10 Principles of debt purchase and sale of credit institutions, foreign bank branches in Vietnam

10 Principles of debt purchase and sale of credit institutions, foreign bank branches in Vietnam (Internet image)

The State Bank of Vietnam issued Circular 18/2022/TT-NHNN dated December 26, 2022 providing amendments to the Circular 09/2015/TT-NHNN prescribing debt trading of credit institutions and foreign bank branches.

Thus, the principles of debt purchase and sale of credit institutions and foreign bank branches are prescribed as follows:

1. What is debt purchase and sale?

Clause 1, Article 3 of Circular 09/2015/TT-NHNN stipulates debt purchase and sale as follows:

Debt purchase and sale means a written agreement on the transfer of a creditor’s right to claim a debt arising from the lending operation or a debt to be paid on a third party’s behalf in the guarantee operation whereby the debt seller transfers the creditor’s ownership of the debt to the debt purchaser and receives a payment from the debt purchaser.

2. 10 Principles of debt purchase and sale of credit institutions, foreign bank branches in Vietnam

In Article 5 of Circular 09/2015/TT-NHNN as amended by Circular 18/2022/TT-NHNN stipulating the principles of debt purchase and salele of credit institutions and foreign bank branches in Vietnam as follows:

(1) Debt purchase and sale must not be contrary to the contents of credit extension contracts and guarantee contracts signed by debts sellers, clients and guarantors.

(2) Debt purchase and sale shall be agreed by parties and comply with this Circular and relevant regulations.

(3) An application for approval of debt trading submitted by a credit institution or FBB may be considered by the SBV if:

Its nonperforming loan ratio is maintained below 3% according to the latest report on debt classification conducted according to the SBV’s regulations on classification of assets, rates and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and FBBs by the time of application, except credit institutions placed under special control.

When selling debts, credit institutions and FBBs are not required to obtain approval from the SBV.

A credit institution or FBB shall be allowed to purchase debts only if its debt trading has been approved by the SBV according to the license for establishment and operation of a credit institution or the establishment license of a foreign bank branch (hereinafter referred to as “license”);

And its nonperforming loan ratio is maintained below 3% according to the latest report on debt classification conducted according to the SBV’s regulations on classification of assets, rates and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and FBBs by the time of conclusion of the debt purchase agreement, except the cases specified in Clause 12 of Article 5 of Circular 09/2015/TT-NHNN.

(Compared to current regulations, A credit institution or foreign bank branch may only purchase debts when its debt purchase activity is approved by the State Bank of Vietnam (below referred to as the State Bank) in the establishment and operation license of the credit institution or the establishment license of the foreign bank branch (below referred to as license) and its non-performing loan ratio is below 3%, except cases of debt purchase under an approved restructuring plan. For debt sale, the permission of the State Bank is not required)

(4) Before engaging in debt trading as prescribed in Clause 3 of Article 5 of Circular 09/2015/TT-NHNN, each credit institution or FBB shall issue its own internal regulations on debt trading (including regulations on grant of authority which follows the principle of assignment of responsibilities in the assessment and decision-making stages; debt trading methods and payment methods; debt trading procedures; procedures and methods for debt valuation; procedures for management of risks arising from debt trading)

(5) Credit institutions and foreign bank branches purchasing debts shall comply with regulations on assurance of safety for their operations.

(6) Repurchase of a debt sold by a credit institution:

- The seller may not repurchase its sold debts, except the following cases:

+ A credit institution repurchases its debts sold to a credit institution placed under special control according to Point a Clause 12 of Article 5 of Circular 09/2015/TT-NHNN;

+ An assisting credit institution repurchases its debts sold to a credit institution placed under special control according to the approved recovery plan as prescribed in Clause 6 Article 146dd of the Law on Credit Institutions;

+ A credit institution that is the transferee under a mandatory transfer plan repurchases its debts sold to the commercial bank that is subject to the mandatory transfer as prescribed in Point c Clause 12 of Article 5 of Circular 09/2015/TT-NHNN.

- A credit institution shall repurchase its debts sold as prescribed in Point a(ii) or a(iii) of this Clause according to the commitment to repurchase debts specified in the restructuring plan approved by a competent authority in the following cases:

+ The debt to be repurchased is being used by the credit institution placed under special control as the collateral for its special loan granted by the SBV but is no longer classified as a standard debt according to the SBV’s regulations and must be replaced with another standard debt.

+ The special loan debt of a credit institution placed under special control becomes due but it does not have sufficient funding for repaying such debt to the SBV according to the special loan debt repayment plan.

(Compared to current, it is allowed to buy back sold debts)

(7)  A credit institution is not allowed to sell debts to its subsidiaries, except the following cases:

- Debts are sold to a debt and asset management company according to a restructuring plan approved by a competent authority;

- The credit institution that is the transferee under a mandatory transfer plan sells standard debts to the commercial bank that is subject to the mandatory transfer according to the approved mandatory transfer plan. (Newly added)

(8) A debt management and asset operation company being a subsidiary company of a credit institution may only purchase debts of other credit institutions or foreign bank branches when the parent credit institution have a non-performing loan ratio of below 3%, except cases of debt purchase under an approved restructuring plan.

(9)  In case of selling part of a debt or selling a debt to more than one purchaser, the debt seller and debt purchasers shall agree on proportion, modes, rights and obligations of each party, determination of the value of security assets (if any) for the part of purchased and sold debt and other specific contents of the debt purchase and sale contract in accordance with law.

(10) Purchased and sold debts shall be monitored, accounted and statistically reported in accordance with law.

(11) A credit institution or FBBs is not allowed to extend credit to clients to buy its debts.

(12) A credit institution shall not be required to maintain a nonperforming loan ratio below 3% when buying debts in the following cases:

- A credit institution placed under special control purchases standard debts according to Clause 2 Article 146a of the Law on Credit Institutions;

- A credit institution placed under special control purchases standard debts from an assisting credit institution according to the approved recovery plan as prescribed in Clause 1 Article 148b of the Law on Credit Institutions;

- A commercial bank that is subject to the mandatory transfer purchases standard debts from a credit institution that is the transferee under a mandatory transfer plan approved by a competent authority;

- The cases of debt purchase prescribed in Points a(ii) and a)iii) Clause 6 of Article 5 of Circular 09/2015/TT-NHNN.

Circular 18/2022/TT-NHNN takes effect from December 26, 2022 amending Circular 09/2015/TT-NHNN

Ngoc Nhi

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