Classification of microfinance institution debts from August 12, 2024 in Vietnam

Debt Classification of Microfinance Institutions Effective from 12/8/2024 in Vietnam (Image from the Internet)

On 28/6/2024, the Governor of the State Bank of Vietnam issued Circular 14/2024/TT-NHNN which regulates the classification of assets of microfinance institutions.

Debt Classification of Microfinance Institutions from 12/8/2024 in Vietnam

To be specific, microfinance institutions implement debt classification into 05 groups as follows:

• Group 1 (Standard Debt) includes:

  • In-term debt clauses;

  • Overdue debt clauses under 10 days.

• Group 2 (Noticeable Debt) includes:

  • Overdue debt clauses from 10 days to under 30 days;

  • Debt clauses with a rescheduled payment deadline for the first time.

• Group 3 (Substandard Debt) includes:

  • Overdue debt clauses from 30 days to under 90 days;

  • Debt clauses with a first-time rescheduled payment deadline that are overdue under 30 days according to the rescheduled term;

  • Debt clauses exempted or reduced in interest due to the customer’s inability to pay the full interest as agreed.

• Group 4 (Doubtful Debt) includes:

  • Overdue debt clauses from 90 days to under 180 days;

  • Debt clauses with a first-time rescheduled payment deadline that are overdue from 30 days to under 90 days according to the rescheduled term;

  • Debt clauses with a second-time rescheduled payment deadline.

• Group 5 (Potentially Losing Debt) includes:

  • Overdue debt clauses from 180 days or more;

  • Debt clauses with a first-time rescheduled payment deadline that are overdue from 90 days or more according to the rescheduled term;

  • Debt clauses with a second-time rescheduled payment deadline overdue according to the second rescheduled term;

  • Debt clauses with a third-time or more rescheduled payment deadline, regardless of whether they are overdue or not.

(Article 5 of Circular 14/2024/TT-NHNN)

Principles for Debt Classification of Microfinance Institutions from 12/8/2024 in Vietnam

The debt classification of microfinance institutions from 12/8/2024 will adhere to principles in Article 4 of Circular 14/2024/TT-NHNN. To be specific:

• All outstanding debts of a customer at a microfinance institution must be classified into the same debt group. For customers with 02 or more debt clauses at a microfinance institution, if any debt clause is classified into a higher-risk group under regulations in Article 5 of Circular 14/2024/TT-NHNN, the microfinance institution must reclassify the remaining debt clauses of the customer into the highest risk group.

• For entrusted loan clauses, where the entrustee has not disbursed the full entrusted amount under the entrustment contract, the entrusting microfinance institution must classify the undisbursed entrusted amount as a loan clause to the entrustee.

The overdue time is determined from the moment the entrustee fails to disburse according to the disbursement term stipulated in the entrustment contract.

| Note: The regular schedule for debt classification by a microfinance institution is at least once a month, during the first 07 days of the month. At that time, the microfinance institution, based on regulations in Article 4 and Article 5 of Circular 14/2024/TT-NHNN, will self-implement debt classification up to the end of the last day of the preceding month. || --- |

More details can be found in Circular 14/2024/TT-NHNN effective from 12/8/2024, which replaces Circular 15/2010/TT-NHNN on debt classification, provisioning, and use of provisions to handle lending risks in the operations of small financial institutions.

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