Regulations on foreign bank branches applying the risk provision policy in Vietnam from July 11, 2024

Regulations on foreign bank branches applying the risk provision policy in Vietnam from July 11, 2024 (Internet image)

On July 11, 2024, Hanoi issued Decree 86/2024/ND-CP which regulates the rate, the methods of setting up risk provisions and use of provisions for handling of risks arising from operations of credit institutions and foreign bank branches, and cases where credit institutions allocate receivables for reversal in Vietnam

Regulations on foreign bank branches applying the foreign bank's risk provisioning policy from July 11, 2024

Article 16 of Decree 86/2024/ND-CP regulates foreign bank branches applying the risk provisioning policy of the foreign bank as follows:

- A foreign bank branch, upon approval by the State Bank, may apply the risk provisioning policy of its foreign bank for classifying debts, provisioning and using provisions to handle risks if it meets the condition that in the three most recent fiscal years before the time of requesting the State Bank's approval, the total annual specific provisioning amount determined according to the risk provisioning policy of the foreign bank intended to be applied is not lower than the total annual specific provisioning amount particularly performed under the provisions of Decree 86/2024/ND-CP.

- Documents required for approval:

+ A document requesting the State Bank's approval to apply the foreign bank’s risk provisioning policy;

+ A copy of the foreign bank's risk provisioning policy;

+ A confirmation document from the foreign bank branch and evidence proving the conditions specified in Clause 1, Article 16 of Decree 86/2024/ND-CP.

- Procedure for approval:

+ The foreign bank branch submits one complete dossier as specified in Clause 2, Article 16 of Decree 86/2024/ND-CP directly to the One-Stop Service Department or via postal services to the State Bank. If the dossier is incomplete or invalid, within five working days from the receipt date, the State Bank must issue a written request for the foreign bank branch to supplement the dossier;

+ Within 30 days from the receipt of a complete and valid dossier as specified in Clause 2, Article 16 of Decree 86/2024/ND-CP, the State Bank must issue a written approval or disapproval for the foreign bank branch to apply the risk provisioning policy of the foreign bank. If disapproved, the State Bank must provide a clear reason in writing.

- For foreign bank branches that have received approval from the State Bank to apply the foreign bank's risk provisioning policy, any amendments or supplements to this policy must be reported to the State Bank. The foreign bank branch must assess whether the amended or supplemented risk provisioning policy, in principle, ensures that the total specific provisioning amount determined under the amended or supplemented policy is not lower than the total specific provisioning amount particularly performed under the provisions of Decree 86/2024/ND-CP for the fiscal year when the amended or supplemented policy is applied. If the foreign bank branch assesses that this principle is not met, the foreign bank branch must classify assets, determine the level of provisioning, method of provisioning for risks, and the use of provisions to handle risks as per Vietnamese law.

- For foreign bank branches that have received approval from the State Bank to apply the foreign bank’s risk provisioning policy, based on the results of inspections, audits, and supervision, if the State Bank evaluates that the foreign bank’s risk provisioning policy does not adequately reflect the actual credit risk level of the banking operations in Vietnam, the State Bank is entitled to require the foreign bank branch to perform provisioning and use provisions to handle risks according to the regulations in Decree 86/2024/ND-CP.

More details can be found in Decree 86/2024/ND-CP, which comes into force in Vietnam from July 11, 2024.

To Quoc Trinh

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