Vietnam: What are the risk treatment approaches when supporting small and medium enterprises for direct lending? What are the principles of treatment of lending risks?
- What are the principles of treatment of lending risks?
- What are the risk treatment approaches when supporting small and medium enterprises for direct lending?
- Who has the authority to treat risks when lending to small and medium-sized enterprises directly?
- What are the regulations on the use of loan loss provisions for treatment of lending risks of the Fund?
What are the principles of treatment of lending risks?
According to the provisions of Article 39 of Decree No. 39/2019/ND-CP on the principles of treatment of lending risks of the Small and Medium Enterprise Development Fund in Vietnam as follows:
Principles of treatment of lending risks
1. The Fund’s treatment of lending risks must ensure conformance to regulations of law.
2. Risk treatment shall take place after causes of risks, risk levels, business and production conditions, financial status, repayment capacity of the borrowing enterprise and conformance to the requirement for sufficient related dossiers are considered, must be on time and follow the right processes defined herein. 3. Risk treatment may be carried out with the aim of minimizing losses or damage to the state and charging the Fund, borrower and other organizations involved with recovery of debt repayments.
4. Risk treatment approaches are arranged in order of priority and the one that does not cause or less causes loss of state capital will be preferred.
5. A debt may be subject to one or multiple risk treatment approaches prescribed herein.
6. The Fund’s risk acceptance ratio shall not exceed 5% on the date ending the fiscal year.
Thus, the treatment of lending risks of the Small and Medium Enterprise Development Fund in Vietnam is carried out according to the above principles.
Vietnam: What are the risk treatment approaches when supporting small and medium enterprises for direct lending? What are the principles of treatment of lending risks?
What are the risk treatment approaches when supporting small and medium enterprises for direct lending?
According to the provisions of Article 40 of Decree No. 39/2019/ND-CP, approaches to treating risks incurred from direct lending debts owed of the Fund shall be comprised of the followings:
- Adjustments in debt repayment term/debt owed;
- Debt rescheduling;
- Debt charge-off;
- Outstanding interest write-off;
- Outstanding principal write-off;
- Debt sale;
- Disposal of property put up as security for borrowed funds;
- Other risk treatment measures prescribed by law.
Risk treatment approaches to indirect lending outstanding debt shall be subject to regulations adopted by the State Bank of Vietnam on risk treatment approaches to credit operations.
Who has the authority to treat risks when lending to small and medium-sized enterprises directly?
According to the provisions of Clause 1, Article 41 of Decree No. 39/2019/ND-CP on the authority to treat risks:
Authority to treat risks
1. Authority to treat risks arising from direct lending
a) Prime Minister shall consider deciding on the risk treatment approaches prescribed in point dd, e and g of clause 1 of Article 40 herein in the event that such risk causes the depreciation of the Fund’s chartered capital;
b) Minister of Planning and Investment shall consider deciding on the risk treatment approaches prescribed in point c, d and dd of clause 1 of Article 40 herein in the event that such risk does not cause the depreciation of the Fund’s chartered capital;
c) The Fund shall consider deciding on the risk treatment approaches prescribed in point a, b, e, g and h of clause 1 of Article 40 herein in the event that such risk does not cause the depreciation of the Fund’s chartered capital;
d) In case where the risk acceptance rate exceeds 5% at end of a fiscal year, the Ministry of Planning and Investment shall preside over cooperating with the Ministry of Finance in reporting to the Prime Minister to consider making his decision.
2. Authority to treat risks arising from indirect lending
Authority to decide approaches to treating indirect lending risks shall be subject to regulations adopted by the State Bank of Vietnam on authority to treat risks from credit operations.
Thus, those who have the authority to treat risks arising from direct lending include:
- Prime Minister shall consider deciding on the risk treatment approaches in the event that such risk causes the depreciation of the Fund’s chartered capital;
- Minister of Planning and Investment shall consider deciding on the risk treatment approaches in the event that such risk does not cause the depreciation of the Fund’s chartered capital;
- The Fund shall consider deciding on the risk treatment approaches in the event that such risk does not cause the depreciation of the Fund’s chartered capital;
- In case where the risk acceptance rate exceeds 5% at end of a fiscal year, the Ministry of Planning and Investment shall preside over cooperating with the Ministry of Finance in reporting to the Prime Minister to consider making his decision.
What are the regulations on the use of loan loss provisions for treatment of lending risks of the Fund?
According to the provisions of Article 42 of Decree No. 39/2019/ND-CP on this content as follows:
- The Fund shall use loan loss provisions for treatment of direct lending risks:
+ If the loan loss provision amount is not sufficient for treatment of all of lending risks from debts to be treated, the Fund shall set aside part of the financial reserve fund as provided in Article 51 herein. After using up available funds included in the financial reserve fund, in case of deficiency remaining, the Fund shall directly record the negative difference in operating expenses;
+ If the residual amount of loan loss provision already set aside is greater than the amount of loan loss provision to be set aside, the Fund shall reversely record it as the positive difference.
- Banks may use loan loss provisions for treatment of risks from outstanding indirect lending debts in accordance with regulations of the State Bank of Vietnam on use of provisions for treatment of risks arising from operations of credit institutions.
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