assets held in the operations of commercial banks, non-bank credit institutions, and foreign bank branches. 

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular regulates the classification of assets held (hereinafter referred to as debts) in the operations of commercial banks, non-bank credit institutions, and foreign bank branches arising from the following activities:

a) Lending;

b) Financial leasing;

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

d) Factoring;

d) Credit provision in the form of issuing credit cards;

e) Paying on behalf of off-balance sheet commitments (including payments on behalf of customers' obligations in guarantee transactions, letter of credit transactions (excluding cases specified in point n of this Clause) and other payments 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 are not listed on the securities market or registered for trading on the Upcom system (hereinafter referred to as unlisted bonds), excluding purchases of unlisted bonds with entrusted funds where the entruster bears the risk;

h) Entrusted lending;

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

k) Buying and selling debts as prescribed by the State Bank of Vietnam (hereinafter referred to as the State Bank), except for the activity of buying bad debts of credit institutions, foreign bank branches from the Asset Management Corporation of Vietnam's credit institutions;

l) Reselling government bonds on the securities market in accordance with laws on the issuance, registration, custody, listing, and trading of government debt instruments on the securities market;

m) Purchasing certificate of deposits issued by other credit institutions, foreign bank branches;

n) Issuing deferred payment letters of credit with terms allowing the beneficiary to be paid immediately or before the due date of the letter of credit, and the refund of letters of credit through an agreement with the customer to pay using the bank's own funds from the date of refund to the beneficiary; negotiation of letters of credit payments;

o) Purchasing clean bills of exchange presented under letters of credit, except when commercial banks, foreign bank branches purchase clean bills of exchange under letters of credit issued by themselves.

2. Off-balance sheet commitments such as guarantees, letter of credit transactions (excluding cases specified in point n of Clause 1 of this Article), acceptance of payments, irrevocable loan commitments, and other commitments generating credit risks (hereinafter referred to as off-balance sheet commitments) must be classified according to this Circular to manage and monitor the quality of credit provision activities of commercial banks, non-bank credit institutions, and foreign bank branches.

3. For debts that have been provided for losses in accordance with the Government Decree on the level of provisions, methods of establishing provisions, and the use of provisions to handle risks in the operations of credit institutions, foreign bank branches, and cases where credit institutions allocate interest receivable write-offs (hereinafter referred to as the Decree on Establishing Provisions for Risk), commercial banks, non-bank credit institutions, and foreign bank branches shall manage and monitor them in accordance with the Decree on Establishing Provisions for Risk, without classifying debts according to this Circular.

4. Debts for which the Government or Prime Minister has regulations or decisions on the classification of assets held shall be implemented in accordance with those regulations or decisions of the Government or Prime Minister.

Article 2. Applicability

1. This Circular applies to commercial banks, non-bank credit institutions, and foreign bank branches (hereinafter referred to as banks, non-bank credit institutions).

2. Foreign bank branches may apply their parent banks' risk provisioning policies to classify debts, establish provisions, and use provisions to handle risks after being approved by the State Bank.

3. Conditions, documents, procedures, and formalities for approving foreign bank branches to apply their parent banks' risk provisioning policies shall be carried out in accordance with the Decree on Establishing Provisions for Risk.

4. For foreign bank branches that have been approved by the State Bank to apply their parent banks' risk provisioning policies, based on the results of inspections, audits, and supervision, if the State Bank assesses that the parent banks' risk provisioning policies do not adequately reflect the actual credit risk levels in banking operations in Vietnam, the State Bank has the right to require foreign bank branches to classify debts 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 the operations of banks, non-bank credit institutions (hereinafter referred to as risk) is the possibility of loss to the debts of banks, non-bank credit institutions due to customers being unable to repay part or all of their debts according to contracts or agreements (hereinafter referred to as agreements) with banks, non-bank credit institutions.

2. Debt is the amount of money that the bank or non-bank financial institution has deposited, paid, disbursed each time according to the agreement (in the case where each disbursement has a different final deadline for repayment period) or the amount of money that the bank or non-bank financial institution has disbursed according to the agreement (in the case of multiple disbursements but with the same final deadline for repayment period) for the outstanding debt of a customer.

3. Overdue Debt is the debt that the customer cannot repay on time either partially or entirely of the principal and/or interest according to the agreement with the bank or non-bank financial institution. For credit granted in the form of issuing a credit card, overdue debt is the debt that the customer uses the card and cannot repay the due obligation according to the agreement on issuing, using, and paying off the credit card with the bank or non-bank financial institution.

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

5. Non-Performing Loan (NPL) is the non-performing loan being recorded in the balance sheet (on-balance-sheet non-performing loan), including debts belonging to groups 3, 4, and 5.

6. Earnings before interest and tax to equity ratio is the ratio between non-performing loans and the total of debts from group 1 to group 5.

7. Ratio of Bad Credit 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 debts and off-balance-sheet commitments from group 1 to group 5.

8. Customer is an organization (including financial institutions, foreign bank branches), individual, other subjects as prescribed by civil law who have obligations or may generate obligations to repay and pay to the bank or non-bank financial institution according to the agreement.

9. Other Off-Balance-Sheet Commitments Generating Credit Risk are off-balance-sheet commitments such that if the bank or non-bank financial institution fulfills its obligations under the commitment to the customer, it will form assets specified in Clause 1 Article 1 of this Circular.

Article 4. Collection of Customer Data and Information Technology

1. The bank or non-bank financial institution shall take measures and regularly carry out the collection and exploitation of information and data about customers, including information from the National Credit Information Center of Vietnam (CIC), credit information companies as prescribed by law, for the purpose of:

a) Building, revising, and supplementing the internal credit rating system, internal regulations on granting credit, managing debt, risk management policies;

b) Monitoring and evaluating the financial situation and ability to repay of customers after ranking according to the internal credit rating system, taking appropriate risk management and credit quality management measures;

c) Implementing self-classification of debt and off-balance-sheet commitments as stipulated in this Circular and implementing the establishment and use of risk provisions as stipulated in the Decree on the establishment of risk provisions.

2. The bank or non-bank financial institution must build an information technology system throughout the system to meet the requirements of managing customer data and information, operating and managing the internal credit rating system, risk management, implementing debt classification, off-balance-sheet commitments, establishing and using risk provisions.

Article 5. Internal Credit Rating System

1. The internal credit rating system consists of:

a) Financial and non-financial indicators, processes for assessing the ability to repay and pay of customers based on qualitative and quantitative financial information, business conditions, management, reputation of customers, including customers who are restricted from receiving credit; information about related parties of customers who are restricted from receiving credit;

b) Methods for evaluating ratings for different groups of customers.

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

a) Based on data and information collected from all customers over at least one (1) consecutive year prior to the year of building the internal credit rating system;

b) At least once a year, the internal credit rating system must be reviewed and evaluated based on customer data and information collected in the year; the bank or non-bank financial institution must make revisions and supplements to the internal credit rating system (if necessary);

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

d) Approved for application by the Board of Directors, Board of Members (for commercial banks, non-bank financial institutions), General Director or Director (for foreign bank branches).

3. Commercial banks and foreign bank branches must build an internal credit rating system to rank customers periodically and when necessary, serving as a basis for reviewing credit grants, managing credit quality, and developing risk management policies suitable to the scope of operations, customer base, and actual conditions of commercial banks and foreign bank branches.

Non-bank financial institutions are not required to have an internal credit rating system. In cases where non-bank financial institutions establish an internal credit rating system, they must comply with the provisions of this Circular.

4. Within ten (10) days from the date of issuance, revision, or supplementation of the internal credit rating system, the bank or non-bank financial institution must directly send or through postal services or electronic means to the State Bank in accordance with 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 ranking customers;

(iii) Guidelines for using the internal credit rating system, including the classification and authorization process for collecting customer information and ranking customers;

b) In case of amendment or supplementation:

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

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

a) Banks and non-bank credit institutions shall report to the State Bank (the Inspection and Supervision Agency), except in cases provided for in point b of this Clause;

b) Branches of foreign banks that fall within the micro-prudential inspection and supervision scope of the State Bank branch at provincial and centrally-run city levels shall report to the State Bank branch at the respective provincial or centrally-run city level.

Article 6. Internal regulations on credit granting, debt management, and risk mitigation policies

1. Banks and non-bank credit institutions must issue internal regulations on credit granting, debt management, and risk mitigation policies in compliance with this Circular, the Decree on provisioning for risk, and other relevant laws and regulations.

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

a) Being based on customer information and data collected, and the results of customer credit rating under the internal credit rating system;

b) Being uniformly and consistently applied throughout the entire system, serving as a basis for assessing and approving credit granting and managing specific customers' debts;

c) Specifying credit policies for customers, including conditions for granting credit, credit limits, interest rates, documentation, procedures, processes for assessing and approving credit granting and managing debts;

d) Including provisions to ensure compliance with the State Bank's regulations on limits and ratios to ensure safety in banking and non-bank credit institution operations;

đ) Specifying responsibilities and authorities of units and individuals in assessing and approving credit granting, managing credit quality, and managing collateral assets;

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) Specifying valuation of collateral assets, including principles, periodicity, methods, processes, and responsibilities of each unit and individual involved in asset valuation according to the law to ensure the value of collateral assets aligns with market value when calculating specific amounts for provisioning for risk as stipulated in the Decree on provisioning for risk;

i) Specifies measures for debt recovery.

3. Minimum requirements for risk reserve policy include:

a) Complying with legal provisions on accounting systems, financial systems; reporting and statistical systems;

b) Having procedures for collecting customer information and data to ensure accurate classification of debts, off-balance sheet commitments, management of bad debts, management of bad credit balances, and full provisioning for risks as required;

c) Specifically detailing the classification of debts, off-balance sheet commitments, provisioning rates, methods of provisioning for risks, and the use of risk provisions in operations for each customer category periodically or ad hoc;

d) Specifying the authority and responsibility of units and individuals in classifying debts, off-balance sheet commitments, provisioning for risks, and using risk provisions in operations;

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

Article 7. Reporting on internal regulations on credit granting, debt management, and risk mitigation policies

1. Within 10 (ten) days from the date of issuance, amendment, or supplementation of internal regulations on credit granting, debt management, and risk mitigation policies as prescribed in Article 6 of this Circular, banks and non-bank credit institutions must directly submit or send via postal service or electronic means to the State Bank in accordance with Clause 2 of this Article the following documents:

a) In the case of new issuance: Internal regulations on credit granting, debt management, and risk mitigation policies;

b) In case of amendment or supplementation:

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

(ii) Amended or supplemented internal regulations on credit granting, debt management, and risk mitigation policies.

a) Banks and non-bank credit institutions shall report to the State Bank (the Inspection and Supervision Agency), except in cases provided for in point b of this Clause;

b) Branches of foreign banks that fall within the micro-prudential inspection and supervision scope of the State Bank branch at provincial and centrally-run city levels shall report to the State Bank branch at the respective provincial or centrally-run city level.

Article 8. Time and Procedure for Classifying Debts

1. At least once a month, within the first seven days of the month, banks and non-bank credit institutions shall base on the provisions of Clause 4, Article 1, Articles 9, 10, and 11 of this Circular to independently classify debts and off-balance sheet commitments up to the end of the last day of the preceding month according to their own debt classification results and off-balance sheet commitments, and submit these results to CIC.

In addition to the aforementioned classification time, banks and non-bank credit institutions may independently classify debts and off-balance sheet commitments in accordance with internal regulations.

2. Within three (3) days from the date of receipt of the independent debt classification results and off-balance sheet commitments of banks and non-bank credit institutions as stipulated in Clause 1 of this Article, CIC shall compile a list of customers in the highest risk category based on the self-classification of banks and non-bank credit institutions and provide it to them.

3. Within three (3) days from the date of receipt of the customer list provided by CIC as stipulated in Clause 2 of this Article, banks and non-bank credit institutions shall adjust the debt classification according to the debt classification of the customer list provided by CIC.

If the independent debt classification results and off-balance sheet commitments of customers as stipulated in Clause 1 of this Article are lower than the debt classification of the customer list provided by CIC, banks and non-bank credit institutions must adjust the debt classification results and off-balance sheet commitments according to the customer list provided by CIC.

4. Based on inspection, audit, supervision results, and related credit information, the State Bank has the right to require banks and non-bank credit institutions to re-evaluate and classify specific debts in accordance with the risk level of those debts.

Chapter II

SPECIFIC PROVISIONS

Section 1

DEBT CLASSIFICATION AND OFF-BALANCE SHEET COMMITMENTS

Article 9. Principles of Independent Classification

1. The entire outstanding balance and off-balance sheet commitments of a customer at a bank or non-bank credit institution must be classified into the same debt category and the highest risk category among all debt categories of the customer's debts and/or off-balance sheet commitments.

2. For syndicated loans, each participating credit institution, including foreign bank branches, must notify the bank or non-bank credit institution that is also a participant in the syndicated loan about the independent debt classification results as stipulated in Clause 1 of Article 8 of this Circular.

3. For entrusted credit facilities (excluding entrusted letter of credit issuance), for entrusted bond purchases that have not been fully disbursed according to the entrusted agreement, the entrusting bank or non-bank credit institution must classify the undisbursed entrusted amount as a loan to the entrusted party. The overdue period is determined from the date the entrusted party fails to disburse funds according to the agreed disbursement period in the entrusted agreement.

For entrusted letter of credit issuance, the entrusted party classifies the substitute payment under the entrusted agreement to the entrusting party, and the entrusting party classifies the substitute payment under the commitment in the letter of credit to the applicant as stipulated in Point b, Clause 4, Article 10 of this Circular, starting from the date the entrusted party pays to the beneficiary.

4. For sold debts (excluding debts used for risk provision) but not yet fully recovered, the selling bank or non-bank credit institution must classify the unrecovered amount according to the purchase and sale agreement as an unsold debt, specifically as follows:

The selling bank or non-bank credit institution classifies the unrecovered amount to the buyer based on the debt category that the debt was classified in at the most recent classification before the sale, and continues to classify the unrecovered amount according to the terms of the signed credit agreement with the customer whose debt was sold, in accordance with this Circular.

5. For transferred debts received by a transferring credit institution and required to be sold to a receiving credit institution according to a compulsory transfer plan approved by competent authorities but not yet fully recovered, the transferring credit institution must classify the unrecovered amount to the receiving credit institution according to Clause 4 of this Article, without applying the provisions of Point d (viii) Clause 1, Article 10 of this Circular, and does not need to adjust the debt category according to the customer list provided by CIC as stipulated in Clause 3, Article 8 of this Circular during the implementation of the compulsory transfer plan.

6. For purchased debts, at the time of purchasing the debt, the purchasing bank or non-bank credit institution must classify the paid purchase amount into a debt category with a risk level no lower than the debt category that the debt was classified in at the most recent classification before the purchase, and continue to classify the purchased debt amount as a debt at the same bank or non-bank credit institution according to this Circular.

7. For amounts purchased or entrusted to other organizations (including credit institutions and foreign bank branches) to purchase unlisted bonds, the bank or non-bank credit institution must classify the purchased bond amount as a loan to the bond issuer; if the corporate bond is secured, it must be classified as a secured loan to the bond issuer.

For amounts purchased or entrusted to other organizations to purchase unlisted bonds extended according to legal provisions, they must be classified as a loan with extended debt.

8. For discounting negotiable instruments and other securities:

a) In the form of a term purchase: Banks and non-bank credit institutions classify the discounting amount as a loan to the beneficiary;

b) In the form of a purchase with recourse: Banks and non-bank credit institutions classify the discounting amount as a loan to the beneficiary as follows:

Prior to the time when the bank or non-bank credit institution has the right to exercise the recourse claim under the discounting contract, the bank or non-bank credit institution shall classify the discount based on the performance of the debtor's obligation to repay and pay according to the agreement on the issuance of transferable instruments and securities, and information and data on the debtor's ability to repay.

From the time when the bank or non-bank credit institution has the right to exercise the recourse claim under the discounting contract, the bank or non-bank credit institution shall continue to classify the discount into a loan category with an appropriate level of risk based on the overdue period according to the agreement on the issuance of transferable instruments and securities, and the debtor's ability to repay.

9. For debts that violate the provisions set out at point c(iv) Clause 1 Article 10 of this Circular, upon discovery of the violation, the bank or non-bank credit institution must immediately issue a decision to recover the debt in accordance with the law.

For debts that must be recovered based on inspection and audit conclusions, administrative penalty decisions (hereinafter referred to as recovery based on inspection and audit conclusions), the bank or non-bank credit institution must issue a recovery decision based on the inspection and audit conclusions.

For debts that violate the provisions set out at point c(iv) Clause 1 Article 10 of this Circular, for debts that must be recovered based on inspection and audit conclusions, the bank or non-bank credit institution shall not restructure the repayment term and during the period before recovery according to the recovery decision, the bank or non-bank credit institution shall classify the debt in accordance with the provisions of this Circular.

10. For debts arising from factoring activities:

a) For buyer factoring without a commitment to refund: The bank or non-bank credit institution shall classify the factoring amount as a loan to the buyer based on the buyer's performance of the obligation to repay and pay according to the factoring contract;

b) For seller factoring with a commitment to refund: The bank or non-bank credit institution shall classify the factoring amount as a loan to the seller based on the seller's performance of the obligation to repay and pay according to the factoring contract.

11. For the sale and repurchase of government bonds, the bank or non-bank credit institution shall classify the amount paid to purchase as a loan to the seller in the purchase transaction (first transaction) in accordance with the provisions of 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 the amount purchased of deposit certificates issued by other credit institutions or foreign bank branches, the bank or non-bank credit institution shall classify the purchase amount as a loan to the issuing credit institution or foreign bank branch.

13. For debts arising from documentary credit business:

a) For the issuance of documentary credits:

(i) In the case of immediate payment or deferred payment documentary credits (except for the cases provided for in point a(ii) of this Clause), the issuing bank shall classify the payment made on behalf of the applicant according to the commitment in the documentary credit in accordance with point b Clause 4 Article 10 of this Circular, starting from the date the issuing bank pays the beneficiary;

(ii) In the case of deferred payment documentary credits with a provision allowing the beneficiary to be paid immediately or before the due date of the documentary credit, the issuing bank shall classify the debt arising from the documentary credit business as a loan to the applicant, starting from the date the issuing bank makes the payment to the beneficiary;

b) For confirmation of documentary credits:

The confirming bank shall classify the payment made on behalf of the applicant according to the commitment in the documentary credit in accordance with point b Clause 4 Article 10 of this Circular, starting from the date the confirming bank pays the beneficiary;

c) For negotiation of documentary credits:

The negotiating bank shall classify the debt arising from the documentary credit business to the beneficiary as a discount of transferable instruments and other securities as stipulated in Clause 8 of this Article;

d) For reimbursement of documentary credits:

(i) In the case of reimbursement of documentary credits through the issuance of a reimbursement undertaking, the reimbursing bank shall classify the payment made on behalf of the issuing bank according to the commitment in the documentary credit in accordance with point b Clause 4 Article 10 of this Circular, starting from the date the reimbursing bank pays the beneficiary;

(ii) In the case of reimbursement of documentary credits through an agreement with the customer to pay using the funds of the reimbursing bank (except for the cases provided for in point d(i) of this Clause), the reimbursing bank shall classify the debt arising from the documentary credit business as a loan to the issuing bank, starting from the date the reimbursing bank pays the beneficiary;

đ) For the amount purchased outright and free of recourse against the presented documents under the documentary credit, the bank or non-bank credit institution shall classify the purchase amount as a loan to the issuing bank or confirming bank.

14. For loans and deposits of supporting credit institutions at credit institutions under special control as provided for in Clause 9 Article 174 of the Law on Credit Institutions, the supporting credit institution shall be classified into the standard loan category and shall not adjust the loan category according to the list of customers provided by CIC as stipulated in Clause 3 Article 8 of this Circular (if applicable).

15. For loans, guarantees, deposits of credit institutions receiving mandatory transfer and other credit institutions at commercial banks subject to mandatory transfer as provided for in Clause 2, Article 182 of the Law on Credit Institutions, the credit institution receiving the mandatory transfer and other credit institutions shall be classified into the standard debt category and shall not adjust the debt category according to the customer list provided by CIC as stipulated in Clause 3, Article 8 of this Circular (if applicable) during the implementation period of the mandatory transfer plan.

16. For overdue debts that have been restructured with respect to repayment terms, the number of times the repayment term has been restructured is the total number of times the restructuring of the repayment term has been carried out for each debt, from the time the debt arises until the customer completes all obligations to repay the debt and pays the bank or non-bank credit institution.

Article 10. Classification of Debts and Off-Balance Sheet Commitments Using Quantitative Methods

1. Banks and non-bank credit institutions shall classify debts (excluding substitute payments under off-balance sheet commitments) into five categories as follows:

a) Group 1 (Standard Debts) includes:

(i) Debts within their due date and assessed as having the ability to fully recover both principal and interest on time;

(ii) Overdue debts up to 10 days and assessed as having the ability to fully recover overdue principal and interest and to fully recover remaining principal and interest on time;

(iii) Debts classified into Category 1 as provided for in Clause 2 of this Article;

b) Group 2 (Debts of Concern) includes:

(i) Debts overdue up to 90 days, except for debts specified in point a(ii) of this Clause and Clause 3 of this Article;

(ii) Debts whose repayment term was initially extended and remain within their due date, except for debts specified in point b of Clause 2 and Clause 3 of this Article;

(iii) Debts classified into Category 2 as provided for in Clause 2 and Clause 3 of this Article;

c) Group 3 (Substandard Debts) includes:

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

(ii) Debts initially extended and remain within their due date, except for debts 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 fully pay interest as agreed, except for debts specified in Clause 3 of this Article;

(iv) Debts falling into any of the following cases that have not been recovered within 30 days from the date the bank or non-bank credit institution signs a debt recovery document (hereinafter referred to as the debt recovery decision date):

- Debts violating provisions of Clauses 1, 3, 4, 5, and 6 of Article 134 of the Law on Credit Institutions;

- Debts violating provisions of Clauses 1, 2, 3, and 4 of Article 135 of the Law on Credit Institutions;

- Debts violating provisions of Clauses 1, 2, 5, and 9 of Article 136 of the Law on Credit Institutions;

(v) Debts within the recovery period as concluded in audit and inspection reports;

(vi) Debts that must be recovered according to the early debt recovery decision of the bank or non-bank credit institution due to the borrower's breach of agreement with the bank or non-bank credit institution, which have not been recovered within 30 days from the decision date;

(vii) Debts classified into Category 3 as provided for in Clause 2 and Clause 3 of this Article;

(viii) Debts that must be classified into Category 3 as provided for in Clause 4 of Article 8 of this Circular;

d) Group 4 (Doubtful Debts) includes:

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

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

(iii) Debts secondly restructured with respect to repayment terms and still within their due date, except for debts specified in point b of Clause 2 and Clause 3 of this Article;

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

(v) Debts that must be recovered according to audit and inspection conclusions but have not been recovered within 60 days beyond the recovery deadline set forth in the audit and inspection conclusions;

(vi) Debts that must be recovered according to the early debt recovery decision of the bank or non-bank credit institution due to the borrower's breach of agreement with the bank or non-bank credit institution, which have not been recovered within 30 to 60 days from the decision date;

(vii) Debts classified into Category 4 as provided for in Clause 2 and Clause 3 of this Article;

(viii) Debts that must be classified into Category 4 as provided for in Clause 4 of Article 8 of this Circular;

đ) Group 5 (Loss Probable Debts) includes:

(i) Debts overdue over 360 days;

(ii) Debts initially restructured with respect to repayment terms and overdue 91 days or more according to the first restructured repayment term;

(iii) Debts secondly restructured with respect to repayment terms and overdue according to the second restructured repayment term;

(iv) Debts thirdly or more restructured with respect to repayment terms, except for debts specified in point b of Clause 2 of this Article;

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

(vi) Debts that must be recovered according to audit and inspection conclusions but have not been recovered over 60 days beyond the recovery deadline set forth in the audit and inspection conclusions;

(vii) Debts that must be recovered according to the early debt recovery decision of the bank or non-bank credit institution due to the borrower's breach of agreement with the bank or non-bank credit institution, which have not been recovered over 60 days from the decision date;

(viii) Debts of borrowers who are credit institutions currently under special supervision, or branches of foreign banks currently frozen in capital and assets;

(ix) Debts classified into Category 5 as provided for in Clause 3 of this Article;

(x) Debts that must be classified into Category 5 as provided for in Clause 4 of Article 8 of this Circular.

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

a) For overdue debts, banks and non-bank credit institutions shall reclassify them into lower risk categories (including Category 1) when they meet the following conditions:

(i) The borrower has fully repaid the overdue principal and interest (including interest applied to overdue principal) and the principal and interest of subsequent repayment periods (if any) 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) The bank or non-bank credit institution has sufficient information and documents to assess that the customer has the ability to repay the principal and remaining interest fully and on time.

b) For restructured debt, the bank or non-bank credit institution shall reclassify it into a lower risk category (including Category 1) if it meets all of the following conditions:

(i) The customer has repaid the principal and interest according to the restructured repayment schedule (if applicable) for at least three (3) months for medium-term and long-term debts, and one (1) month for short-term debts, starting from the date the customer began repaying the principal or interest according to the restructured schedule; in cases where the principal and interest have the same repayment period, the assessment starts from the date the customer began repaying the full principal and interest.

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

(iii) The bank or non-bank credit institution has sufficient information and documents to assess that the customer has the ability to repay the principal and remaining interest fully and on time according to the restructured schedule.

c) For debt that has been exempted or reduced in interest according to the State Bank's regulations on restructuring the repayment period, exempting or reducing interest and fees, and maintaining the original risk category to support customers affected by the COVID-19 pandemic, the bank or non-bank credit institution shall reclassify it into a lower risk category (including Category 1) if it meets all of the following conditions:

(i) The customer has repaid the principal and interest for at least three (3) months for medium-term and long-term debts, and one (1) month for short-term debts, starting from the date the customer began repaying the full principal or interest of the most recent repayment period after the exemption or reduction in interest ceased; in cases where the principal and interest have the same repayment period, the assessment starts from the date the customer began repaying the full principal and interest of the most recent repayment period after the exemption or reduction in interest ceased.

(ii) There are documents and records proving the customer's repayment; (iii) The bank or non-bank credit institution has sufficient information and documents to assess that the customer has the ability to repay the principal and remaining interest fully and on time.

3. Debt shall be classified into a higher risk category in the following cases:

a) Indicators of profitability, liquidity, debt-to-equity ratio, and cash flow leading to the customer's ability to repay debt continuously decline over three consecutive assessments or classifications.

b) The customer fails to provide complete, timely, and truthful information as required by the bank or non-bank credit institution for assessing the customer's ability to repay debt.

c) Debt has been classified into Categories 2, 3, or 4 under the provisions of point a, b of this Clause for one (1) year or more but does not meet the conditions to be reclassified into a lower risk category.

d) Debt where the lending behavior has been administratively sanctioned according to 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 Category 1 if the bank or non-bank credit institution assesses that the customer has the ability to fulfill all obligations under the commitment.

(ii) Classify into Category 2 or higher if the bank or non-bank credit institution assesses that the customer lacks the ability to fulfill the obligations under the commitment.

(iii) Classify into Category 3 or higher for off-balance-sheet commitments falling within any of the circumstances specified in point c(iv) of Article 1 of this Decree.

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

(i) The overdue date is calculated from the day the bank or non-bank credit institution fulfills its obligation under the commitment.

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

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

- Classify into Category 4 if overdue for thirty (30) days up to less than ninety (90) days;

- Classify into Category 5 if overdue for ninety (90) days or more.

In case the substitute payment is classified into a lower risk category than the off-balance-sheet commitment it replaces according to points a(ii) and a(iii) of this Clause, it must be transferred to the category of the off-balance-sheet commitment.

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

1. Commercial banks and non-bank credit institutions shall classify debts and off-balance-sheet commitments according to the provisions of this Clause after being approved by the State Bank. Commercial banks and non-bank credit institutions classify debts and off-balance-sheet commitments into five groups as follows:

a) Group 1 (Standard Debts) includes:

Debts that commercial banks and non-bank credit institutions assess as having full recoverability of both principal and interest within the due period.

Off-balance-sheet commitments that commercial banks and non-bank credit institutions assess as customers having full ability to fulfill their obligations under the commitment.

b) Group 2 (Debts of Concern) includes:

Debts that commercial banks and non-bank credit institutions assess as having full recoverability of both principal and interest but show signs of reduced ability to repay.

Off-balance-sheet commitments that commercial banks and non-bank credit institutions assess as customers having ability to fulfill their obligations under the commitment but showing signs of reduced ability to fulfill the commitment.

c) Group 3 (Substandard Debts) includes:

Debts that commercial banks and non-bank credit institutions assess as not having the ability to recover principal and interest when due. These debts are assessed as potentially loss-making.

Off-balance-sheet commitments that commercial banks and non-bank credit institutions assess as customers not having the ability to fully fulfill 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 commercial banks and non-bank credit institutions 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 commercial banks and non-bank credit institutions assess as unrecoverable with potential for capital loss.

Off-balance-sheet commitments where customers no longer have the ability to fulfill their commitment obligations.

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

2. Commercial banks and non-bank credit institutions implementing debt classification and off-balance-sheet commitment classification according to the provisions of Clause 1 of this Article must meet the following requirements:

a) Having an internal credit rating system appropriate to 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, a 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, issuing, and supervising the implementation of the internal credit rating system, risk reserve policy of the bank, non-bank credit institution, and the independence of risk management units.

3. Commercial banks and non-bank credit institutions 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 according to Clause 1 of this Article, including the following documents:

a) A document from the commercial bank, non-bank credit institution 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 stipulated in Clause 2 of this Article.

b) Copies of the internal credit rating system, risk reserve policy, credit risk management policy, and draft guidance documents on implementing debt classification, off-balance-sheet commitment classification, and establishing risk reserves of the commercial bank, non-bank credit institution, and documents proving compliance with the conditions stipulated in Clause 2 of this Article.

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

6. Commercial banks and non-bank credit institutions approved to implement debt classification and off-balance-sheet commitment classification according to the provisions of Clause 1 of this Article must implement as follows:

a) For a minimum period of three years from the date of State Bank approval, commercial banks and non-bank credit institutions simultaneously implement debt and off-balance-sheet commitment classification according to the provisions of Clause 1 of this Article and Article 10 of this Circular. If 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 higher risk group.

During this period, commercial banks and non-bank credit institutions review and supplement the internal credit rating system, risk reserve policy, and credit risk management policy (if necessary) to comply with the principle prescribed in point b(ii) of this Clause.

b) For the two-year period following the period specified in point a of this Clause, commercial banks and non-bank credit institutions must implement as follows:

(i) Simultaneously implement debt and off-balance-sheet commitment classification according to the provisions of Clause 1 of this Article and Article 10 of this Circular.

(ii) Ensure the principle that the total amount of specific provisions determined each fiscal year based on the classification results according to Clause 1 of this Article is not lower than the total amount of specific provisions determined based on the classification results according to Article 10 of this Circular.

(iii) In each fiscal year, if commercial banks and non-bank financial institutions ensure the principle stipulated in point b(ii) of this Clause, they shall use the results of loan classification as prescribed in Clause 1 of this Article to implement risk reserve provisioning in accordance with the Decree on risk reserve provisioning.

c) After the period specified in points a and b of this Clause and ensuring the principle stipulated in point b(ii) of this Clause, commercial banks and non-bank financial institutions shall apply the loan classification and off-balance sheet commitment methods as prescribed in Clause 1 of this Article, except for cases prescribed in Clause 7 and Clause 8 of this Article.

If, after the period specified in point a of this Clause, commercial banks and non-bank financial institutions fail to ensure the principle stipulated in point b(ii) of this Clause, they must implement the quantitative method as prescribed in Article 10 of this Circular.

d) During the periods specified in points a and b of this Clause, commercial banks and non-bank financial institutions shall submit annual reports to the State Bank on their implementation of the provisions in points a and b of this Clause.

7. For commercial banks and non-bank financial institutions that have been applying the loan classification and off-balance sheet commitment methods prescribed in Clause 1 of this Article as stipulated in point c of Clause 6 of this Article, in case of modifying or supplementing the internal credit rating system, risk reserve policy, and credit risk management policy, such entities must report to the State Bank about the modifications or supplements to the internal credit rating system, risk reserve policy, and credit risk management policy, including an assessment of whether the total amount of specific risk reserves determined based on the loan classification results as prescribed in Clause 1 of this Article after modification or supplementation is not lower than the total amount of specific risk reserves determined based on the loan classification results as prescribed in Article 10 of this Circular for the first fiscal year starting from the application of the modified or supplemented internal credit rating system, risk reserve policy, and credit risk management policy. If the commercial bank or non-bank financial institution assesses that it does not meet this principle, it must implement the quantitative method as prescribed in Article 10 of this Circular.

8. Based on the results of inspections, audits, and supervision, if the State Bank assesses that the qualitative method prescribed in Clause 1 of this Article does not adequately reflect the actual level of credit risk in the operations of commercial banks and non-bank financial institutions, the State Bank has the right to require such entities to implement the quantitative method as prescribed in Article 10 of this Circular.

Section 2

MANAGEMENT OF LOANS, OFF-BALANCE SHEET COMMITMENTS, PROVISIONING AND USE OF RISK RESERVES

Article 12. Management of loans, off-balance sheet commitments, provisioning and use of risk reserves

1. Commercial banks and non-bank financial institutions must have a loan and off-balance sheet commitment management department (branch, division, or equivalent) at the headquarters of commercial banks and non-bank financial institutions, and foreign bank branches to manage the implementation of loan classification, off-balance sheet commitments, provisioning, and use of risk reserves throughout the system in accordance with the law.

2. Responsibilities of the loan and off-balance sheet commitment management department:

a) Develop and submit to the General Director (Director) for approval by the Board of Directors, Board of Members (for commercial banks and non-bank financial institutions) or submit to the General Director (Director) (for foreign bank branches) for approval and implementation:

(i) Internal credit rating system, supplementary, and revised internal credit rating system;

(ii) Risk reserve policy, revised and supplemented risk reserve policy;

b) Develop and submit to the General Director (Director) for issuance regulations on managing and operating the internal credit rating system, collecting and supplementing customer data and information;

c) Manage and operate the internal credit rating system;

d) Manage the implementation of loan classification, off-balance sheet commitments, provisioning, and use of risk reserves throughout the system;

đ) Summarize, report, and propose to the Risk Management Committee for decision-making on matters within its authority as prescribed in the Decree on risk reserve provisioning;

e) Manage and monitor units and individuals in implementing the provisions in point đ of Clause 3 of Article 6 of this Circular;

g) Provide information and coordinate with functional units at the headquarters in developing and submitting to the General Director (Director) for approval by the Board of Directors, Board of Members (for commercial banks and non-bank financial institutions) or submission to the General Director (Director) (for foreign bank branches) for issuance or revision and supplementation of internal regulations on credit granting and loan management of commercial banks and non-bank financial institutions;

h) Perform other tasks as prescribed in the internal regulations of commercial banks and non-bank financial institutions.

Article 13. Reporting

1. Commercial banks and non-bank financial institutions must report the results of loan classification, off-balance sheet commitments, provisioning, and use of risk reserves for risk resolution in accordance with the reporting and statistical system applicable to credit institutions and foreign bank branches as issued by the State Bank.

2. Commercial banks and non-bank financial institutions are responsible for providing the Credit Information Center with information on credit activities as prescribed by the State Bank and as stipulated in this Circular.

3. Annually, commercial banks and non-bank financial institutions must report to the Shareholders' Meeting (for joint-stock credit institutions), the owner (for single-member limited liability credit institutions), shareholders (for multi-member limited liability credit institutions), and the parent bank (for foreign bank branches) on the results of loan classification, off-balance sheet commitments, risk reserve provisioning, and the results of using risk reserves for risk resolution.

Chapter III

RESPONSIBILITIES OF THE STATE BANK

Article 14. Responsibilities of the State Bank of Vietnam

a) Receiving internal regulations on credit granting, debt management, and risk prevention policies of banks and non-bank financial institutions as stipulated in Articles 6 and 7 of this Circular for micro-prudential supervision work, inspection, and audit;

b) Inspecting, supervising, auditing, and handling violations in the implementation of loan classification, off-balance sheet commitments, and risk reserve provisioning and utilization of banks and non-bank financial institutions within their authority and in accordance with the law;

c) Processing applications from foreign bank branches to apply foreign bank risk reserve policies and applications from banks and non-bank financial institutions to implement loan classification and off-balance sheet commitments using qualitative methods.

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 be responsible for compiling and providing lists of customers with the highest risk levels to banks and non-bank financial institutions according to Clause 2 of Article 8 of this Circular.

a) Receiving internal regulations on credit granting, debt management, and risk prevention policies of banks and non-bank financial institutions as stipulated in Articles 6 and 7 of this Circular for micro-prudential supervision work, inspection, and audit;

b) Inspecting, supervising, auditing, and handling violations in the implementation of loan classification, off-balance sheet commitments, and risk reserve provisioning and utilization of banks and non-bank financial institutions within their jurisdiction and in accordance with the law.

Chapter IV

IMPLEMENTING PROVISIONS

Article 15. Transitional Provisions

1. Foreign bank branches that have been approved by the State Bank of Vietnam to apply foreign bank risk reserve policies before the effective date of this Circular shall continue to implement loan classification according to the approved foreign bank risk reserve policy, except as provided in Clause 4 of Article 2 of this Circular.

2. Banks and non-bank financial institutions that have been approved by the State Bank of Vietnam to implement loan classification and off-balance sheet commitments using qualitative methods before the effective date of this Circular shall continue to implement according to the approval document issued by the State Bank of Vietnam, except as provided in Clauses 7 and 8 of Article 11 of this Circular.

3. Amounts purchased of promissory notes and bills issued by other financial organizations and foreign bank branches before the effective date of this Circular, banks and non-bank financial institutions classify such amounts as purchased certificate of deposit amounts according to Clause 12 of Article 9 of this Circular.

Article 16. Implementation Provisions

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

2. Circular No. 11/2021/TT-NHNN dated July 30, 2021, of the Governor of the State Bank of Vietnam regarding asset classification, reserve extraction rates, reserve provisioning methods, and the use of reserves to manage risks in the operations of financial organizations and foreign bank branches shall cease to be effective from the date this Circular takes effect, except for the provisions in Clause 3 of this Article.

3. Loan classification and off-balance sheet commitments for the period ending June 30, 2024, at the July 2024 classification period, banks and non-bank financial institutions shall implement according to Circular No. 11/2021/TT-NHNN dated July 30, 2021, of the Governor of the State Bank of Vietnam regarding asset classification, reserve extraction rates, reserve provisioning methods, and the use of reserves to manage risks in the operations of financial organizations and foreign bank branches.

The Director of the Office, the Director of Banking Inspection and Supervision, the Heads of Units under the State Bank of Vietnam, banks, and non-bank financial institutions are responsible for organizing the implementation of this Circular./.