Circular No. 57/2019/TT-BTC guides the risk management mechanism of the Guarantee Fund for Small and Medium Enterprises Credit.

CIRCULAR

Guidelines for the risk management mechanism of

The Guarantee Fund for Small and Medium Enterprises Credit

Pursuant to the Law on State Budget dated June 25, 2015;

Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Enterprise Law dated November 26, 2014;

Pursuant to the Law on Support for Small and Medium Enterprises dated June 12, 2017;

Pursuant to Decree No. 87/2017/ND-CP dated July 26, 2017 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 34/2018/ND-CP dated March 8, 2018 of the Government on the establishment, organization, and operation of the Guarantee Fund for Small and Medium Enterprises Credit;

At the proposal of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance issues this Circular guiding the risk management mechanism of the Guarantee Fund for Small and Medium Enterprises Credit.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular guides the risk management mechanism of the Guarantee Fund for Small and Medium Enterprises Credit (hereinafter referred to as the Guarantee Fund) with respect to the debts of the guaranteed party at the Guarantee Fund after the Guarantee Fund has fulfilled its guarantee obligations according to the provisions of Decree No. 34/2018/ND-CP dated March 8, 2018 of the Government on the establishment, organization, and operation of the Guarantee Fund (hereinafter referred to as Decree No. 34/2018/ND-CP of the Government).

Article 2. Applicability

1. The Guarantee Fund.

2. The guaranteed party that has been guaranteed by the Guarantee Fund according to the provisions of Decree No. 34/2018/ND-CP of the Government and relevant laws (hereinafter referred to as the customer).

3. Lending organizations as prescribed in Decree No. 34/2018/ND-CP of the Government.

4. Organizations and individuals related to the implementation of this Circular.

Article 3. Explanation of Terms

In this Circular, in addition to the terms defined in Decree No. 34/2018/ND-CP of the Government, the following terms shall be understood as follows:

1. Compulsory debt acceptance contract is the contract signed between the Guarantee Fund and the customer after the Guarantee Fund has fulfilled its obligation to repay the debt on behalf of the guaranteed party at lending organizations as prescribed in Decree No. 34/2018/ND-CP of the Government.

2. Principal is the debt of the customer at the Guarantee Fund, including principal, interest, or both principal and interest at lending organizations where the Guarantee Fund has repaid the debt on behalf of the guaranteed party according to the provisions of the Credit Guarantee Contract as stipulated in Decree No. 34/2018/ND-CP of the Government.

3. Interest arrears is the unpaid interest amount owed by the customer to the Guarantee Fund, calculated based on the principal and the interest rate specified in the Compulsory Debt Acceptance Contract.

4. Guarantor is the third party whose assets are used to secure the principal debt of the customer.

5. Guarantee contract for compulsory debt acceptance is the contract established between the Guarantee Fund and the guarantor simultaneously with the Compulsory Debt Acceptance Contract established between the Guarantee Fund and the customer.

6. Credit risk is the possibility of loss occurring in the operations of the Guarantee Fund due to the customer not performing or being unable to perform part or all of their debt repayment obligations (principal, interest).

7. Risk Management is the application of measures to handle customer debts exposed to risk leading to the Guarantee Fund being unable to recover the full amount of the debt (principal, interest) on time.

8. Debt restructuring is the adjustment of the repayment period or extension of the debt (principal, interest) of the customer.

9. Adjustment of debt repayment terms is the Credit Guarantee Fund's approval to change the previously agreed debt repayment terms (principal, interest) in the Compulsory Debt Acceptance Contract without altering the compulsory debt acceptance period.

10. Extension of Debt is the Credit Guarantee Fund's approval to extend the debt repayment time (principal, interest) beyond the previously agreed compulsory debt acceptance period in the Compulsory Debt Acceptance Contract.

11. Debt Forbearance is the temporary non-collection of a portion or all of the customer's debt (principal, interest) within a specified period, with no interest accrued on the debt (principal, interest) during the debt moratorium period. The debt moratorium period does not count towards the compulsory debt acceptance period stipulated in the Compulsory Debt Acceptance Contract.

12. Waiver of Interest Debt is the non-collection of a portion or all of the customer's interest debt.

13. Waiver of Principal Debt is the non-collection of a portion or all of the customer's principal debt.

14. Disposal of Collateral is the implementation of measures against collateral assets to recover the customer's debt.

15. Debt Sale is the transfer of a portion or all of the creditor rights and related rights concerning the customer's debt to the purchaser of the debt and receiving payment from the debt purchaser.

16. Book value of the debt is the total recorded value of the outstanding principal, interest, and other financial obligations related to the customer's debt (if any), as tracked in the Credit Guarantee Fund's accounting records according to the law.

17. Debtor buyer are organizations or individuals that purchase debts in accordance with the law.

18. Selling price of the debt is the amount that the debt buyer must pay to the Credit Guarantee Fund under the Debt Purchase and Sale Contract signed by both parties in accordance with the law and this Circular.

19. Intermediary is an organization providing intermediary services for debt purchases and sales in accordance with the law.

20. Risk Reserve Fund is the risk reserve fund established in accordance with Decree No. 34/2018/NĐ-CP of the Government.

21. Objective reasons are reasons not originating from small and medium-sized enterprises.

Article 4. Principles for Handling Risks of the Credit Guarantee Fund

1. The handling of risks by the Credit Guarantee Fund must ensure compliance with the principles set forth in Clause 1 of Article 37 of Decree No. 34/2018/NĐ-CP of the Government.

2. The consideration of handling risky debts shall be carried out when the following conditions are met:

a) The debt falls within the scope of risk handling as prescribed in Article 1 of this Circular;

b) The customer's debt at the Credit Guarantee Fund is at risk due to one of the cases stipulated in Article 7 of this Circular.

3. The handling of risks by the Credit Guarantee Fund shall be considered on a case-by-case basis, based on the extent of damage, the circumstances leading to the risk as prescribed in Article 7 of this Circular, the business operation situation, financial status, and repayment plan of the customer.

4. A customer's debt may be subject to one or more risk management measures concurrently as prescribed in this Circular.

Article 5. Time for Considering Risk Handling

1. For risk handling matters within the authority of the Credit Guarantee Fund: The time for considering risk handling shall be conducted after the Credit Guarantee Fund receives complete documentation requesting risk handling from the customer or when risk situations arise requiring the Credit Guarantee Fund to handle collateral assets.

2. For risk handling matters within the authority of the Chairman of the People's Committee of the province or centrally-administered city (hereinafter referred to collectively as the Chairman of the Provincial People's Committee): The time for considering risk handling shall be conducted periodically, at least once every six (06) months based on the request of the Credit Guarantee Fund Chairman.

Article 6. Information and Reporting System

1. Annually, the Credit Guarantee Fund reports on the establishment, use of the Risk Reserve Fund, and the results of risk handling according to the form attached as Appendix 1 to this Circular, sent to the People's Committee of the province where the Credit Guarantee Fund is located and the Ministry of Finance for monitoring and supervision in accordance with regulations.

2. The Credit Guarantee Fund has the responsibility to report to the competent authority in case of unexpected requirements arising.

Chapter II

SPECIFIC PROVISIONS

Article 7. Cases to be considered for risk management

1. The customer suffers financial loss due to natural disasters, crop failures, epidemics, fires, political risks, wars, affecting production and business activities, leading to the customer being unable to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed.

2. The customer goes bankrupt as stipulated by current laws.

3. The State changes policies affecting the customer's production and business activities, leading to the customer being unable to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed.

4. The customer encounters other objective risks directly impacting their production and business activities, leading to the customer being unable to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed.

5. The customer has a bad debt (from group 3 to group 5) based on the results of the debt classification as prescribed in Clause 1, Article 36 of Decree No. 34/2018/NĐ-CP of the Government.

Article 8. Measures for Risk Management

Risk management measures include:

1. Debt restructuring:

a) Adjusting the repayment period;

b) Extending the debt.

2. Writing off debts.

3. Managing collateral assets.

4. Selling debts.

5. Waiving interest.

6. Waiving principal.

Article 9. Authority for Risk Management

The authority for risk management is implemented according to the provisions of Clause 3, Article 37 of Decree No. 34/2018/NĐ-CP of the Government.

Article 10. Adjusting the Repayment Period

1. Objectives for consideration: Customers encountering risks as specified in Clause 1, Clause 3, and Clause 4 of Article 7 of this Circular.

2. Conditions for consideration: Customers may be considered for adjusting the repayment period if they meet the following conditions:

a) Belonging to the category specified in Clause 1 of this Article;

b) Experiencing difficulties in production and business operations leading to inability to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed;

c) Having a feasible production and business plan and debt repayment plan after the adjustment of the repayment period.

3. A debt may be adjusted multiple times but must not change the compulsory repayment period according to the Compulsory Debt Contract signed.

Article 11. Extending Debts

1. Objectives for consideration: Customers encountering risks as specified in Clause 1, Clause 3, and Clause 4 of Article 7 of this Circular.

2. Conditions for consideration: Customers may be considered for extending debts if they meet the following conditions:

a) Belonging to the category specified in Clause 1 of this Article;

b) Experiencing difficulties in production and business operations leading to inability to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed;

c) Having feasible production and business plans and debt repayment plans after receiving debt extension;

d) The customer's debt has been adjusted for the repayment period or has not been adjusted for the repayment period, but the Credit Guarantee Fund assesses that even with the application of the repayment period adjustment measure, the customer still cannot repay the debt (principal and interest) to the Credit Guarantee Fund according to the Compulsory Debt Contract signed.

3. Time limit for extending debts: A debt may be extended multiple times but must ensure that the compulsory repayment period after extension does not exceed the maximum compulsory repayment period prescribed in Point c, Clause 1, Article 34 of Decree No. 34/2018/NĐ-CP of the Government.

4. In cases of extending debts, the Credit Guarantee Fund adjusts the compulsory repayment period in the Compulsory Debt Contract.

Article 12. Writing Off Debts

1. Objectives for consideration: Customers encountering risks as specified in Clause 1, Clause 3, and Clause 4 of Article 7 of this Circular.

2. Conditions for consideration: Customers may be considered for writing off debts if they meet the following conditions:

a) Belonging to the category specified in Clause 1 of this Article;

b) Experiencing difficulties in production and business operations leading to losses in two consecutive years prior to the year of requesting debt write-off, and still having cumulative losses, unable to repay the debt (principal and interest) on time according to the Compulsory Debt Contract signed;

c) Having a feasible production and business plan and debt repayment plan after the debt write-off;

d) The customer's debt has been restructured or has not been restructured, but the Credit Guarantee Fund assesses:

- If the restructuring measure is applied, the customer still cannot repay the debt (principal and interest) to the Credit Guarantee Fund according to the Compulsory Debt Contract signed;

- The customer's production and business situation is very difficult, requiring the implementation of the debt write-off measure to resolve the customer's difficulties, and after the debt write-off, the customer has the ability to fully repay the principal and interest to the Credit Guarantee Fund.

3. Time limit for writing off debts: A debt may be written off multiple times but must ensure that the total time for debt write-off does not exceed three years and does not exceed one-third of the compulsory repayment period.

4. Based on the conditions for considering debt write-off stipulated in Clause 2 of this Article and the financial situation of the Credit Guarantee Fund, the Chairman of the Credit Guarantee Fund considers and decides on the debt write-off measure according to Point b, Clause 3, Article 37 of Decree No. 34/2018/NĐ-CP of the Government.

Article 13. Handling of collateral assets

1. Objectives for consideration: Customers encountering risks as specified in Article 7 of this Circular or as agreed between the Credit Guarantee Fund and the customer in the Compulsory Debt Contract and the guarantor in the Guarantee Contract for the Compulsory Debt (if any).

2. Conditions for consideration: The Credit Guarantee Fund can manage collateral assets to recover debts when:

a) The objectives for consideration are defined in Clause 1 of this Article;

b) The customer's debt has been restructured, written off, or waived interest, or has not been restructured, written off, or waived interest, but the Credit Guarantee Fund assesses that even with the application of restructuring, writing off, or waiving interest measures, the customer still cannot repay the principal to the Credit Guarantee Fund according to the commitment.

3. Handling the difference between the amount received from managing collateral assets and the book value of the debt (after deducting costs as prescribed by law):

a) In case the amount received from managing collateral assets is higher than the book value of the debt: The Credit Guarantee Fund implements handling according to the agreement between the Credit Guarantee Fund and the customer in the Compulsory Debt Contract and the guarantor in the Guarantee Contract for the Compulsory Debt (if any);

b) In case the amount received from managing collateral assets is lower than the book value of the debt: The Credit Guarantee Fund is responsible for continuing to monitor and recover the remaining debt (principal and interest) according to the prescribed regulations or consider applying other risk management measures as prescribed in this Circular.

4. In cases where the collateral guarantees both the loan and the guaranteed amount, the management of collateral assets is carried out according to the agreement between the Credit Guarantee Fund and the beneficiary as prescribed in Clause 3, Article 33 of Decree No. 34/2018/NĐ-CP of the Government.

Article 14. Sale of Debts

1. Object for consideration: Customers facing risks due to one of the cases stipulated in Article 7 of this Circular.

2. Conditions for consideration: The credit guarantee fund may consider selling debts to recover debts when:

a) The objectives for consideration are defined in Clause 1 of this Article;

b) The customer encounters difficulties in production and business operations and is unable to repay the principal and interest according to the mandatory debt acceptance contract signed on time;

c) The credit guarantee fund assesses that selling debts is a more effective measure than other risk management measures to recover debts.

3. Methods of selling debts:

a) Selling debts through auction: The credit guarantee fund hires a professional auction organization or organizes the sale of debts through auction in accordance with the laws on asset auctions. In case the auction is not successful, the credit guarantee fund may consider applying the method of selling debts through agreement as provided in point b of this clause;

b) Selling debts through agreement: The credit guarantee fund and the buyer of the debt directly negotiate the purchase and sale of the debt or through an intermediary according to market principles.

4. Determination of the selling price for debts sold through the agreement method, and the starting price for debts sold through the auction method shall be carried out in accordance with the regulations of the State Bank of Vietnam on valuing debts in the activities of purchasing and selling debts of credit institutions.

5. The sale of debts by the credit guarantee fund must be conducted through a debt purchase and sale contract, which clearly specifies the selling price of the debt, the transfer of creditor rights from the seller to the buyer, and other related agreements.

6. Handling the difference between the selling price of the debt (after deducting costs as prescribed by law) and the book value of the debt:

a) In case the selling price of the debt is higher than the book value of the debt: The difference will be supplemented into the Risk Reserve Fund for Guarantees in accordance with Decree No. 34/2018/ND-CP of the Government and relevant laws;

b) In case the selling price of the debt is lower than the book value of the debt: The credit guarantee fund uses the Risk Reserve Fund for Guarantees to cover the difference or implements the decision of the Chairman of the credit guarantee fund as stipulated in Clause 3, Article 43 of Decree No. 34/2018/ND-CP of the Government.

Article 15. Debt Interest Write-off

1. Object for consideration: Customers facing risks due to one of the cases stipulated in Clause 1 and Clause 2 of Article 7 of this Circular.

2. Conditions for consideration: Customers may be considered for debt interest write-off if they meet the following conditions:

a) Belonging to the category specified in Clause 1 of this Article;

b) Encountering difficulties in production and business operations leading to losses in two consecutive years prior to the year of requesting debt interest write-off, and still having cumulative losses, unable to repay part or all of the debt interest according to the mandatory debt acceptance contract signed;

c) Having a feasible production and business plan and a feasible remaining debt repayment plan after being granted debt interest write-off (except in cases where the customer is declared bankrupt);

d) The customer's debt has been restructured, classified, or not yet restructured, classified, but the credit guarantee fund appraises and evaluates (except in cases where the customer is declared bankrupt):

- If restructuring and classification measures are applied, the customer also cannot repay the principal and interest to the credit guarantee fund according to the commitment;

- The customer's production and business situation is very difficult, it is necessary to implement debt interest write-off measures to alleviate some of the difficulties for the customer, and after debt interest write-off, the customer has the ability to fully repay the debt to the credit guarantee fund according to the commitment.

3. Based on the conditions for considering debt interest write-off stipulated in Clause 2 of this Article and the financial situation of the credit guarantee fund, the Chairman of the People's Committee of the province considers and decides on the debt interest write-off measures in accordance with point a, Clause 3, Article 37 of Decree No. 34/2018/ND-CP of the Government.

Article 16. Debt Principal Write-off

1. Object for consideration: Customers facing risks due to one of the cases stipulated in Clause 1 and Clause 2 of Article 7 of this Circular.

2. Conditions for consideration: Customers may be considered for debt principal write-off if they meet the following conditions:

a) Belonging to the category specified in Clause 1 of this Article;

b) Encountering difficulties in production and business operations leading to losses in two consecutive years prior to the year of requesting debt principal write-off, and still having cumulative losses, unable to repay part or all of the debt principal according to the mandatory debt acceptance contract signed, resulting in capital and asset losses;

c) In cases where customers are granted partial debt principal write-off, they must have a feasible production and business plan and a feasible remaining debt repayment plan after being granted partial debt principal write-off (except in cases where the customer is declared bankrupt);

d) The customer's debt has been restructured, classified, or partially written off, or not yet restructured, classified, or partially written off, but the credit guarantee fund appraises and evaluates that if restructuring, classification, or partial write-off measures are applied, the customer still cannot repay the debt principal to the credit guarantee fund according to the commitment;

e) The credit guarantee fund has implemented measures to dispose of collateral assets to recover debts in accordance with Article 13 of this Circular, but the customer still has remaining unpaid debt principal.

3. Based on the conditions for considering debt principal write-off stipulated in Clause 2 of this Article and the financial situation of the credit guarantee fund, the Chairman of the People's Committee of the province considers and decides on the debt principal write-off measures in accordance with point a, Clause 3, Article 37 of Decree No. 34/2018/ND-CP of the Government.

Article 17. Utilization of the Guarantee Risk Reserve Fund

1. The Credit Guarantee Fund shall use the Guarantee Risk Reserve Fund to handle risks related to debt write-offs and sales of debts (in cases where the sale price is lower than the book value of the principal debt) in accordance with this Circular.

2. In cases where the Guarantee Risk Reserve Fund is insufficient to cover risks arising from customers' debts during the year, it will be considered to draw from the Financial Reserve Fund in accordance with Clause 3, Article 43 of Decree No. 34/2018/ND-CP of the Government.

3. In cases where both the Guarantee Risk Reserve Fund and the Financial Reserve Fund are insufficient to cover risks arising from customers' debts during the year, the Credit Guarantee Fund shall report and propose the People's Committee at the provincial level to balance from the local budget and replenish the Guarantee Risk Reserve Fund to handle newly arising risks in accordance with the provisions of the law.

Chapter III

IMPLEMENTATION

Article 18. Responsibilities of Relevant Agencies and Units

1. Customers requesting risk handling:

a) Provide complete, timely, and accurate information on financial status, production and business operations, conditions for risk handling as stipulated in this Circular and required documents; comply with commitments made in the Compulsory Debt Acceptance Contract and other relevant contents when requesting risk handling in accordance with this Circular, related legal regulations, and guidance documents issued by the Credit Guarantee Fund;

b) Prepare risk handling files in accordance with the Credit Guarantee Fund's guidelines;

c) Bear legal responsibility for the accuracy, legality, and validity of information, data, and documents in the risk handling request file provided to the Credit Guarantee Fund and any commitments made by the customer if risk handling measures are applied;

d) Repay the full amount to the Credit Guarantee Fund after risk handling (except in cases handled through measures such as writing off all principal and interest, selling debts) as stipulated in this Circular.

2. The Credit Guarantee Fund:

a) Shall bear legal responsibility and oversight by state management agencies for implementing risk handling at the Credit Guarantee Fund in accordance with this Circular and related legal regulations;

b) Issue detailed guidelines on risk handling in accordance with Point d, Clause 3, Article 10 of Decree No. 34/2018/ND-CP of the Government;

c) Guide customers in preparing risk handling request files and organize implementation in accordance with this Circular;

d) Review and bear full responsibility for the results of reviewing risk handling for customers as stipulated in this Circular;

đ) Decide on implementing risk handling measures within its authority and organize the implementation of risk handling for customers' debts (principal and interest) according to decisions made by competent authorities;

e) Utilize the Guarantee Risk Reserve Fund to handle risks in accordance with this Circular and related legal regulations;

g) Continue to monitor, urge, and take measures to fully recover debts (principal and interest) from customers in accordance with the Compulsory Debt Acceptance Contract and agreements reached with customers after risk handling (excluding cases of selling debts, writing off all principal and interest as stipulated in this Circular);

h) Coordinate with the Ministry of Finance to study amendments and supplements to the Circular guiding the risk handling mechanism at the Credit Guarantee Fund (if necessary).

3. Lending organizations: Transfer relevant loan files, collateral, and documents to the Credit Guarantee Fund after the Credit Guarantee Fund fulfills its guarantee obligations in accordance with Decree No. 34/2018/ND-CP of the Government and bilateral agreements.

4. Provincial People's Committees:

a) The Chairman of the Provincial People's Committee shall consider and decide on risk handling measures as stipulated in this Circular;

b) Direct subordinate agencies and guide, recommend small and medium-sized enterprises in their locality to cooperate and support the Credit Guarantee Fund in debt recovery and handling;

c) Direct the People's Committee of communes, wards, districts, or counties where customers operate production and business activities to confirm losses of customers' assets and goods due to natural disasters, crop failures, epidemics, fires, political risks, and war.

Article 19. Transitional Provisions

1. For customers' debts that have signed Compulsory Debt Acceptance Contracts before the effective date of this Circular and subsequently face risks, the provisions of this Circular shall apply for risk handling.

2. For customers' debts that are not small and medium-sized enterprises and are subject to compulsory acceptance under Decision No. 193/2001/QĐ-TTg dated December 20, 2001, of the Prime Minister regarding the establishment, organization, and operation of the Credit Guarantee Fund for small and medium-sized enterprises: Based on the provisions of this Circular, the Credit Guarantee Fund shall issue specific guidelines on risk handling in accordance with the regulations of the law, as promulgated by the Chairman of the Credit Guarantee Fund.

Article 20. Implementation Provisions

1. This Circular takes effect from October 15, 2019.

2. The Chairman of the Credit Guarantee Fund, the Director of the Credit Guarantee Fund, and related organizations and individuals are responsible for implementing this Circular./.

ANNEX 1

REPORT ON THE STATUS OF ESTABLISHMENT AND UTILIZATION OF THE GUARANTEE RISK RESERVE FUND AND RISK HANDLING RESULTS

(Annexed to Circular No. 57/2019/TT-BTC dated August 26, 2019 of the Ministry of Finance)

I. Status of Establishment and Utilization of the Guarantee Risk Reserve Fund

Unit: Million VND

Note: Items 2 and 3 are cumulative figures from the beginning of the year to the reporting period.

II. Results of Risk Handling

Unit: Million VND