Circular No. 31/2024/TT-NHNN dated June 30, 2024 on prescribing classification of assets in operations of commercial banks, non-bank credit institutions and foreign bank branches

THE STATE BANK OF VIETNAM -------	THE SOCIALIST REPUBLIC OF VIET NAM Independence-Freedom-Happiness -----------------
No. 31/2024/TT-NHNN	Hanoi, June 30, 2024

CIRCULAR

PRESCRIBING CLASSIFICATION OF ASSETS IN OPERATIONS OF COMMERCIAL BANKS, NON-BANK CREDIT INSTITUTIONS AND FOREIGN BANK BRANCHES

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

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

Pursuant to the Government's Decree No. 102/2022/ND-CP dated December 12, 2022 prescribing functions, tasks, powers and organizational structure of the State Bank of Vietnam (SBV);

At the request of the Head of SBV Banking Supervision Agency;

The Governor of the State Bank of Vietnam promulgates a Circular prescribing classification of assets in operations of commercial banks, non-bank credit institutions and foreign bank branches.

Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. This Circular introduces regulations on classification of assets (hereinafter referred to as “debts”) arising from the following operations of commercial banks, non-bank credit institutions and foreign bank branches (FBBs), including:

a) Lending;

b) Financial leasing;

c) Discounting and rediscounting of negotiable instruments and other valuable papers;

d) Factoring;

dd) Credit extension by issuance of credit cards;

e) On-behalf payments under off-balance sheet commitments (including payments made on behalf of customers to fulfill their obligations under guarantee agreements and in letter of credit (L/C) operations (except for the cases specified in point n of this Clause) and other on-behalf payments under off-balance sheet commitments);

g) Purchase and entrusted purchase of corporate bonds (including bonds issued by other credit institutions) which have not yet been listed on securities market or have not yet been registered for trading on the Upcom trading system (hereinafter referred to as “unlisted bonds”), excluding the purchase of unlisted bonds with trusted funds to which the trustee bears the risk;

h) Entrustment for credit extension;

i) Making deposits (except for demand deposits made at credit institutions and FBBs, deposits made at social policy banks in accordance with regulations of the Governor of the State Bank of Vietnam on state-owned credit institutions’ maintenance of balance of deposits at social policy banks) at credit institutions and FBBs as prescribed by law, and making deposits (except for demand deposits) at overseas credit institutions;

k) Buying and selling debts according to regulations of the State Bank of Vietnam (hereinafter referred to as “SBV"), except for bad debt buying and selling transactions conducted between credit institutions or FBBs and Vietnam Asset Management Company (VAMC);

l) Repos of government bonds on securities market in accordance with regulations of law on issuance, registration, depositing, listing and trading of government debt instruments on securities market;

m) Purchase of certificates of deposit issued by other credit institutions and FBBs;

n) Issuance of deferred payment L/Cs containing a provision that the beneficiary is entitled to receive sight payment or advanced payment before the L/C due date, and L/C reimbursement in the form of an agreement with the customer to make payment using the reimbursing bank’s funds from the date on which the reimbursing bank pays the beneficiary; L/C payment by negotiation;

o) Outright purchase without recourse of sets of documents presented under L/Cs, except where a commercial bank or FBB buys outright a set of documents presented under an L/C which it issued.

2. Guarantees, L/C operations (excepts those specified in point b clause 1 of this Article), payment acceptances, irrevocable loan commitments and other commitments that give rise to credit risks (hereinafter referred to as “OBS commitments”) must be classified according to the provisions of this Circular for management and supervision of the quality of credit extension activities of commercial banks, non-bank credit institutions and FBBs.

3. Debts against which risk provisions have been used according to provisions of the Government’s Decree prescribing amounts and methods of establishing risk provisions, use of risk provisions for management of risks arising from operations of credit institutions and FBBs, and credit institutions’ allocation of forgivable interests (hereinafter referred to as “Decree on establishment of risk provisions”) shall be managed and monitored by commercial banks, non-bank credit institutions and FBBs according to provisions of the Decree on establishment of risk provisions, and shall not be classified according to provisions of this Circular.

4. If debts are governed by specific regulations of the Government or the Prime Minister on classification of debts, commercial banks, non-bank credit institutions and FBBs shall comply with these regulations.

Article 2. Regulated entities

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

2. An FBB may classify its debts, establish and use risk provisions according to the foreign bank’s risk provision policies after obtaining an approval from SBV.

3. Conditions, documentation requirements and procedures for granting approval of application by FBBs of risk provision policies of foreign banks shall comply with provisions of the Decree on establishment of risk provisions.

4. If an FBB that has obtained SBV’s approval of application of risk provision policies of the foreign bank is found by SBV under an inspection or supervision that the foreign bank’s risk provision policies it is applying do not fully cover all levels of credit risk actually arising from banking operations in Vietnam, SBV may request the FBB to classify its debts in accordance with provisions of this Circular.

Article 3. Definitions

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

1. “credit risk from operations of a bank or non-bank credit institution” (hereinafter referred to as “risk”) means the possibility of loss resulting from a customer’s failure to partially or fully repay debts to that bank or non-bank credit institution under a contract or agreement (hereinafter referred to as “agreement”) that the customer enters into with that bank or non-bank credit institution.

2. “debt” means an amount of money that a bank or non-bank credit institution remits, pays or disburses in installment under an agreement (in case the repayment term or due date varies with each disbursement), or an amount of money that a bank or non-bank credit institution 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 bank or non-bank credit institution. As for loans granted in the form of a credit card, an overdue debt is a debt incurred when a cardholder fails to fulfill his/her debt repayment obligations by the due date specified in an agreement on issuance, use and payment of that credit card with a bank or non-bank credit institution.

4. “rescheduled debt” means a debt of which the repayment term is rescheduled according to SBV’s regulations.

5. “nonperforming loan (NPL)” means a bad debt which is recorded on the balance sheet (on-balance sheet bad debt) and classified into group 3, 4 or 5.

6. “NPL ratio” means the ratio of the amount of NPLs to the total amount of debts from group 1 to group 5.

7. “bad credit extension ratio” means the ratio of the total amount of NPLs and OBS commitments from group 3 to group 5 to the total amount of debts and OBS commitments from group 1 to group 5.

8. “customer” means an organization (including credit institutions and FBBs), individual or any other entity bound by the civil legislation to incur or give rise to agreed-upon repayment or payment obligations to a bank or non-bank credit institution.

9. “other credit risk-bearing commitments” means OBS commitments under which the assets specified in clause 1 Article 1 of this Circular will be established when a bank or non-bank credit institution fulfills obligations to customers.

Article 4. Collection of customer data and information, and information technology (IT)

1. Bank and non-bank credit institutions shall take measures to regularly collect and exploit information and data about customers, including information from the National Credit Information Center of Vietnam (CIC) and credit information companies, in accordance with laws to:

a) Set up, revise and update their internal credit rating systems, and internal regulations on credit extension, debt management and risk provision policies;

b) Monitor and evaluate the financial situation and solvency of customers after they are ranked according to their internal credit rating systems, and take appropriate risk management and credit quality management measures;

c) Carry out classification of debts and OBS commitments according to provisions of this Circular, and set aside and use risk provisions in accordance with provisions of the Decree on establishment of risk provisions.

2. Each bank or non-bank credit institution shall set up an IT system available for use throughout its system to serve the management of customer data and information, operation and management of its internal credit rating system, risk management, classification of debts and OBS commitments, establishment and use of risk provisions.

Article 5. Internal credit rating systems

1. An internal credit rating system consists of:

a) Sets of financial and non-financial indicators, procedures for evaluating customers’ solvency or payment ability on the basis of qualitative and quantitative analysis of finance, business, governance and reputation of customers, including customers that are subject to restrictions on credit extension; information on related persons of customers that are subject to restrictions on credit extension;

b) Methods of assessment and rating of different groups of customers.

2. An internal credit rating system shall be built according to the following rules:

a) It should be built on the basis of data and information of all customers collected during at least 01 (one) year immediately preceding the year in which it is built;

b) At least once a year, it must be reviewed and assessed on the basis of customer data and information collected during the entire year; each bank or non-bank credit institution shall revise and update its internal credit rating system if it’s deemed necessary;

c) There are regulations for rating levels corresponding to the levels of risk that range from low to high;

d) It must be approved for use by the Board of Directors or the Board of Members (if it is used by a commercial bank or non-bank credit institution), or the General Director or the Director (if it is used by an FBB).

3. Commercial banks and FBBs must develop their internal credit rating systems to rank their customers periodically or when necessary, serving as a basis to consider credit extension, manage credit quality, develop risk provision policies suitable to their scope of operations, customers and actual conditions.

Establishment of internal credit rating systems by non-bank credit institutions is optional. If a non-bank credit institution chooses to build its internal credit rating system, its internal credit rating system shall meet the requirements laid down herein.

4. Within 10 (ten) days from the date of introduction, revision or update of its internal credit rating system, the bank or non-bank credit institution must send SBV directly or by post or electronic means as prescribed in clause 5 of this Article the following documents:

a) If a new internal credit rating system is introduced:

(i) Written report on release and application of the internal credit rating system;

(ii) The internal credit rating system, written description of the internal credit rating system, procedures for collection of customer data and information, rating of customers;

(iii) Instructions for use of the internal credit rating system, including decentralization or authorization for collection of customer data and information, and rating of customers;

b) If the internal credit rating system is revised or updated:

(i) Written report on revision or update of the internal credit rating system, in which reasons for such revision or update must be clearly stated;

(ii) Written documents stating revisions or updates to the internal credit rating system and instructions for use of the internal credit rating system.

5. Banks and non-bank credit institutions shall send reports to SBV as prescribed in clause 4 of this Article as follows:

a) Banks and non-bank credit institutions shall send their reports to SBV (via SBV Banking Supervision Agency), except the cases in point b of this clause;

b) If an FBB is subject to microprudential inspection and supervision of a SBV’s provincial branch, it shall submit reports to that SBV’s provincial branch.

Article 6. Internal regulations on credit extension and debt management, and risk provision policies

1. Banks and non-bank credit institutions shall issue their written internal regulations on credit extension and debt management, and risk provision policies in conformity with provisions of this Circular, the Decree on establishment of risk provisions and relevant laws.

2. Internal regulations on credit extension and debt management of a bank or non-bank credit institution shall meet the following requirements as a minimum:

a) They are formulated on the basis of collected customer data and information and ratings given to customers according to its internal credit rating system;

b) They must be applied consistently throughout its entire system as a basis for review and approval of credit extension and debt management for specific customers;

c) They must include regulations of credit policies applied to customers, including those related to credit extension conditions, credit limits, interest rates, application and documentation requirements, and procedures for review and approval of credit extension and debt management;

d) They must include management regulations to ensure compliance with SBV's regulations on prudential ratios and limits for the operations of banks and non-bank credit institutions;

dd) They must include regulations on responsibilities and powers of its departments, affiliates and individuals in the review and approval of credit extension, credit quality management and collateral management;

e) They must include regulations on procedures for inspection and control before, during and after credit extension;

g) They must include regulations on security interest, review and management of collateral;

h) They must include regulations on valuation of collateral, including principles, intervals, methods, procedures and responsibilities of each department, affiliate or individual involved in the valuation of collateral in accordance with the provisions of law to ensure that the value of the collateral corresponds to the market value when calculating the amounts set aside for specific provisions under the Decree on establishment of risk provisions;

i) They must include regulations on debt recovery measures.

3. Risk provision policies of a bank or non-bank credit institution shall meet the following requirements as a minimum:

a) They must be conformable with regulations of laws on accounting, financial, reporting and statistical regimes;

b) They must include procedures for collection of customer data and information to ensure accurate classification of debts, OBS commitments, management of NPLs, management of bad credit balances and risk provisions that are duly set up in full;

c) They must include specific regulations on classification of debts, OBS commitments, amounts and methods of establishing risk provisions and use of provisions against risks arising from its operations towards specific customers on a periodical or ad hoc basis;

d) They must include regulations on powers and responsibilities of its departments, affiliates and individuals involved in classification of debts, OBS commitments, establishment and use of provisions for risks arising from its operations;

dd) It must include mechanisms for inspection, supervision and reporting on implementation of activities prescribed in points a through d of this Clause.

Article 7. Reporting on internal regulations on credit extension and debt management, and risk provision policies

1. Within 10 (ten) days from the date on which its internal regulations on credit extension and debt management and risk provision policies are promulgated or modified as prescribed in Article 6 of this Circular, the bank or non-bank credit institution must send SBV directly or by post or electronic means as prescribed in clause 2 of this Article the following documents:

a) In case of promulgation of new internal regulations on credit extension and debt management and risk provision policies: Internal regulations on credit extension and debt management and risk provision policies;

b) In case of modification of internal regulations on credit extension and debt management, and risk provision policies:

(i) Written report on modification of internal regulations on credit extension and debt management and risk provision policies, in which reasons for such modification must be clearly stated;

(ii) Written documents stating modifications to internal regulations on credit extension and debt management, risk provision policies.

2. Banks and non-bank credit institutions shall send reports to SBV as prescribed in clause 1 of this Article as follows:

a) Banks and non-bank credit institutions shall send their reports to SBV (via SBV Banking Supervision Agency), except the cases in point b of this clause;

b) If an FBB is subject to microprudential inspection and supervision of a SBV’s provincial branch, it shall submit reports to that SBV’s provincial branch.

Article 8. Time and procedures for debt classification

1. At least once a month, within the first 07 (seven) days of the month, each bank or non-bank credit institution shall, pursuant to provisions of clause 4 Article 1, Article 9, Article 10, Article 11 of this Circular, itself carry out classification of debts and OBS commitments by the end of the last day of the preceding month, and send results of its classification of debts and OBS commitments to the CIC.

Apart from the abovementioned classification schedule, banks and non-bank credit institutions shall be allowed to themselves carry out classification of debts and OBS commitments according to their own internal regulations.

2. Within 03 (three) days from the date of receipt of results of classification of debts and OBS commitments from banks and non-bank credit institutions as prescribed in clause 1 of this Article, CIC shall compile a consolidated list of customers whose debts are classified in the debt group with the highest risk level according to classification results received from banks and non-bank credit institutions, and provide this list to banks and non-bank credit institutions.

3. Within 03 (three) days from the date of receipt of the list of customers from CIC as prescribed in clause 2 of this Article, banks and non-bank credit institutions shall adjust debt groups according to the list of customers provided by CIC.

If debts and OBS commitments of a customer, according to classification results prescribed in clause 1 of this Article, are classified in a debt group with a risk level lower than that specified in the list of customers provided by CIC, the bank or non-bank credit institution shall adjust the debt group of debts and OBS commitments of that customer according to the list of customers provided by CIC.

4. Based on inspection and supervision results and relevant credit information, SBV has the right to request banks and non-bank credit institutions to carry out assessment and re-classification of specific debts corresponding to their risk levels.

Chapter II

SPECIFIC PROVISIONS

Section 1. CLASSIFICATION OF DEBTS AND OBS COMMITMENTS

Article 9. Classification rules

1. All outstanding debts and OBS commitments that a customer owes to a bank or non-bank credit institution must be classified into the same debt group which poses the highest risk level among debt groups of debts and/or OBS commitments of that customer.

2. As for a syndicated loan, each credit institution or FBB involved in the grant of the syndicated loan shall notify banks or non-bank credit institutions that are the syndicate members in writing of results of its debt classification which is carried out as according to clause 1 Article 8 of this Circular.

3. In case of an entrusted loan (except entrusted issuance of L/Cs) or entrusted purchase of unlisted bonds where the trustee has not yet fully received the disbursement of trust funds under the entrustment contract, the bank or non-bank credit institution that acts as the trustor 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.

In case of entrusted issuance of L/C, after the trustee makes payment to the beneficiary, the trustee shall classify the payment made on behalf of the trustor under the entrustment contract and the trustor shall classify the payment made on behalf of the applicant under commitments in the L/C according to point b clause 4 Article 10 of this Circular.

4. If proceeds from selling a debt (except debts against which risk provision has been used) have not yet been collected in full, the bank or non-bank credit institution that acts as the seller shall classify the uncollected amount of proceeds to be earned under the debt sales and purchase contract as an unsold debt. To be specific:

The bank or non-bank credit institution that acts as the seller shall classify the amount which is not yet collected from the buyer into the debt group into which the sold debt has been classified according to results of the debt classification conducted immediately before the debt is sold, and based on information on loan term or period and other information available in the credit contract signed with the customer whose debt is sold, further classify such uncollected amount as prescribed in this Circular.

5. If the transferee sells a debt to the transferor under a mandatory transfer plan approved by a competent authority (both the transferor and the transferee are credit institutions) but proceeds from such selling transaction have not yet collected in full, the transferee shall classify the amount which is not yet collected from the transferor according to clause 4 of this Article, and shall not be bound to comply with provisions of point dd(viii) clause 1 Article 10 of this Article and adjust the debt group according to the list of customers provided by CIC as prescribed in clause 3 Article 8 of this Circular (if any) during the implementation of such mandatory transfer plan.

6. With respect to a purchased debt, at the time of purchase, the bank or non-bank credit institution that acts as debt buyer shall classify the payment for debt purchase into a debt group with a risk level which is not lower than the risk level of the debt group into which that debt has been classified according to results of the latest debt classification before purchase, and further classify such payment as the debt at the bank or non-bank credit institution as prescribed in this Circular.

7. As for amounts used for purchasing, or entrusted to other organizations (including credit institutions or FBBs) to purchase unlisted bonds, banks or non-bank credit institutions shall classify them as loans taken out by bond issuers; where corporate bonds are guaranteed, such amounts shall be classified as secured loans taken out by bond issuers.

Amounts used for purchasing or entrusted to other organizations to purchase unlisted bonds whose term is extended in accordance with regulations of law shall be classified as loans with extended term.

8. In case of discounting of negotiable instruments and other valuable papers:

a) Existing in the form of buying forward: Banks and non-bank credit institutions shall classify discounts in this form as loans granted to beneficiaries;

b) Existing in the form of buying with recourse: Banks and non-bank credit institutions shall classify discounts in this form as loans granted to beneficiaries as follows:

Before the bank or non-bank credit institution exercises the right of recourse under the discounting contract, it shall, based on the issuer’s fulfillment of its obligations to repay debt or make payment under the agreement on issuance of negotiable instrument or valuable paper, and information/data on the beneficiary's solvency, classify the discount amount.

From the time the bank or non-bank credit institution exercises the right of recourse under the discounting contract, it shall, based on the period during which the debt repayment or payment is past due under the agreement on issuance of negotiable instrument or valuable paper, and the beneficiary's solvency, further classify the discount amount into the debt group with appropriate risk level.

9. As for debts involved in the violation referred to in point c(iv) clause 1 Article 10 of this Circular, at the time of discovery of this violation, banks and non-bank credit institutions must immediately make debt recovery decisions in accordance with regulations of law.

As for debts that need to be recovered according to inspection and examination conclusions or decisions on imposition of administrative penalties (hereinafter referred to as “inspection conclusions”), banks and non-bank credit institutions must immediately make decisions to collect debts under these inspection conclusions.

As for debts involved in the violation referred to in point c(iv) clause 1 Article 10 of this Circular and debts that need to be recovered according to inspection conclusions, banks and non-bank credit institutions shall not be allowed to reschedule debt repayment and, pending the recovery of debts according to recovery decisions, shall classify such debts in accordance with this Circular.

10. As for debts that arise from factoring:

a) In case of factoring for buyers, factoring for sellers without repayment commitment: the bank or non-bank credit institution shall, based on the buyer’s fulfillment of its obligations to repay debts or make payments under the factoring contract, classify the factoring debt as a loan granted to the buyer;

b) In case of factoring for sellers with repayment commitment: the bank or non-bank credit institution shall, based on the seller’s fulfillment of its obligations to repay debts or make payments under the factoring contract, classify the factoring debt as a loan granted to the seller.

11. In case of repos of government bonds, the bank or non-bank credit institution shall classify the payment made for purchase of bonds as a loan granted to the seller in the purchase transaction (1^st transaction) in accordance with regulations of law on registration, depository, listing, trading and settlement of government debt instruments, government-guaranteed bonds issued by policy banks, and municipal bonds.

12. As for payments made for purchase of certificates of deposit issued by other credit institutions or FBBs, banks and non-bank credit institutions shall classify such payments as loans granted to such issuing credit institutions or FBBs.

13. As for debts arising from L/C operations:

a) Regarding issuance of L/Cs:

(i) Where a bank issues a sight or deferred payment L/C (except the case specified in point a(ii) of this clause), the bank shall classify the payment made on behalf of the applicant under commitments in the L/C according to provisions of point b clause 4 Article 10 of this Circular from the date on which the bank pays the beneficiary;

(ii) Where a bank issues a deferred payment L/C containing a provision that the beneficiary is entitled to receive sight payment or advanced payment before the L/C due date, the bank shall classify the debt arising from L/C operations as a loan granted to the applicant from the date on which the bank pays the beneficiary;

b) Regarding confirmation of L/Cs:

The confirming bank shall classify the payment made on behalf of the issuing bank as committed in the L/C, and the issuing bank shall classify the payment made on behalf of the applicant as committed in the L/C according to point b clause 4 Article 10 of this Circular from the date on which the confirming bank pays the beneficiary;

c) Regarding L/C payment by negotiation:

The negotiating bank shall classify payments made to the beneficiary in performing L/C operations as discounts on negotiable instruments and other valuable papers prescribed in clause 8 of this Article;

d) Regarding reimbursement of L/Cs:

(i) In case of reimbursing an L/C in the form of issuing a reimbursement undertaking, the reimbursing bank shall classify the payment made on behalf of the issuing bank as committed in the L/C according to point b clause 4 Article 10 of this Circular from the date on which the reimbursing bank pays the beneficiary;

(ii) In case of reimbursing an L/C in the form of an agreement with the customer to make payment using the reimbursing bank’s funds (except the case prescribed in point d(i) of this clause), the reimbursing bank shall classify the debt arising from L/C operations as a loan granted to the issuing bank from the date on which the reimbursing bank pays the beneficiary;

dd) In case of outright purchase without recourse of sets of documents under L/Cs, banks and non-bank credit institutions shall classify payments made for such purchase transactions as loans granted to issuing banks or confirming banks.

14. Where an assisting credit institution grants a loan to or makes deposits at the credit institution that is placed under special control as prescribed in clause 9 Article 174 of the Law on Credit Institutions, the assisting credit institution shall classify the loan debt or deposited amount into the group of standard debts and shall not be required to adjust the debt group according to the list of customers provided by CIC as prescribed in clause 3 Article 8 of this Circular (if any).

15. Where a credit institution that acts as a transferee under a mandatory transfer plan and other credit institutions grant loans, provide guarantees or make deposits at a commercial bank that is the transferor under that transfer plan as prescribed in clause 2 Article 182 of the Law on Credit Institutions, they shall classify such loan debts, guaranteed amounts and deposits into the group of standard debts and shall not be required to adjust the debt group according to the list of customers provided by CIC as prescribed in clause 3 Article 8 of this Circular (if any) during the implementation of that mandatory transfer plan.

16. As for a rescheduled debt, the number of debt rescheduling times shall be counted over the period from the time the debt is incurred until it is fully paid by the customer to the bank or non-bank credit institution.

Article 10. Classification of debts and OBS commitments using quantitative method

1. Banks and non-bank credit institutions shall classify debts (except on-behalf payments under OBS commitments) into the following 05 groups:

a) Group 1 (Standard debts), including:

(i) Any unmatured debt both principal and interest of which are rated likely to be fully recovered by due date;

(ii) Any debt which is less than 10 days past due and whose overdue principal and interest are rated likely to be fully recovered while its remaining principal and interest are rated likely to be fully recovered by due date;

(iii) Any debt classified into group 1 as prescribed in clause 2 of this Article;

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

(i) Any debt which is up to 90 days past due, except the debts specified in point a(ii) of this clause, and clause 3 of this Article;

(ii) Any debt with first-time adjusted repayment terms that is unmatured, except the debts specified in point b clause 2, and clause 3 of this Article;

(iii) Any debt classified into group 2 as prescribed in clauses 2, 3 of this Article;

c) Group 3 (Substandard debts), including:

(i) Any debt which is from 91 to 180 days past due, except the debts specified in clause 3 of this Article;

(ii) Any debt with first-time extended repayment term that is unmatured, except the debts specified in point b clause 2, and clause 3 of this Article;

(iii) Any debt on which interest is exempted or reduced due to the customer’s inability to pay the agreed-upon interest in full, except the debts specified in clause 3 of this Article;

(iv) Any debt which falls in one of the following cases and has not yet been recovered within a period of less than 30 days from the date on which the bank or non-bank credit institution signs the debt recovery document (hereinafter referred to as “debt recovery decision"):

- A debt violating provisions of clauses 1, 3, 4, 5, 6 Article 134 of the Law on Credit Institutions;

- A debt violating provisions of clauses 1, 2, 3, 4 Article 135 of the Law on Credit Institutions;

- A debt violating provisions of clauses 1, 2, 5, 9 Article 136 of the Law on Credit Institutions;

(v) Any debt which is being recovered according to inspection conclusions;

(vi) Any debt which needs to be recovered under a premature debt recovery decision issued by the bank or non-bank credit institution due to the customer’s breach of agreements made with the bank or non-bank credit institution but is not yet recovered within a period of less than 30 days from the effective date of the debt recovery decision;

(vii) Any debt classified into group 3 as prescribed in clauses 2, 3 of this Article;

(viii) Any debt which must be classified into group 3 as prescribed in clause 4 Article 8 of this Circular;

d) Group 4 (Doubtful debts), including:

(i) Any debt which is from 181 to 360 days past due, except the debts specified in clause 3 of this Article;

(ii) Any first-time rescheduled debt which is up to 90 days past due from the first-time rescheduled maturity date, except the debts specified in clause 3 of this Article;

(iii) Any second-time rescheduled debt which is unmatured, except the debts specified in point b clause 2, and clause 3 of this Article;

(iv) The debt specified in point c(iv) clause 1 of this Article which is not yet recovered in a period of 30 to 60 days from the effective date of the recovery decision;

(v) Any debt which needs to be recovered under an inspection conclusion but is not yet recovered in a period of up to 60 days after the expiration of the prescribed recovery deadline;

(vi) Any debt which needs to be recovered under a premature debt recovery decision issued by the bank or non-bank credit institution due to the customer’s breach of agreements made with the bank or non-bank credit institution but is not yet recovered within a period of 30 to 60 days from the effective date of the debt recovery decision;

(vii) Any debt classified into group 4 as prescribed in clauses 2, 3 of this Article;

(viii) Any debt which must be classified into group 4 as prescribed in clause 4 Article 8 of this Circular;

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

(i) Any debt which is more than 360 days past due;

(ii) Any first-time rescheduled debt which is at least 91 days past due from the first-time rescheduled maturity date;

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

(iv) Any third- or more-time rescheduled debt, except the debts specified in point b clause 2 of this Article;

(v) The debt specified in point c(iv) clause 1 of this Article which is not yet recovered in a period of more than 60 days from the effective date of the recovery decision;

(vi) Any debt which needs to be recovered under an inspection conclusion but is not yet recovered in a period of more than 60 days after the expiration of the prescribed recovery deadline;

(vii) Any debt which needs to be recovered under a premature debt recovery decision issued by the bank or non-bank credit institution due to the customer’s breach of agreements made with the bank or non-bank credit institution but is not yet recovered within a period of more than 60 days from the effective date of the debt recovery decision;

(viii) Any debt owned by a customer that is a credit institution placed under special control, or FBB of which capital and assets are frozen;

(ix) Any debt classified into group 5 as prescribed in clause 3 of this Article;

(x) Any debt which must be classified into group 5 as prescribed in clause 4 Article 8 of this Circular;

2. A debt may be classified into a debt group with lower risk level in the following cases:

a) For an overdue debt, the bank or non-bank credit institution may reclassify it into a group with lower risk level (including group 1) when the following conditions are met:

(i) The customer has fully paid the overdue principal and interest (including interest on overdue principal), and those in the next repayment terms (if any) within at least 03 (three) months, for medium- and long-term debts, or 01 (one) month, for short-term debts, from the date on which the overdue principal and interest has been fully repaid;

(ii) Documentary evidences of the customer’s debt repayment are available;

(iii) The bank or non-bank credit institution has sufficient information and documents to evaluate the customer’s ability to fully pay the remaining principal and interest by the predetermined due date;

b) For a rescheduled debt, the bank or non-bank credit institution may reclassify it into a group with lower risk level (including group 1) when the following conditions are met:

(i) The customer has fully paid the principal and interest varying according to the rescheduled repayment term in at least 03 (three) months, for medium- and long-term debts, or 01 (one) month, for short-term debts, from the start date of full repayment of the principal or interest according to the rescheduled repayment term, or, if both principal and interest have the same repayment term, from the start date of full repayment of such principal and interest;

(ii) Documentary evidences of the customer’s debt repayment are available;

(iii) The bank or non-bank credit institution has sufficient information and documents to evaluate the customer’s ability to fully pay the remaining principal and interest by the rescheduled due date;

c) For a debt on which interest is exempted or reduced according to the SBV’s regulations on debt rescheduling, interest exemption and reduction, and retention of debt groups to assist customers affected by Covid-19 pandemic, the bank or non-bank credit institution may reclassify it into a group with lower risk level (including group 1) when the following conditions are met:

(i) The customer has fully paid the principal and interest in at least 03 (three) months, for medium- and long-term debts, or 01 (one) month, for short-term debts, from the start date of full repayment of the principal or interest of the last repayment term after the expiration of interest exemption/reduction period, or, if both principal and interest have the same repayment term, from the start date of full repayment of such principal and interest of the last repayment term after the expiration of interest exemption/reduction period;

(ii) Documentary evidences of the customer’s debt repayment are available;

(iii) The bank or non-bank credit institution has sufficient information and documents to evaluate the customer’s ability to fully pay the remaining principal and interest by the predetermined due date.

3. A debt may be classified into a debt group with higher risk level in the following cases:

a) The indicators such as profitability, solvency, debt-to-capital ratio and cash flows affecting the customer's debt repayment ability decrease progressively after 03 continual evaluation or debt classification sessions;

b) The customer fails to provide sufficient, timely and truthful information at the request of the bank or non-bank credit institution to serve its evaluation of the customer’s debt repayment ability;

c) A debt has been classified into group 2, group 3 or group 4 as prescribed in points a and b of this clause for 01 (one) year or longer, but fails to meet conditions for being reclassified into a group with lower risk level;

d) Any debt arising from the act of credit extension for which a decision on imposition of administrative penalties is issued in accordance with regulations of law.

4. Classification of OBS commitments and on-behalf payments under OBS commitments:

a) Classification of OBS commitments:

(i) They are classified into group 1 if banks and non-bank credit institutions judge that their customers are able to fulfill their obligations according to commitments;

(ii) They are classified into group 2 or the following groups if banks and non-bank credit institutions judge that their customers are unable to fulfill their obligations according to commitments;

(iii) Those falling in the case specified in point c(iv) clause 1 of this Article shall be classified into group 3 or the following groups;

b) Classification of on-behalf payments under OBS commitments:

(i) Days past due are counted immediately after the bank or non-bank credit institution performs their promised obligations;

(ii) On-behalf payments under OBS commitments are classified into:

- Group 3 if they are less than 30 days past due;

- Group 4 if they are 30 to less than 90 days past due;

- Group 5 if they are at least 90 days past due.

If an on-behalf payment is classified into a group with a risk level lower than the group into which the OBS commitment under which the on-behalf payment is made is classified as prescribed in points a(ii) and a(iii) of this clause, it must be transferred to the latter.

Article 11. Classification of debts and OBS commitments using qualitative method

1. Banks and non-bank credit institutions may classify debts and OBS commitments according to provisions of this clause after obtaining SBV’s approval. Banks and non-bank credit institutions shall classify debts and OBS commitments into the following 05 groups:

a) Group 1 (Standard debts), including:

Debts of which both principal and interest are rated by the bank or non-bank credit institution to be recoverable in full by due dates.

OBS commitments with customers that are able to fulfill their agreed-upon obligations according to evaluation by the bank or non-bank credit institution;

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

Debts with the principal and interest that are likely to be recovered in full, but customers showing signs of decrease in ability to pay according to the evaluation of the bank or non-bank credit institution.

OBS commitments with customers that are able to fulfill their agreed-upon obligations but show signs of decrease in ability to pay according to evaluation by the bank or non-bank credit institution;

c) Group 3 (Substandard debts), including:

Debts with the principal and interest that are unlikely to be recovered by due dates according to the evaluation of the bank or non-bank credit institution. These debts are rated by the bank or non-bank credit institution as those likely to cause loss.

OBS commitments with customers that are unable to fulfill their agreed-upon obligations according to evaluation by the bank or non-bank credit institution.

Debts which must be classified into group 3 as prescribed in clause 4 Article 8 of this Circular;

d) Group 4 (Doubtful debts), including:

Debts which are rated by the bank or non-bank credit institution as those posing high risk of causing loss.

OBS commitments with high possibility that customers fail to fulfill their commitments.

Debts which must be classified into group 4 as prescribed in clause 4 Article 8 of this Circular;

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

Debts which are rated by the bank or non-bank credit institution as those unlikely to be recovered and posing risk of causing loss.

OBS commitments with possibility that customers are unable to fulfill their agreed-upon obligations.

Debts which must be classified into group 5 as prescribed in clause 4 Article 8 of this Circular.

2. When classifying debts and OBS commitments according to clause 1 of this Article, a bank or non-bank credit institution must fully meet the following requirements:

a) It has an internal credit rating system which is suitable for its business activities, customers, and the nature of risks of debts, and has been tested for a period of at least 01 (one) year;

b) It adopts risk provision policies as prescribed in clause 3 Article 6 of this Circular;

c) It adopts credit risk management policies, credit risk monitoring models, methods for identification and measurement of credit risks (including approaches for evaluation of customer’s ability to repay debts under credit contracts, collateral and debt recoverability) and management of debts;

d) It clearly defines the responsibilities and powers of its Board of Directors, Board of Members, and General Director (Director) regarding approval, promulgation and inspection of the implementation of its internal credit rating system, risk provision policies and independence of risk management departments.

3. A bank or non-bank credit institution sends the SBV’s headquarters (Single-window Service Section) an application for the SBV’s approval for classification of debts and OBS commitments according to clause 1 of this Article. Such application includes:

a) An application form made by the bank or non-bank credit institution for the SBV’s approval for classification of debts and OBS commitments using qualitative method according to clause 1 of this Article, which must clearly state evidences of its satisfaction of the requirements laid down in clause 2 of this Article;

b) Copies of its internal credit rating system, risk provision policies and credit risk management policies, and draft manuals for classification of debts and OBS commitments and establishment of risk provision, and documents proving its satisfaction of the requirements laid down in clause 2 of this Article.

4. Within 30 (thirty) days of receipt of an adequate and valid application as prescribed in clause 3 of this Article, SBV shall send its written approval to the bank or non-bank credit institution. In case of refusal, SBV shall clearly state written reasons for such refusal.

5. Banks and non-bank credit institutions shall annually revaluate their internal credit rating systems, risk provision policies and credit risk management policies according to provisions of this Circular and SBV’s regulations on internal control systems of banks and non-bank credit institutions.

6. The bank or non-bank credit institution that is granted approval for classification of debts and OBS commitments according to clause 1 of this Article shall comply with the following provisions:

a) Within 03 (three) years from the date on which the SBV's approval is granted, the bank or non-bank credit institution shall simultaneously classify its debts and OBS commitments according to provisions of clause 1 of this Article and Article 10 of this Circular. If a debt or OBS commitment is classified according to Article 10 of this Circular into a group different from that into which it is classified according to clause 1 of this Article, it shall be classified into the group with higher risk level.

During the period specified in this point, the bank or non-bank credit institution shall review and revise its internal credit rating system, risk provision policies and credit risk management policies (when necessary) to comply with the rule set out in point b(ii) of this clause;

b) Within 02 (two) consecutive years from the end of the period specified in point a of this clause, the bank or non-bank credit institution shall:

(i) simultaneously classify its debts and OBS commitments according to provisions of clause 1 of this Article and Article 10 of this Circular;

(ii) comply with the rule that total risk provision set aside for each fiscal year on the basis of results of debt classification conducted according to clause 1 of this Article shall not be smaller than that set aside on the basis of results of debt classification conducted according to Article 10 of this Circular;

(iii) use results of debt classification conducted according to clause 1 of this Article as the basis for setting aside risk provision for each specific fiscal year in accordance with the Decree on establishment risk provisions, if the rule in point b(ii) of this clause is observed;

c) Upon the end of the periods specified in points a and b of this Clause, if the rule in point b(ii) of this clause is observed, the bank or non-bank credit institution shall classify debts and OBS commitments according to provisions of clause 1 of this Article, except the cases specified in clauses 7 and 8 of this Article.

Upon the end of the period specified in point a of this Clause, if the bank or non-bank credit institution fails to comply with the rule in point b(ii) of this clause, it shall classify debts and OBS commitments using quantitative method as prescribed in Article 10 of this Circular;

dd) During the periods specified in points a and b of this Clause, the bank or non-bank credit institution shall submit annual reports on its implementation of the provisions of points a and b of this clause to SBV.

7. Where a bank or non-bank credit institution that is eligible to classify debts and OBS commitments using the method in clause 1 of this Article as prescribed in point c clause 6 of this Article makes revisions or amendments to its internal credit rating system, risk provision policies and/or credit risk management policies, it shall be required to send SBV a report on such revisions or amendments which must include assessment of its compliance with the rule that total risk provision set aside on the basis of results of debt classification conducted according to clause 1 of this Article after such revisions or amendments are made shall not be lower than total risk provision set aside on the basis of results of debt classification conducted according to Article 10 of this Circular for the fiscal year in which its revised or amended internal credit rating system, risk provision policies and/or credit risk management policies are applied. If a bank or non-bank credit institution finds that it fails to comply with this rule, it shall classify debts and OBS commitments using quantitative method as prescribed in Article 10 of this Circular.

8. Based on inspection and supervision results, if SBV judges that the levels of risks which may actually arise from operations of the bank or non-bank credit institution are not fully reflected when it applies the qualitative method as prescribed in clause 1 of this Article, SBV is entitled to request that bank or non-bank credit institution to apply the quantitative method as prescribed in Article 10 of this Circular.

Section 2. MANAGEMENT OF DEBTS AND OBS COMMITMENTS, ESTABLISHMENT AND USE OF RISK PROVISIONS

Article 12. Management of debts and OBS commitments, establishment and use of risk provisions

1. Each bank or non-bank credit institution must set up a department (or others having similar functions) for management of debts and OBS commitments at its headquarters or office (if it is an FBB) to manage classification of debts and OBS commitments, establishment and use of risk provisions throughout its entire system in accordance with regulations of law.

2. A department in charge of managing debts and OBS commitments shall have the following responsibilities:

a) Formulate and request the General Director (Director) to submit the following documents to the Board of Directors or Board of Members (for commercial banks and non-bank credit institutions), or formulate and submit them directly to the General Director (Director) (for FBBs) for approval and promulgation:

(i) Internal credit rating system and revisions or amendments thereto;

(ii) Risk provision policies and revisions or amendments thereto;

b) Formulate and submit regulations on management and operation of internal credit rating system, collection and update of customer data and information to the General Director (Director) for promulgation;

c) Manage and operate the internal credit rating system;

d) Manage classification of debts and OBS commitments, and establishment and use of risk provision throughout the entire system;

dd) Consolidate, report and give recommendations to the Risk Management Commitment for dealing with matters falling under its jurisdiction according to provisions of the Decree on establishment of risk provisions;

e) Manage and monitor compliance of entities and individuals with provisions of point dd clause 3 Article 6 of this Circular;

g) Provide information and cooperate with functional units in headquarters in formulating and requesting the General Director (Director) to submit internal regulations on credit extension and debt management and any revisions or amendments thereto to the Board of Directors or Board of Members (for commercial banks and non-bank credit institutions), or formulating and requesting them directly to the General Director (Director) (for FBBs) for promulgation;

h) Perform other tasks as prescribed in internal regulations of the bank or non-bank credit institution.

Article 13. Reporting

1. Banks and non-bank credit institutions shall submit reports on classification of debts and OBS commitments, and establishment and use of risk provisions in accordance with SBV’s regulations on statistical reporting applicable to credit institutions and FBBs.

2. Banks and non-bank credit institutions shall provide CIC with information required by SBV’s regulations on credit information activities and as prescribed in this Circular.

3. Banks and non-bank credit institutions shall submit annual reports to the General Meeting of Shareholders (for joint-stock credit institutions), owners (for credit institutions that are single-member limited liability companies), capital-contributing members (for credit institutions that are multi-member limited liability companies) or parent banks (for FBBs) on results of classification of debts and OBS commitments, establishment and use of risk provisions for managing risks.

Chapter III

RESPONSIBILITIES OF SBV

Article 14. Responsibilities of SBV

1. The SBV Banking Supervision Agency shall:

a) Receive internal regulations on credit extension and debt management, and risk provision policies of banks and non-bank credit institution as prescribed in Articles 6 and 7 of this Circular to serve the performance of microprudential supervision and inspection activities;

b) Carry out inspection and supervision, and take actions against violations against regulations on classification of debts and OBS commitments, establishment and use of risk provisions of banks and non-bank credit institutions within its jurisdiction and in accordance with regulations of law;

c) Process applications submitted by FBBs for approval of application of risk provision policies of parent banks, and applications submitted by banks and non-bank credit institutions for approval for classification of debts and OBS commitments using qualitative method.

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 and OBS commitments, establishment and use of risk provisions of banks and non-bank credit institutions.

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

4. CIC shall compile and provide consolidated lists of customers whose debts are classified in the debt group with the highest risk level to banks and non-bank credit institution as prescribed in clause 2 Article 8 of this Circular.

5. Each SBV’s provincial branch shall:

a) Receive internal regulations on credit extension and debt management, and risk provision policies of banks and non-bank credit institution as prescribed in Articles 6 and 7 of this Circular to serve the performance of microprudential supervision and inspection activities;

b) Carry out inspection and supervision, and take actions against violations against regulations on classification of debts and OBS commitments, establishment and use of risk provisions of local banks and non-bank credit institutions within its jurisdiction and in accordance with regulations of law.

Chapter IV

IMPLEMENTATION

Article 15. Transition

1. FBBs that have obtained SBV’s approval for application of risk provision policies of their parent banks before the effective date of this Circular shall continue classifying debts according to risk provision policies of their parent banks, except the case specified in clause 4 Article 2 of this Circular.

2. Banks and non-bank credit institutions that have obtained SBV’s approval for classification of debts and OBS commitments using qualitative method before the effective date of this Circular shall continue complying with such SBV’s approval, except the cases specified in clauses 7 and 8 Article 11 of this Circular.

3. As for payments made for purchase of exchange bills or treasury bills issued by other credit institutions or FBBs before the effective date of this Circular, banks and non-bank credit institutions shall classify them as payments made for purchase of certificates of deposit as prescribed in clause 12 Article 9 of this Circular.

Article 16. Implementation

1. This Circular comes into force from July 01, 2024.

2. The Circular No. 11/2021/TT-NHNN dated July 30, 2021 of the SBV’s Governor prescribing classification of assets, amounts and methods of establishing risk provisions, use of risk provisions for management of risks arising from operations of credit institutions and FBBs ceases to have effect from the effective date of this Circular, except provisions of clause 3 of this Article.

3. As for the classification, conducted in July 2024, of debts and OBS commitments by the end of June 30, 2024, banks and non-bank credit institutions shall comply with provisions of the Circular No. 11/2021/TT-NHNN dated July 30, 2021 of the SBV’s Governor.

Article 17. Responsibility for implementation

The Chief of Office, Head of the SBV Banking Supervision Agency, heads of units affiliated to the SBV, banks and non-bank credit institution are responsible for the implementation of this Circular./.

PP. GOVERNOR DEPUTY GOVERNOR Doan Thai Son