Regulations on debt sales in the credit risk management mechanism at the Vietnam Development Bank from March 1, 2025

Regulations on debt sales in the credit risk management mechanism at the Vietnam Development Bank from March 1, 2025 (Image from the internet)

On January 6, 2025, the Prime Minister of the Government of Vietnam issued Decision 02/2025/QD-TTg regarding the Credit Risk Management Mechanism at the Vietnam Development Bank.

Regulations on debt sales in the credit risk management mechanism at the Vietnam Development Bank from March 1, 2025

According to Article 11 of Decision 02/2025/QD-TTg, debt sales are regulated as follows:

(1) The Board of Directors of the Development Bank considers and decides on the sale of debt to recover loans when all of the following conditions are met:

- The debt falls into one of the cases prescribed in Clause 1 Article 8 of Decision 02/2025/QD-TTg or the debt is being monitored off-balance-sheet or has been written-off from the balance sheet;

- The Development Bank and the customer have no written agreement about the non-sale of the debt;

- The debt is not used as a guarantee for performing civil obligations at the time of the debt sale, unless agreed in writing by the guarantee recipient regarding the debt sale;

- The sale of debts priced lower than the remaining unrecovered principal balance is only applicable to debts being monitored off-balance-sheet or have been written-off from the balance sheet, and the sale of these debts must fully satisfy the conditions specified in clause (5).

(2) Principles for executing debt sales:

- The Development Bank conducts debt sales according to the legal regulations applicable to the purchase and sale activities of debts of credit institutions and foreign bank branches, except for the matters specified in Decision 02/2025/QD-TTg;

- Debt sales activities are not contrary to the provisions stipulated in the credit contract/debt assumption contract and loan security contract signed between the Development Bank, the customer, and the guarantor;

- Debt sales activities are self-negotiated by the parties based on compliance with Decision 02/2025/QD-TTg and relevant legal regulations.

(3) Methods of debt sale: The Development Bank executes debt sales through auction methods. Debt auctions are conducted under the asset auction laws.

(4) Debt valuation: The Development Bank must hire an organization with the function of appraising prices, established in accordance with legal regulations, to evaluate the debt and determine the expected starting price for the auction of the debt.

(5) In case the debt being monitored off-balance-sheet is valued lower than the unrecovered residual principal, besides the conditions stipulated in clause (1), the Development Bank can only sell the debt when all of the following conditions are met:

- Complete documents and materials are needed to clearly determine the subjective and objective causes and project the responsibilities of relevant organizations and individuals in handling asset losses of the Development Bank when the debt is sold at a price lower than the unrecovered residual principal;

- Documentation and materials must prove that debt sales is the optimal measure for loan recovery;

- It must be appraised by the Development Bank's Supervisory Board and agreed upon with the proposal of the Development Bank's Board of Directors.

(6) Before considering, deciding on the sale of debt being monitored off-balance-sheet valued lower than the unrecovered residual principal, the Development Bank's Board of Directors has the responsibility to consolidate the debts anticipated for sale, sending them to the Ministry of Finance to seek written opinions from the Ministry of Planning and Investment, the State Bank of Vietnam, and relevant agencies before consolidating and sending them to the Vietnam Development Bank within a maximum of 90 working days from the date of receiving all documents and materials as required. The Development Bank's document sent to the Ministry of Finance includes the following basic contents:

- The current status of loan customers and the debt anticipated for sale: Name of project/customer, loan period, off-balance-sheet monitoring time; the status of loan recovery (principal, interest), unrecovered residual debt at the time of proposal for write-off; impact of debt sales on the financial status of the Development Bank; the current business activities of the loan customer; financial status of the loan customer according to the nearest year's audited financial report by an independent audit company in accordance with legal regulations (except when the customer has gone bankrupt, dissolved according to legal provisions or ceased operations as confirmed by competent authorities); the loan status of the customer at other credit institutions (if any); credit relationship information of the customer according to data provided by the Vietnam National Credit Information Center (CIC) at the time of requesting debt sale;

- Proposed plan to handle asset loss of the Development Bank when selling debts being monitored off-balance-sheet and valued lower than the unrecovered residual principal (in cases of asset loss due to subjective reasons, specific responsibilities of related organizations and individuals, compensation levels according to legal regulations; insurance money if any);

- Measures already used for loan recovery after off-balance-sheet monitoring and documents, materials proving debt sale as the optimal measure for loan recovery;

- Appraisal opinions of the Development Bank's Supervisory Board, Board of Directors about meeting debt sale conditions and other comments (if any);

- Other documents and materials (if any).

(7) After completing the debt sale, the Development Bank handles asset losses for the debt according to regulations in Article 7 of Decision 02/2025/QD-TTg.

Refer to more details in the Decision 02/2025/QD-TTg effective from March 1, 2025.

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