Classification of Assets in the Operations of Commercial Banks, Non-Bank Credit Institutions, and Foreign Bank Branches According to Circular 31/2024/TT-NHNN
Circular 31/2024/TT-NHNN on classification of assets in the operations of commercial banks, non-bank credit institutions, foreign bank branches
On June 30, 2024, the Governor of the State Bank of Vietnam promulgated Circular 31/2024/TT-NHNN on the classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches.
Circular 31/2024/TT-NHNN applies to:
- Commercial banks, non-bank credit institutions, foreign bank branches.
- Foreign bank branches are allowed to apply the risk provisioning policies of foreign banks for debt classification, provisioning, and using the provisions to address risks after being approved by the State Bank.
- The conditions, profiles, procedures, and formalities for the approval of foreign bank branches applying the risk provisioning policies of foreign banks are implemented in accordance with the provisions of the Decree on provisioning.
- For foreign bank branches that have been approved by the State Bank to apply the risk provisioning policies of foreign banks, based on inspection, supervision and evaluation results, if the State Bank assesses that the risk provisioning policies of the foreign banks do not adequately reflect the actual credit risk levels in banking activities in Vietnam, the State Bank has the right to request foreign bank branches to classify debts according to the provisions of Circular 31/2024/TT-NHNN.
Circular 31/2024/TT-NHNN takes effect from July 01, 2024, and concurrently annuls Circular 11/2021/TT-NHNN on the classification of assets, provisioning rates, provisioning methods, and the use of provisions for handling risks in the operations of credit institutions and foreign bank branches.
*According to the Law on Credit Institutions 2024:
- A commercial bank is a type of bank that conducts all banking activities and other business activities as stipulated by this Law for profit purposes.
- A non-bank credit institution is a credit institution that performs one or several banking activities as defined by this Law, except for receiving deposits from individuals and providing payment services through customers' accounts. Types of non-bank credit institutions include general finance companies and specialized finance companies.
- A foreign bank branch is an economic organization without legal status and is a dependent unit of a foreign bank, which is guaranteed by the foreign bank to be responsible for all obligations and commitments of the branch in Vietnam.
Classification of assets in the operations of commercial banks, non-bank credit institutions, foreign bank branches according to Circular 31/2024/TT-NHNN? (Image from the Internet)
What principles must the internal credit rating system be built upon?
Based on Article 5 of Circular 31/2024/TT-NHNN, the internal credit rating system is regulated as follows:
Internal Credit Rating System
- The internal credit rating system comprises:
a) Sets of financial and non-financial criteria, processes for assessing customers' repayment abilities based on qualitative and quantitative financial aspects, business conditions, management, and reputation of customers, including those who are restricted from obtaining credit; information on individuals related to customers who are restricted from obtaining credit;
b) Methods for evaluating and rating different customer groups.
2. The internal credit rating system must be built on the following principles:
a) Constructed based on data and information of all customers collected over at least the one-year period preceding the year the internal credit rating system is built;
b) At least once a year, the internal credit rating system must be reviewed and evaluated based on the data and information of customers collected during the year; banks and non-bank credit institutions shall amend and supplement the internal credit rating system (if necessary);
c) Includes regulations on rating levels corresponding to risk levels from low to high;
d) Approved for application by the Board of Directors, Members' Council (for commercial banks, non-bank credit institutions), General Director, or Director (for foreign bank branches).
- Commercial banks and foreign bank branches must establish an internal credit rating system to periodically rate customers and when necessary, as a basis for credit approval, credit quality management, and formulating risk provisioning policies suitable to the operational scope, customer groups, and actual conditions of the commercial banks and foreign bank branches.
Non-bank credit institutions are not required to have an internal credit rating system. If non-bank credit institutions establish an internal credit rating system, it must comply with the regulations of this Circular.
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Thus, the internal credit rating system must be built upon the following principles:
- Constructed based on data and information of all customers collected over at least the one-year period preceding the year the internal credit rating system is built;
- At least once a year, the internal credit rating system must be reviewed and evaluated based on the data and information of customers collected during the year; banks and non-bank credit institutions shall amend and supplement the internal credit rating system (if necessary);
- Includes regulations on rating levels corresponding to risk levels from low to high;
- Approved for application by the Board of Directors, Members' Council (for commercial banks, non-bank credit institutions), General Director, or Director (for foreign bank branches).
What are the minimum requirements for internal regulations on credit granting and debt management?
According to Clause 2, Article 6 of Circular 31/2024/TT-NHNN, the internal regulations on credit granting and debt management must meet the following minimum requirements:
- Built based on the information and data of customers collected, and the results of customer ratings according to the internal credit rating system;
- Applied consistently and uniformly throughout the system, serving as the basis for evaluating and approving credit granting and managing debts for specific customers;
- Includes credit policies for customers, such as credit granting conditions, credit limits, interest rates, dossiers, procedures, and processes for credit approval and debt management;
- Contains management regulations to ensure compliance with the State Bank's regulations on limits and safety ratios in the operations of banks and non-bank credit institutions;
- Specifies the responsibilities and authorities of units and individuals in the evaluation, approval of credit granting, credit quality management, and collateral management;
- Details the processes and contents for checking and controlling credit before, during, and after granting credit;
- Covers regulations on security measures, evaluation, and management of collateral;
- Includes regulations on the valuation of collateral, including principles, periods, methods, processes, and responsibilities of related units and individuals for valuating collateral following legal provisions to ensure the collateral value matches the market value when calculating specific provisioning amounts according to the Decree on provisioning;
- Sets forth measures for debt recovery.
