Circular No. 14/2024/TT-NHNN dated June 28, 2024 on classification of assests of microfinance institutions

CIRCULAR

ON CLASSIFICATION OF ASSESTS OF MICROFINANCE INSTITUTIONS

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

Pursuant to Law on Credit Institutions dated January 18, 2024;

Pursuant to Decree No. 102/2022/ND-CP dated November 12, 2022 of Government on function, tasks, powers, and organizational structure of the State Bank of Vietnam;

At the request of Chief Bank Inspector;

The Governor of the State Bank of Vietnam issues a Circular on classification of assets of microfinance institutions.

Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. Scope

This Circular introduces regulations on classification of assets (hereinafter referred to as “debts”) arising from the operations of microfinance institutions (hereinafter referred to as “MFI(s)”), including:

a) Lending;

b) Loan trust;

c) Deposits (excluding checkable deposits) at credit institutions and foreign bank branches (FFBs) in accordance with law.

2. Regulated entities:

a) MFIs;

b) Other agencies, organizations and individuals related to debt classification of MFIs.

Article 2. Term interpretation

For the purposes of this Circular, these terms are construed as follows:

1. Debt classification means classification of principals into different categories specified in Article 5 of this Circular.

2. Debt means an amount of money that a MFI remits or disburses in installment (in case the repayment term or due date varies with each disbursement), or an amount of money that a MFI already disburses under an agreement (in case the repayment term does not vary with multiple disbursements) with respect to a customer’s unpaid debt.

3. Overdue debt means a part or the whole of loan principal and/or interest that a customer fails to pay by the due date as agreed upon with a MFI.

4. Nonperforming loan (NPL) means on-balance sheet bad debt that is classified into group 3, 4, or 5 in accordance with this Circular.

5. NPL ratio means the ratio of the amount of NPLs to the total amount of debts from group 1 to group 5 in accordance with this Circular.

6. Rescheduled debt means a debt of which the repayment term is rescheduled according to regulations of State Bank of Vietnam (SBV).

7. Customer means an organization (including credit institutions and FBBs); a customer of MFI bound by the SBV’s regulation to incur or give rise to agreed-upon repayment or payment obligations to a MFI.

Article 3. Periodic debt classification

At least once a month, within the first 7 days of the month, the MFI shall classify debts in accordance with Articles 4 and 5 of this Circular until the end of the last day of the preceding month.

Chapter II

SPECIFIC PROVISIONS

Article 4. Debt classification rules

1. All outstanding debts that a customer owes to a MFI must be classified into the same debt group. For customers with two or more debts at the microfinance institution, if any debt is classified in accordance with Article 5 of this Circular into a group with risk level higher than the other debts, the MFI must reclassify the remaining debts of the customer into the group with highest risk level.

2. For entrusted loan where the trustee has not yet fully received the disbursement of trust funds under the entrustment contract, the MFO shall classify the undisbursed amount of trust funds as a loan granted to the trustee. The period during which the loan is deemed past due starts from the time of the trustee’s failure to receive the disbursement of the loan by the disbursement deadline specified in the entrustment contract.

Article 5. Debt classification

MFIs shall classify debts into the following 05 groups:

1. Group 1 (Standard debts), including:

a) Any unmatured debt;

b) Any debt which is less than 10 days past due.

2. Group 2 (Debts needing attention), including:

a) Any debt which is up to 90 days past due;

b) Any first-time rescheduled debt.

3. Group 3 (Substandard debts), including

a) Any debt which is from 30 to less than 90 days past due;

b) Any first-time rescheduled debt which is under 30 days past due from the first-time rescheduled maturity date;

c) Any debt on which interest is exempted or reduced due to the customer’s inability to pay the agreed-upon interest in full.

4. Group 4 (Doubtful debts), including:

a) Any debt which is from 90 to less than 180 days past due;

b) Any first-time rescheduled debt which is from 30 days to less than 90 days past due from the first-time rescheduled maturity date;

c) Any second-time rescheduled debt.

5. Group 5 (Debts giving rise to loss), including:

a) Any debt which is more than 180 days past due;

b) Any first-time rescheduled debt which is at least 90 days past due from the first-time rescheduled maturity date;

c) Any second-time rescheduled debt which is past due from the second-time rescheduled maturity date;

d) All third- or more-time rescheduled debt.

Article 6. Reporting

MFIs shall submit reports on classification of debts, and establishment and use of risk provisions in accordance with SBV’s regulations on statistical reporting applicable to MFIs.

Chapter III

IMPLEMENTATION

Article 7. Responsibilities of the SBV

1. Banking Supervision Agency, the SBV’s provincial branches shall:

a) Carry out inspection and supervision of classification of debts, establishment and use of risk provisions of the MFI within its jurisdiction and in accordance with law;

b) Take action against the MFI within its jurisdiction and in accordance with laws on handling of administrative violations in monetary and banking sector.

2. The Forecasting and Statistics Department shall play the leading role and cooperate with relevant units in requesting the SBV’s Governor to promulgate regulations on statistical reporting on classification of debts, establishment and use of risk provisions of MFIs.

3. The Finance and Accounting Department shall, according to this Circular, develop and submit document guiding implementation of relevant accounting policies to the SBV’s Governor for consideration in accordance with law.

Article 8. Implementation clause

1. This Circular comes into force from August 12, 2024.

2. This Circular annuls Circular No. 15/2010/TT-NHNN dated June 16, 2010 of the Governor of State Bank of Vietnam on debt classification, establishment and use of risk provisions in operation of MFIs.

Article 9. Responsibility for implementation

Chief of Office, Chief Bank Inspector, Heads of relevant units affiliated the SBV, and microfinance institutions are responsible for organizing the implementation of this Circular./.