Time for setting up risk provisions for Banks according to the latest regulations in Vietnam

Time for setting up risk provisions for Banks according to the latest regulations in Vietnam (Image from the internet)

On July 11, 2024, the Government of Vietnam issued Decree 86/2024/ND-CP stipulating the rates and 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.

Explanation of credit risk

Credit Risk in the operations of credit institutions and foreign bank branches (hereinafter referred to as risk) is the possibility of losses on debts owed to credit institutions and foreign bank branches due to the customer’s inability to partially or fully repay their debt as per the contract or agreement (hereinafter referred to as the agreement) with the credit institution or foreign bank branch.

(Clause 1, Article 3 Decree 86/2024/ND-CP)

Time for setting up risk provisions for Banks in Vietnam

According to Article 9 of Decree 86/2024/ND-CP, the time for setting up risk provisions is specified as follows:

- Commercial banks, non-bank credit institutions, and foreign bank branches shall provision for risks as follows:

+ Within the first 7 days of the month, commercial banks, non-bank credit institutions, and foreign bank branches shall provision for the end of the last day of the previous month based on the debt group with the higher risk level between:

The  debt  group  as  per  the  self-classification  results  for  the  end  of  the  last  day  of  the  previous  month  according  to  regulations  of  the  Governor  of  the  State  Bank  on  the  classification  of  assets  in  the  operations  of  commercial  banks,  non-bank  credit  institutions,  and  foreign  bank  branches;  and  The  debt  group  adjusted  per  the  debt  group  of  the  customer  list  provided  by  the  Vietnam  National  Credit  Information  Center  (CIC)  according  to  the  regulations  of  the  Governor  of  the  State  Bank  on  the  classification  of  assets  in  the  operations  of  commercial  banks,  non-bank  credit  institutions,  and  foreign  bank  branches  at  the  most  recent  point  in  time.

+ For the first month of the quarter, within 3 days from the date of receipt of the customer list provided by the CIC for the end of the last day of the previous month, commercial banks, non-bank credit institutions, and foreign bank branches shall adjust the provisioning amount based on the adjusted debt group per the customer list provided by the CIC according to the regulations of the Governor of the State Bank on the classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches and reflect this provisioning amount on the financial statements for the end of the last day of the previous month.

- Credit institutions that are cooperatives or microfinance institutions shall provision for risks as follows:

Within the first 7 days of the month, credit institutions that are cooperatives or microfinance institutions shall base their provisioning on the debt classification results according to the regulations of the Governor of the State Bank on the classification of assets in the operations of credit institutions that are cooperatives or microfinance institutions to provision for the end of the last day of the previous month.

Regulations on general rates of risk provisions in Vietnam

- For credit institutions (excluding microfinance institutions), foreign bank branches, the general provisioning amount is determined at 0.75% of the total balance of loans classified from debt group 1 to debt group 4, except the following:

+ Deposits at credit institutions, foreign bank branches as per the legal regulations and deposits at foreign credit institutions;

+ Loans, term purchases of negotiable instruments between credit institutions, foreign bank branches in Vietnam;

+ Purchases of deposit certificates, bonds issued by other credit institutions, foreign bank branches domestically;

+ Repurchase of Vietnam Government bonds on the stock market according to legal regulations on the issuance, registration, depository, listing, and trading of Government debts on the stock market;

+ Other debts arising from activities specified in Clause 2, Article 3 Decree 86/2024/ND-CP between credit institutions, foreign bank branches in Vietnam as per legal regulations.

- For microfinance institutions, the general provisioning amount is determined at 0.5% of the total balance of loans classified from debt group 1 to debt group 4 (excluding deposits at credit institutions, foreign bank branches as per legal regulations).

(Article 7 Decree 86/2024/ND-CP)

Le Nguyen Anh Hao

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