Decision No. 48/1999/QĐ-NHNN5 On the classification of assets "Have", provision for and use of reserves to address risks in banking operations of credit institutions

DECISION OF THE GOVERNOR OF THE STATE BANK OF VIETNAM

On the classification of assets "Have" for provision establishment and utilization

to handle risks in banking operations

of credit institutions

GOVERNOR OF THE STATE BANK OF VIETNAM

- Pursuant to the Law on the State Bank No. 01/1997/QH10 dated December 12, 1997 and the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997;

- Pursuant to the Government Decree No. 15/CP dated March 2, 1993 on the tasks, powers, and responsibilities for state management of Ministries and agencies at the ministerial level;

- At the proposal of the Director of the Department of Banks and Non-Bank Financial Institutions;

After reaching consensus with the Minister of Finance,

Pursuant to …;

Article 1. This Decision promulgates the Regulations on the classification of assets "Have", establishment and utilization of provisions to handle risks in banking operations of credit institutions.

Article 2. This Decision shall take effect fifteen days from the date of signature.

Article 3. Heads of units under the State Bank; Directors of Provincial and Municipal Branches of the State Bank; Chairmen of the Board of Management and General Directors (Directors) of credit institutions shall be responsible for implementing this Decision.

REGULATIONS

ON THE CLASSIFICATION OF ASSETS "HAVE", ESTABLISHMENT AND UTILIZATION
OF PROVISIONS TO HANDLE RISKS IN BANKING OPERATIONS
OF CREDIT ORGANIZATIONS

(Annexed to Decision No. 48/1999/QD-NHNN5
dated February 8, 1999 of the Governor of the State Bank)

I. GENERAL PROVISIONS

Article 1. Credit institutions operating in Vietnam must implement the classification of assets "Have", establishment and utilization of provisions to handle risks in banking operations according to these Regulations.

Article 2.

1. Risks in the banking operations of credit institutions (hereinafter referred to as risks) are potential losses that may occur in banking activities.

2. Risk provision is a provision recorded as an expense through the establishment of provisions for the portion of asset "Have" value that may not be recoverable.

Article 3. Within the first 25 working days of each year, credit institutions must carry out the classification of assets "Have" and establish provisions to handle risks. For the year 1999, this must be completed within 25 working days from the date this Regulation becomes effective.

Article 4. Any risk that has been handled through provisions, credit institutions must maintain records and continue to take measures to thoroughly recover debts.

II. SPECIFIC PROVISIONS

1. Classification of Assets "Have"

Article 5.

Credit institutions must classify assets "Have" in banking operations according to the following regulations:

1. Assets "Have" of lending activities are classified as follows:

Group 1 includes:

- Loans that have not yet reached their repayment due date (including extended terms);.

- Discounted bills and short-term negotiable instruments and other discounted amounts that have not yet reached their payment due date.

- Financial lease payments that have not yet reached their payment due date.

Group 2 includes:

- Secured loans overdue for less than 180 days; unsecured loans overdue for less than 90 days.

- Discounted bills and short-term negotiable instruments and other discounted amounts that have been overdue for payment for less than 30 days.

- Amounts paid on behalf of guaranteed parties but not recovered within 30 days.

- Financial lease payments that the lessee cannot pay within 180 days.

Group 3 includes:

- Secured loans overdue for between 180 and 360 days; unsecured loans overdue for between 90 and 180 days.

- Discounted bills and short-term negotiable instruments and other discounted amounts that have been overdue for payment for between 30 and 90 days.

- Amounts paid on behalf of guaranteed parties but not recovered within 30 to 90 days.

- Financial lease payments that the lessee cannot pay within 180 to 360 days.

Group 4 includes:

- Secured loans overdue for 360 days or more; unsecured loans overdue for 180 days or more.

- Discounted bills and short-term negotiable instruments and other discounted amounts that have been overdue for payment for 90 days or more.

- Amounts paid on behalf of guaranteed parties but not recovered for 90 days or more.

- Financial lease payments that the lessee cannot pay for 360 days or more.

2. Assets "Have" of customer payment services are grouped together into one group.

2. Establishment of Provisions

Article 6.

1. Provision rates applicable to assets "Have":

- For lending activities:

Group 1: 0%

Group 2: 20%

Group 3: 50%

Group 4: 100%.

- For payment services: 0.1%.

2. The amount of provision that credit institutions must establish includes:

- The amount of provision for lending activities determined based on the provision rate and the assets "Have" of each group in lending activities;

- The amount of provision for customer payment services determined based on the provision rate and the assets "Have" of customer payment services.

Article 7.

1. In cases where the initial annual provision amount is insufficient to handle risks, credit institutions must report to the Ministry of Finance and the State Bank for review.

2. The remaining provision amount after handling risks at the end of each year on December 31, credit institutions must return to reduce the amount of provision established.

Article 8. In cases where state-owned credit institutions establishing provisions according to these Regulations results in a loss for that year's business results, such credit institutions must develop a remediation plan to submit to the Ministry of Finance and the State Bank for review.

3. Utilization of Provisions

Article 9. Credit institutions must utilize provisions to handle risks in banking operations after exhausting all receivables, requesting guarantors to fulfill their obligations, auctioning collateral and pledged assets (if any), and taking other measures prescribed by law to recover debts.

Article 10. Risks occurring in the following situations will be considered and addressed:

1. Borrowers, guarantors of borrowers, issuers of bills and short-term negotiable instruments, guarantors of bills, financial lease lessees, beneficiaries of guarantees, and recipients of payment service customers are organizations that have gone bankrupt, dissolved, or failed to fulfill their obligations due to force majeure such as natural disasters, fires, epidemics, or changes in state policies and mechanisms.

2. Individuals borrowing funds, providing guarantees for loans, leasing financial assets, and receiving payment services who have died, gone missing, been sentenced to imprisonment for more than one year by a court, or are unable to fulfill their obligations due to force majeure such as natural disasters, fires, epidemics, or changes in state policies and mechanisms.

Article 11.

1. Credit institutions must establish a Risk Management Committee chaired by the Chairman of the Board of Directors (for credit institutions with a Board of Directors) or the General Director (Director) and must include mandatory members such as the General Director (Director) for credit institutions with a Board of Directors, the Head of the Supervisory Board, the Chief Accountant, the Head of the Credit Department, the Head of Internal Audit (Head of Control); other members shall be decided by the Chairman of the Risk Management Committee.

2. The Risk Management Committee shall handle risks occurring in cases specified in Article 10 of this Regulation based on the provisions of this Regulation, the Charter of the credit institution, and other relevant laws when they have complete legal documents as stipulated in Article 12 of this Regulation and shall bear full responsibility for their decisions before the law.

Article 12. Legal documents serving as the basis for handling risks include:

1. Documents related to lending; discounting, rediscounting of commercial bills and other short-term negotiable instruments; guarantees; financial leasing; payment services, and other documents of risks handled according to the provisions of Article 10 of this Regulation.

2. Certifications regarding the financial capacity of credit recipients and service users issued by the competent authority deciding to establish the enterprise and the financial management agency.

3. In addition to the above documents, additional legal documents shall be required in specific cases as follows:

a/ For cases where organizations are declared bankrupt or dissolved:

- The court's decision declaring bankruptcy of the enterprise or the competent administrative authority's decision dissolving the enterprise as prescribed by law (a copy);

- Minutes of asset disposal of the bankrupt enterprise or minutes of asset liquidation of the dissolved enterprise.

b/ For cases where organizations or individuals are unable to fulfill debt repayment obligations due to force majeure such as natural disasters, epidemics, fires, or changes in state policies and mechanisms:

- Certification from the competent state authority as prescribed by law regarding the inability of organizations or individuals to fulfill debt repayment obligations due to force majeure such as natural disasters, epidemics, fires, or changes in state policies and mechanisms.

- Minutes of inspection and determination of loss amounts certified by the competent People's Committee as prescribed by law.

c/ For cases where borrowers, guarantors, lessors, and service users are individuals who have died or been declared dead by the court (as prescribed by Article 91 of the Civil Code) and have no remaining assets to repay debts:

- Death certificate certified by the competent local authority as prescribed by law or the court's decision declaring death (a copy);

- Certificate from the People's Committee of the commune, ward confirming that the individual has no remaining assets to repay debts.

d/ For cases where borrowers, guarantors, lessors, and service users are individuals who have gone missing as prescribed by Article 88 of the Civil Code and have no remaining assets to repay debts after disposing of the missing person's assets as prescribed by Article 89 of the Civil Code:

- Court's decision declaring disappearance (a copy);

- Certificate from the People's Committee of the commune, ward confirming that the individual has no remaining assets to repay debts.

đ/ For cases where borrowers, guarantors, lessors, and service users are individuals sentenced to imprisonment for more than one year by the court:

- Judgment or excerpt of judgment of the court (a copy);

- Certifications from enforcement agencies and the People's Committee of the commune, ward where the convicted person resides confirming the absence of assets to repay debts.

Article 13.

All recovered amounts from risks that have been addressed using reserves (after deducting related costs and taxes, if applicable) shall be recorded as extraordinary income in the operations of the credit institution.

4. Accounting, Reporting, and Violation Handling

Article 14. Credit institutions shall implement accounting for the establishment, use of reserves, and recovered amounts after using reserves in accordance with the regulations of the State Bank.

Article 15.

1. Report on classification of "Assets" and provision for risk management in banking activities:

a) Before the 30th day of the first month of each year, credit institutions shall report to the State Bank and the Ministry of Finance (using Form 1A attached):

- State-owned credit institutions shall send to the State Bank (Bank Inspection), the Ministry of Finance;

- Joint-stock credit institutions, non-bank joint-stock institutions with foreign investment, wholly foreign-owned non-bank institutions, and foreign bank branches in Vietnam shall send to the State Bank (Bank Inspection), the Ministry of Finance, the State Bank Branch, and the financial authorities of the province/city where the credit institution is headquartered;

- Other credit institutions shall send to the State Bank Branch and the financial authorities of the province/city where the credit institution is headquartered.

b) Before the 5th day of the second month of each year, the State Bank Branch of the province/city shall aggregate reports from other credit institutions as specified in point a of Clause 1 of this Article and submit them to the State Bank (Bank Inspection), the Ministry of Finance (using Form 1B attached).

2. Report on the use of reserves for risk management in banking activities:

a) Before the 10th day of the first month of the current quarter, credit institutions shall report the use of reserves for risk management in the previous quarter to the State Bank and the Ministry of Finance (using Form 2A attached):

- State-owned credit institutions shall send to the State Bank (Bank Inspection), the Ministry of Finance;

- Joint-stock credit institutions, non-bank joint-stock institutions with foreign investment, wholly foreign-owned non-bank institutions, and foreign bank branches in Vietnam shall send to the State Bank (Bank Inspection), the Ministry of Finance, the State Bank Branch, and the financial authorities of the province/city where the credit institution is headquartered;

- Other credit institutions shall send to the State Bank Branch and the financial authorities of the province/city where the credit institution is headquartered.

b) Before the 15th day of the first month of the current quarter, the State Bank Branch of the province/city shall aggregate reports from other credit institutions as specified in point a of Clause 2 of this Article and submit them to the State Bank (Bank Inspection), the Ministry of Finance (using Form 2B attached).

Article 16.

1. The State Bank (Bank Inspectorate) and the Ministry of Finance shall inspect and supervise the implementation of provisions for setting aside and using risk reserves in banking activities of credit institutions.

2. Credit institutions and individuals violating the provisions of this Regulation, depending on the degree of violation, shall be subject to administrative penalties or criminal liability.

III. IMPLEMENTATION PROVISIONS

Article 17. Any amendments or supplements to the provisions of this Regulation shall be decided by the Governor of the State Bank after consultation with the Minister of Finance.

MODEL FORM 1A

REPORT

CLASSIFICATION OF ASSETS "HAVING", SETTING ASIDE RESERVES TO MANAGE RISKS
IN BANKING ACTIVITIES

Year …

Unit of measurement: Million VND

MODEL FORM 1B

REPORT

CLASSIFICATION OF ASSETS "HAVING", SETTING ASIDE RESERVES TO MANAGE RISKS
IN BANKING ACTIVITIES
Year …

Unit of measurement: Million VND

MODEL FORM 2A

REPORT

USE OF RESERVES TO MANAGE RISKS IN
BANKING ACTIVITIES

Prepared and sent to the Vietnam Deposit Insurance Corporation before the premium payment deadline by ten days

Unit of measurement: Million dong

MODEL FORM 2B

REPORT

USE OF RESERVES TO MANAGE RISKS IN
BANKING ACTIVITIES

Prepared and sent to the Vietnam Deposit Insurance Corporation before the premium payment deadline by ten days

Unit of measurement: Million dong