Time and procedures for debt classification and setting up of risk provisions in Vietnam

Time and procedures for debt classification and setting up of risk provisions in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. Time and procedures for debt classification and setting up of risk provisions in Vietnam

Time and procedures for debt classification and setting up of risk provisions in Vietnam according to Article 8 of Circular 11/2021/TT-NHNN are as follows:

- At least once a month, within the first 07 (seven) days of the month, a credit institution or foreign bank branch shall consult Clause 5 of Article 1, Article 9, Article 10, Article 11, Article 12 and Article 13 of Circular 11/2021/TT-NHNN shall self-classify loans and off-balance sheet commitments by the end of the last day of the preceding month, set up risk provisions according to the results of self-classification of debts, off-balance sheet commitments, and send results of self-classification of debts and off-balance sheet commitments to CIC.

Apart from the above classification time, credit institutions and foreign bank branches shall be allowed to self-classify debts and off-balance sheet commitments according to internal rules and regulations.

- Within 03 (three) days from the date of receipt of results of self-classification of debts and off-balance sheet commitments of credit institutions, foreign bank branches as specified in Clause 1 of Article 8 of Circular 11/2021/TT-NHNN, CIC shall compile lists of borrowers self-classified according to their debt groups with the highest risk level by credit institutions and foreign bank branches, and provide these lists to credit institutions and foreign bank branches.

- Within 03 (three) days from the date of receipt of lists of borrowers provided by CIC according to clause 2 of Article 8 of Circular 11/2021/TT-NHNN, credit institutions and foreign bank branches:

= Adjusting debt groups to those defined in the list of borrowers provided by CIC.

If results of self-classification of debts and off-balance sheet commitments of borrowers as prescribed in Clause 1 of Article 8 of Circular 11/2021/TT-NHNN are lower than the debt groups defined in the list of borrowers provided by CIC, credit institutions or foreign bank branches must adjust the results of classification of debts and off-balance sheet commitments according to debt groups of borrowers provided by CIC;

= Based on the results of adjustment in a debt group at point a of Clause 3, Article 8 of Circular 11/2021/TT-NHNN, the amount set aside as the provision for risk of the last month of the quarter can be adjusted.

- Based on inspection and supervision results and relevant credit information, SBV has the right to request credit institutions and foreign bank branches to re-assess or re-classify specific loans and make adequate provisions corresponding to the levels of risk from these debts.

2. Minimum requirements in the risk provisioning policy in Vietnam

According to Clause 3, Article 6 of Circular 11/2021/TT-NHNN, a risk provisioning policy must include, but not limited to, the following requirements:

- It must be in line with regulations of laws on accounting, financial, reporting and statistical regimes;

- It must comprise procedures for collection of information and data about borrowers, ensure accurate classification of debts, off-balance sheet commitments, management of NPLs, management of bad credit balances and risk provisions that are duly set up in full;

- It must include specific regulations on classification of debts, off-balance sheet commitments, amounts and methods of setting up risk provisions and use of provisions against risks arising from their operations towards specific borrowers in a regular or irregular manner.

- It must include regulations on powers and responsibilities of their affiliates and individuals involved in classification of debts, off-balance sheet commitments, setting up and use of provisions for risks arising from their operations.

- It must cover the mechanism for inspection, supervision and reporting of implementation of activities prescribed in point a through point d of Clause 3, Article 6 of Circular 11/2021/TT-NHNN

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