Vietnam: Rate of deduction for collateral assets of credit institutions from July 11, 2024

Rate of deduction for collateral assets of credit institutions from July 11, 2024 (Image from the Internet)

On July 11, 2024, the Government of Vietnam issued Decree 86/2024/ND-CP stipulating the rate of deduction, methods for provisioning risks, and the use of provisions for risk handling in the operations of credit institutions, foreign bank branches, and cases where credit institutions allocate interest receivables that must be reversed.

Rate of deduction for collateral assets of credit institutions from July 11, 2024

Article 6 of Decree 86/2024/ND-CP of Vietnam's Government stipulates the deduction rate of secured assets of credit institutions as follows:

- Credit institutions, foreign bank branches shall determine the deduction rate for each type of secured asset based on the evaluation of the recoverability when handling such secured assets; secured assets with lower liquidity and higher price volatility shall have a lower deduction rate; the maximum deduction rate for each type of secured asset as stipulated in clause 2, Article 6 of Decree 86/2024/ND-CP.

- The maximum deduction rate for secured assets is determined as follows:

+ Balance of deposits (including mandatory savings, voluntary deposits for microfinance institutions), certificates of deposit in Vietnamese Dong at the credit institution itself, or foreign bank branch: 100%;

+ Government bonds of the Government of Vietnam, gold bullion per the regulations on gold trading; balance of deposits, certificates of deposit in foreign currency at the credit institution itself, or foreign bank branch: 95%;

+ Local government bonds, bonds guaranteed by the Government of Vietnam; negotiable instruments, bonds issued by the credit institution itself; balance of deposits, certificates of deposit issued by another credit institution, or foreign bank branch:

Remaining term less than 1 year: 95%;

Remaining term from 1 year to 5 years: 85%;

Remaining term over 5 years: 80%;

+ Securities listed on the Stock Exchange issued by other credit institutions: 70%;

+ Securities listed on the Stock Exchange issued by enterprises (excluding credit institutions): 65%;

+ Unlisted securities on the Stock Exchange, valuable papers, except for items stipulated in point c, clause 2, Article 6 of Decree 86/2024/ND-CP, issued by other credit institutions that are listed on the Stock Exchange: 50%;

Unlisted securities on the Stock Exchange, valuable papers, except for items stipulated in point c, clause 2, Article 6 of Decree 86/2024/ND-CP, issued by other credit institutions that are not listed on the Stock Exchange: 30%;

+ Unlisted securities on the Stock Exchange, valuable papers issued by enterprises listed on the Stock Exchange: 30%;

Unlisted securities on the Stock Exchange, valuable papers issued by enterprises not listed on the Stock Exchange: 10%;

+ Real estate: 50%;

+ Other types of secured assets: 30%.

More details can be found in Decree 86/2024/ND-CP of Vietnam's Government which comes into effect from July 11, 2024.

To Quoc Trinh

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