Value of collateral or security property used as a basis to calculate the deduction during the process of setting up a risk provision in Vietnam from July 11, 2024

Value of collateral or security property used as a basis to calculate the deduction during the process of setting up a risk provision in Vietnam from July 11, 2024 (Image from the internet)

On July 11, 2024, Hanoi 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.

Value of collateral or security property used as a basis to calculate the deduction during the process of setting up a risk provision in Vietnam from July 11, 2024

According to Article 5 Decree 86/2024/ND-CP, the value of collateral or security property used as a basis to calculate the deduction during the process of setting up a risk provision in Vietnam is determined as follows:

1. Gold bars: The buying price at the headquarters of enterprises or credit institutions owning the gold bar brand at the close of business on the nearest trading day before the specific provisioning date.

2. Listed securities (including shares, fund certificates, derivative securities, listed covered warrants): Closing price on the nearest trading day before the specific provisioning date.

   In the case of listed securities on the market without transactions within 30 days before the specific provisioning date, and if on the provisioning date the securities are delisted or suspended from trading, the credit institution or foreign bank branch will determine the value of the collateral according to clause (6).

3. Shares registered for trading on the Upcom trading system: The reference price on the nearest trading day before the specific provisioning date announced by the Stock Exchange.

   If the shares of a joint-stock company registered for trading on the Upcom system do not have transactions within 30 days before the specific provisioning date, and on the provisioning date, the shares are delisted or suspended from trading, the credit institution or foreign bank branch will determine the value of the collateral according to clause (6).

4. Government of Vietnam bonds listed on the Stock Exchange: The average trading session prices for committed bids under the Government of Vietnam's regulations on issuing, registering, depositing, listing, and trading of government debt instruments in the securities market; guidance documents from the Ministry of Finance and updated or replaced documents (if any).

   If there are no transaction prices in the committed bid session above, the bond price for deduction calculation is the average transaction prices in the secondary market in the 10 nearest trading days before the specific provisioning date.

   If there are no transactions in the 10 nearest trading days before the specific provisioning date, the credit institution or foreign bank branch will determine the value of the collateral at its nominal value.

5. Local government bonds, Government of Vietnam-guaranteed bonds, and listed corporate bonds (including credit institutions): The average trading prices in the secondary market in the 10 nearest trading days before the specific provisioning date announced by the Stock Exchange.

   If there are no transactions within the 10 working days before the specific provisioning date, the credit institution or foreign bank branch will determine the value of the collateral at its nominal value.

6. Unlisted securities on the Stock Exchange and certificates of deposit issued by enterprises (including credit institutions, foreign bank branches): calculated at nominal value.

   If at the specific provisioning date, the equity value is lower than the actual capital investment of the owners in the issuing organization, the collateral value is determined as follows:

   The nominal value of securities and financial paper multiplied by the equity of the issuing organization divided by the actual capital investment of the owners in the issuing organization.

   Where: The actual capital investment of the owners in the issuing organization and the equity of the issuing organization are determined on the nearest balance sheet before the specific provisioning date according to the Ministry of Finance’s guidance on enterprise accounting policies.

   If the issuing organization's equity is zero or negative, the collateral's deduction value (Ci) is considered zero.

7. Financial leasing assets: The value of financial leasing assets is determined according to clause (10) or the remaining value of the financial leasing asset over the leasing period calculated by the formula:

   Value of the financial leasing asset divided by the leasing period in the contract multiplied by the remaining leasing period in the contract.

8. Deposits and certificates of deposit: The principal balance of deposits and certificates of deposit on the nearest date before the specific provisioning date.

9. Collateral value for deduction calculation in debt sales activity but has not fully received the debt sale proceeds is the collateral value according to the debt sale contract (if any).

10. The determination of the collateral's value for deduction calculation when determining the specific provisioning amount for each collateral, whether it be movables, real estate, or other types of collateral, excluding assets specified in clauses (1) to (8) is conducted as follows:

- The credit institution or foreign bank branch must hire an organization with the appraisal function regulated by the law to determine the deductible collateral value when calculating the specific provisioning amount at the fiscal year-end in the following cases:

-  Collateral  for  which  the  credit  institution  or  foreign  bank  branch  determines  the  collateral  value  for  a  deduction  of  50  billion VND or  more  for  customer  debts  related  to  the  credit  institution  or  foreign  bank  branch  and  subjects  restricted  from  credit  extension  according  to  Article  135  Law  on  Credit  Institutions  2024;  collateral  for  which  the  credit  institution  or  foreign  bank  branch  determines  the  collateral  value  for  a  deduction  of  200  billion VND or  more. 

-  The  appraisal  result  of  the  collateral  by  an  organization  with  the  appraisal  function  recognized  by  the  law,  still  valid  at  the  specific  provisioning  date,  is  used  by  the  credit  institution  or  foreign  bank  branch  to  determine  the  deductible  collateral  value.

- In the absence of the appraisal document from an organization with the appraisal function, the deductible collateral value must be considered zero.

- Except as stipulated above, the credit institution or foreign bank branch determines the collateral value for deduction when calculating the specific provisioning amount according to their internal regulations.

Nguyen Ngoc Que Anh

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