Circular No. 39/2013/TT-NHNN on the determination, provision, management, and utilization of risk reserve funds of the State Bank of Vietnam

CIRCULAR

Regulations on determining, provisioning, managing and using

 risk reserve funds of the State Bank of Vietnam

 

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

Pursuant to Decree No. 156/2013/NĐ-CP dated November 1, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Pursuant to Decision No. 07/2013/QĐ-TTg dated January 24, 2013 of the Prime Minister on the financial regime of the State Bank of Vietnam;

At the proposal of the Director of the Department of Finance and Accounting;

The Governor of the State Bank of Vietnam issues this Circular regulating the determination, provisioning, management, and utilization of risk reserve funds of the State Bank of Vietnam (hereinafter referred to as the State Bank),

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

1. This Circular regulates the determination, provisioning, management, and utilization of risk reserve funds of the State Bank of Vietnam for handling losses or deemed losses (hereinafter referred to as losses) in the operations of the State Bank.

2. Losses arising from the operations of the State Bank include:

a) Losses arising from risk asset items of the State Bank:

- Money and gold deposited with foreign banks, loans and payments with foreign banks;

- Securities invested in international financial markets;

- Refinancing;

- Payments with the State and State budget;

- Other receivables;

b) Other losses.

4. Public service organizations that have implemented the self-management and self-responsibility regime and independent economic accounting enterprises directly under the State Bank are not subject to the provisions of this Circular.

Article 2. Interpretation of Terms

In this Circular, the following terms are understood as follows:

1. Risk in State Bank operations is potential loss that may occur during the operations of the State Bank, including:

a) The possibility of loss to risk assets of the State Bank due to customers or counterparties failing to fulfill or being unable to fulfill part or all of their obligations as agreed;

b) The possibility of loss due to depreciation of monetary items denominated in foreign currencies, gold, and securities already invested;

c) The possibility of loss due to other unforeseeable causes.

2. Risk reserve fund is the total amount of risk reserves that have been provisioned and recorded as expenses over the years to offset losses in the operations of the State Bank.

3. Required risk reserve amount to be provisioned is the amount of money determined to be set aside for potential losses that may occur during the operations of the State Bank and calculated according to Article 7 of this Circular. The required risk reserve amount to be provisioned includes specific provisions and general provisions.

4. "are amounts set aside based on the specific classification of debts as stipulated in Article 6 or Article 7 of these Regulations to cover potential losses." is the amount of money determined to be set aside for potential losses related to each specific risk asset item.

5. General reserve is the amount of money determined to be set aside for potential losses that cannot be identified when making specific provisions.

6. Pre-provisioning balance of risk reserve is the risk reserve that has been provisioned but not utilized before the provisioning date.

7. Post-provisioning balance of risk reserve is the risk reserve that has been provisioned but not utilized after the provisioning date.

8. Additional required risk reserve amount to be provisioned is the positive difference between the required risk reserve amount to be provisioned and the pre-provisioning balance of risk reserve.

9. Required risk reserve amount to be reversed is the negative difference between the required risk reserve amount to be provisioned and the pre-provisioning balance of risk reserve.

10. Risk reserve amount provisioned in the fiscal year is the risk reserve amount provisioned and recorded as expense in the fiscal year. The determination of the risk reserve amount provisioned in the fiscal year is regulated in Clause 2 of Article 8 of this Circular.

Article 3. Principles for setting aside, accounting, and using risk reserves

1. Annually, the State Bank sets aside risk reserves and accounts for them as expenses equal to 10% of the difference between revenues and expenditures not including the risk reserve expenditure. The balance of the risk reserve after the setting aside period shall not exceed the amount of the risk reserve that needs to be set aside.

2. The process of setting aside and accounting for the risk reserve set aside during the fiscal year of the State Bank shall be centralized at the State Bank (Financial Accounting Department).

4. Any unused portion of the risk reserve in a given year shall be carried forward to the next year for continued use.

5. In cases where the risk reserve is insufficient to cover losses, the handling of the shortfall will be carried out according to the current financial regulations of the State Bank.

6. If the amount of the risk reserve required to be set aside is less than the balance of the risk reserve before the setting aside period, the State Bank shall reverse the difference into the income of the State Bank.

Article 4. Time of Determination, Setting Aside, and Accounting for Risk Reserves

The time of determination, setting aside, and accounting for risk reserves is the end of the annual accounting period (December 31 each year).

Article 5. Authority to Handle Losses Using Risk Reserve Amounts

The Governor of the State Bank decides on the handling of losses in the operations of the State Bank based on the proposal of the Loss Handling Council.

Chapter II

SPECIFIC PROVISIONS

Section 1

CLASSIFICATION OF ASSETS WITH RISKS AND METHODS FOR DETERMINING

AND THE RATIO FOR SETTING ASIDE RISK RESERVES

The State Bank does not implement grouping of investment securities on the international market for the purpose of setting aside risk reserves. The specific determination of the reserve for this item only applies to types of securities currently invested in the international financial market that have decreased in value compared to the recorded value in the accounting books.

Article 7. Method for determining the amount of risk reserve to be established

1. The amount of risk reserve to be established shall be calculated according to the following formula:

2. Specific methods for calculating reserves for asset items with risks:

a) Money and gold deposited with foreign banks, loans and transactions with foreign banks:

- Object: money and gold deposited with foreign banks, loans and transactions with foreign banks.

- Method of calculating the reserve:

Where:

+ The balance of money and gold deposited with foreign banks, loans and transactions with foreign banks is calculated at the time of determining the risk reserve;

+ The corresponding reserve ratio is as follows:

• Group 1: 0%;

• Group 2: 20%;

• Group 3: 100%.

- Object: securities currently invested in international financial markets that have decreased in value compared to their book value.

- Method of calculating the reserve:

Where:

+ The quantity of each type of securities that has decreased in value at the time of determining the risk reserve;

+ The book value of the securities is the recorded value of the securities at the time of determining the risk reserve;

+ The market price of the securities is the closing price on the issuing country's financial market at the time of determining the risk reserve, using the currency denomination of the securities.

c) Refinancing activities:

- Object: refinancing amounts from the State Bank that may result in losses.

- Method of calculating the reserve:

Where:

+ The principal balance of each refinancing amount at the time of determining the risk reserve;

+ The value of the collateral deduction is determined as follows:

• In case the collateral is negotiable instruments:

(i) The deduction value of the collateral equals the face value of the negotiable instrument (for unlisted negotiable instruments) or the listed price (for listed negotiable instruments) multiplied by 100%.

(ii) The listed price is taken from the reference price at the securities exchange at the time of determining the risk reserve.

• In case the collateral is other forms: The deduction value of the collateral equals zero.

+ If the deduction value of the collateral is greater than the principal balance, then the required risk reserve amount is zero.

+ The corresponding reserve ratio is as follows:

• Group 1: 0%;

• Group 2: 5%;

• Group 3: 20%;

• Group 4: 50%;

• Group 5: 100%.

d) Transactions with the State and State Budget:

- Object: transactions with the State and State Budget approved by OrderDeputy ministers of ministerial-level agencies, organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.ướharged with the task of approving the Prime Minister's proposal regarding the appointment of Ministers for the term 2021 - 2026 for the following gentlemen:ug.

- Method of calculating the reserve:

Where:
+ The value of transactions with the State and State Budget at the time of determining the risk reserve;
+ The corresponding reserve ratio is as follows:
• Group 1: 0%;
• Group 2: 10%;
• Group 3: 100%

đ) Other receivables:

- Object: other receivables overdue for payment or not yet due but the debtor is an organization that has entered bankruptcy proceedings or is undergoing liquidation procedures; the debtor is an individual who is missing, absconded, under investigation, detention, trial, serving a sentence, or deceased.

- Method of calculating the reserve:

(tonnes CO

+ The value of other receivables at the time of determining the risk reserve;

+ The corresponding reserve ratio is as follows:

• Group 1: 0%;

• Group 2: 30%;

• Group 3: 50%;

• Group 4: 70%;

• Group 5: 100%.

3. General Reserve:

The general reserve is calculated at 0.75% of the total assets of the State Bank, the data on the total assets of the State Bank is taken from the Quarterly Balance Sheet of the year in which the risk reserve is determined.

Article 8. Procedures for determining, setting aside, and accounting for risk provisions established in the fiscal year

1. Units under the State Bank shall implement the specific provision determination as stipulated in Articles 4, 6, and 7 of this Circular, prepare reports, and submit them to the Department of Finance - Accounting by the end of December 31 each year to serve as the basis for the State Bank's risk provision establishment. The Department of Finance - Accounting shall determine the general provision according to the provisions of Clause 3, Article 7 of this Circular.

2. Based on the total specific provisions transferred by units under the State Bank and the general provision, the Department of Finance - Accounting shall calculate and account for the risk provisions set aside in the fiscal year according to the following principles:

a) In cases where the additional risk provision required is less than 10% of the difference between income and expenditure excluding the risk provision expense: The risk provision set aside in the fiscal year equals the amount of additional risk provision required.

b) In cases where the additional risk provision required is equal to or greater than 10% of the difference between income and expenditure excluding the risk provision expense: The risk provision set aside in the fiscal year equals 10% of the difference between income and expenditure excluding the risk provision expense.

c) In cases where the risk provision required to be set aside is less than the balance of the risk provision before the provision is set aside: The State Bank shall account for it according to the provisions of Clause 6, Article 3 of this Circular.

Section 2

USE OF RISK PROVISION TO HANDLE LOSSES

Article 9. Losses to be handled using risk provisions

The State Bank may use risk provisions to handle losses arising from the following items:

1. Money and gold deposited with foreign banks, loans and payments to foreign banks

Losses regarding money, gold, and other assets deposited with foreign banks due to force majeure such as war, terrorism, bankruptcy, natural disasters in the country where the State Bank invests or holds assets, and the foreign bank is unable to make payments.

Losses due to a decline in the value of securities invested in the international financial market and losses due to objective reasons such as: the issuer of the securities being affected by natural disasters, fire, typhoons, floods, bankruptcy, dissolution... causing the State Bank to be unable to recover the book value of the securities, and the securities have already had a price reduction provision; the State Bank uses the risk provision to handle the loss.

3. Refinancing activities

a) Debts (principal and interest) written off according to the Prime Minister’s decision, but not funded by the Government to compensate the State Bank.

b) Debts borrowed and payments made on behalf of credit institutions that are definitively confirmed to be unrecoverable when the credit institution is dissolved or declared bankrupt as prescribed by law.

4. Payments with the State and the State Budget

Payments with the State and the State Budget are handled according to the approval of cDeputy ministers of ministerial-level agencies,a ThDeputy ministers of ministerial-level agencies, organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.ướharged with the task of approving the Prime Minister's proposal regarding the appointment of Ministers for the term 2021 - 2026 for the following gentlemen:Deputy ministers of ministerial-level agencies,.

The State Bank, in collaboration with the Ministry of Finance, reports and requests the Prime Minister's permission to use risk provisions to handle payments with the State and the State Budget, including:

a) Payments with the State and the State Budget that have exceeded the payment deadline or have no payment deadline and have not been addressed for at least five years;

b) Other payments with the State and the State Budget.

5. Other receivables

Losses regarding receivables during operations that are sufficiently supported by credible evidence indicating that there is no longer a debtor or the debtor is unable to pay.

6. Losses in settlement, reserve fund management, and intervention in the domestic gold market stabilization activities:

a) Losses occurring during settlement activities such as technical network failures, technological issues...

b) Losses regarding money, precious metals, and securities arising from reserve fund activities such as:

- Losses during transportation due to force majeure incidents including accidents, robbery, destruction, natural disasters, fire, war, terrorism, or other force majeure causes;

- Losses of cash, precious metals, and securities at transaction locations and vaults due to destruction, robbery, fire, natural disasters, war, terrorism, or other objective causes;

c) Losses arising from national foreign exchange reserve management and intervention in stabilizing the domestic gold market such as losses in gold quality testing and gold devaluation.

7. Other losses as decided by the Governor of the State Bank.

Article 10. Legal Documents as Basis for Handling Losses

The legal documents serving as the basis for handling losses in the operations of the State Bank include:

1. Documents and materials related to assets that have suffered losses and need to be addressed.

2. Reports and recommendations from units within the State Bank where the losses occurred.

3. Petitions and Minutes of the Loss Handling Council.

4. In addition to the documents and materials specified in Clauses 1, 2, and 3 of this Article, for each loss amount, the following additional documents must be supplemented:

a) For debt amounts (principal and/or interest) written off pursuant to the Prime Minister's decision but not compensated by the Government: The Prime Minister's Decision on writing off debts for specific debt amounts and borrowers;

b) For payments to the State and the State Budget handled according to the Prime Minister's approval: Directives and approvals by the Prime Minister regarding the handling of payments to the State and the State Budget;

c) For losses arising from securities investment activities in the international financial market: Documentation proving the decline in value of invested securities and evidence demonstrating losses due to objective factors such as natural disasters, fires, floods, bankruptcy, dissolution of the issuing entity, etc.;

d) For old debts arising before the effective date of the Law on the State Bank of Vietnam in 1997:

- For receivables from organizational entities:

+ In cases where the debtor has been dissolved or declared bankrupt: Court decisions declaring bankruptcy under the Bankruptcy Law or decisions by competent authorities regarding dissolution; in cases of self-dissolution, there must be a notification from the organization or confirmation from the authority that established the organization;

+ In cases where the debtor has ceased operations and is unable to pay: Confirmation from the authority that issued the establishment decision or the business registration agency regarding the cessation of operations and inability to pay of the enterprise or organization;

- For receivables from individual entities:

+ A copy of the death certificate or confirmation from local authorities for deceased debtors without inheritable assets to repay the debt;

+ Confirmation from local authorities for living debtors or those missing who are unable to repay the debt;

+ Warrants for arrest or confirmation from law enforcement agencies for debtors who have fled or are being prosecuted, serving sentences, or confirmation from local authorities regarding the debtor's inability to pay;

5. Legal documents may also include other written evidences if such evidence can prove or clarify the extent of asset losses.

Article 11. Procedure for Handling Losses

The procedure for handling losses occurring during the operations of the State Bank shall be carried out as follows:

1. The head of the unit within the State Bank where losses occur in operations shall direct relevant departments to explain, provide statements, prepare minutes, propose measures to handle losses (accompanied by copies of the loss documents with confirmation from the unit) and submit them to the Department of Finance and Accounting.

2. The Department of Finance and Accounting shall serve as the focal point for receiving documents and materials related to losses submitted by units within the State Bank, conduct reviews, compile the original status of the documents, and seek opinions from units with members of the Loss Handling Council as stipulated in Clause 2 of Article 12 of this Circular.

3. The Department of Finance and Accounting shall review and issue a document requesting the Department of Organization and Cadres to present to the Governor of the State Bank the establishment of the Loss Handling Council as stipulated in Article 12 of this Circular.

4. Based on the relevant documents and materials as stipulated in Article 10 of this Circular, the review opinion of the Department of Finance and Accounting, and the opinions of related units, the Loss Handling Council shall analyze, evaluate, propose solutions, and submit to the Governor for consideration and decision on using the risk reserve fund to address specific loss amounts.

Specifically, for debt amounts at Point a, Clause 3, Article 9 and payments to the State and the State Budget at Clause 4, Article 9 of this Circular, the Loss Handling Council must report and submit to the Governor of the State Bank for comments from the Ministry of Finance and for OrderDeputy ministers of ministerial-level agencies, organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.ướharged with the task of approving the Prime Minister's proposal regarding the appointment of Ministers for the term 2021 - 2026 for the following gentlemen:Deputy ministers of ministerial-level agencies, consideration, regulationpoliciesorganize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular. This Circular promulgates the Regulation on Distance Learning for Bachelor's Degree Programs.n when iướt is det Tp phograms andcided xđổ B. SPECIAL ALLOWANCE REGIMES

5. Based on the Governor's Decision on using the risk reserve fund to address losses, the Department of Finance and Accounting shall coordinate with relevant units to implement accounting and management of losses after they have been approved according to the provisions of Article 14 of this Circular.

Article 12. Members of the Loss Handling Council

1. Chairman of the Council: One Deputy Governor of the State Bank.

a) Director of the Financial and Accounting Department, Vice-Chairman in charge of regular duties;

b) Director of the Internal Audit Department;

c) Director of the Monetary Policy Department;

d) Director of the Credit Department;

đ) Director of the Legal Affairs Department;

e) Director of the Organization and Cadre Department;

g) Head of the Inspection Agency under the Inspection and Supervision Department;

h) Director of the Issuance and Treasury Department.

3. The Financial and Accounting Department shall perform the function of assisting the Loss Handling Council when necessary. The Chairman of the Loss Handling Council decides to summon some staff from relevant Departments, Bureaus, and units under the State Bank to assist the Loss Handling Council upon the proposal of the Financial and Accounting Department.

Article 13. Tasks of the Loss Handling Council

1. Implement tasks as prescribed in Clause 4, Article 11 of this Circular.

2. Inspect the implementation of loss handling in the operations of the State Bank after the competent authority has made a decision on handling.

3. Handle other matters related to the use of the risk reserve fund of the State Bank.

Article 14. Management of losses after they have been handled

1. Losses that have been handled will be recorded for tracking outside the balance sheet account. Units that cause losses shall not notify the debtors and must continue to take measures to recover them as with ordinary receivables that have not yet been handled, except in cases where the Prime Minister has made a decision.

2. After a minimum period of five years from the date of using the risk reserve fund to handle losses, which is after implementing all measures to recover the losses but failing to do so, the Governor of the State Bank shall decide to write off the handled losses funded by the risk reserve fund from the outside balance sheet account.

Files for losses that have been written off from the outside balance sheet account must be stored according to the provisions of the law, including files on loss handling and all documents proving that the head of the unit has implemented all measures to recover the losses but failed to do so.

2. Amounts recovered from losses that have been handled using the risk reserve fund shall be recorded as income at the unit and reported to the State Bank (Financial and Accounting Department).

Chapter III

IMPLEMENTATION

Article 15. Responsibilities of units under the State Bank

1. The Financial and Accounting Department shall guide units under the State Bank on how to collect data for calculating and setting aside risk reserves as prescribed in this Circular.

Article 16. Transitional Provisions

The balance of the risk reserve fund established from the time of Decree No. 100/1998/NĐ-CP dated December 10, 1998 of the Government shall be converted into the initial balance of the risk reserve fund established under this Circular for continued use in accordance with the provisions.

Article 17. Effective Date

1. This Circular takes effect from June 1, 2014.

2. Decision No. 41/2007/QĐ-NHNN dated November 6, 2007 of the Governor of the State Bank promulgating the regulations on setting aside, managing, and using the risk reserve fund of the State Bank ceases to be effective from the date this Circular takes effect.

Article 18. Implementation Organization

The Chief of the Office, Directors of the Financial and Accounting Department, Heads of units under the State Bank, and Governors of State Bank branches in provinces and cities are responsible for organizing the implementation of this Circular./.