6 types of collateral to reduce credit risks at banks from July 1

The State Bank of Vietnam issued Circular 22/2023/TT-NHNN amending Circular 41/2016/TT-NHNN regulating capital adequacy ratios for banks and foreign bank branches.

This Circular takes effect from July 1, 2024.

6 types of collateral to minimize credit risk at banks

Accordingly, credit risk mitigation by collateral only applies to the following collaterals:

Firstly, cash, valuable papers, savings cards issued by credit institutions and foreign bank branches.

Second, gold (standard gold, physical gold, jewelry gold with value converted to 99.99 gold).

Third, valuable papers issued or guaranteed for payment by the Government of Vietnam, the State Bank, the People's Committees of provinces and centrally run cities, and policy banks.

Fourth, debt securities issued by governments and public organizations of governments are rated BB- or higher by independent credit rating agencies.

Fifth, debt securities issued by enterprises are rated BBB- or higher by independent credit rating agencies.

Sixth, the shares are listed on the Vietnam Stock Exchange.

Note, the above types of collateral must ensure the following requirements: Comply with legal regulations on secured transactions; Valuable papers, debt securities, stocks are not issued or guaranteed for payment by the customer and/or the parent company, subsidiary, or affiliate of the customer.

The collateral specified in (5) and (6) must have a matched transaction within 10 consecutive working days prior to the calculation time and is calculated according to the daily mark-to-market price.

Determine the collateral adjustment coefficient from July 1, 2024

The collateral adjustment coefficient (Hc) calculated as a percentage (%) is determined as follows:

Cash, savings cards and valuable papers issued by banks and foreign bank branches, valuable papers issued or guaranteed for payment by the Government of Vietnam, the State Bank, People's Committees of provinces and centrally run cities, and policy banks have an adjustment coefficient of 0;

Savings cards, valuable papers, securities, and gold have the following adjustment coefficients:

Credit rating of issuers of securities and securities	Time remaining	Government (including entities subject to government equivalent credit risk weights) (%)	Other issuers (%)
AAA to AA-	≤ 1 year	0.5	1
	> 1 year, ≤ 5 years	2	4
	> 5 years	4	8
- A+ to BBB- - Savings cards, valuable papers of credit institutions, other foreign bank branches	≤ 1 year	1	2
	> 1 year, ≤ 5 years	3	6
	> 5 years	6	12
BB+ to BB- except Savings cards, valuable papers of credit institutions, other foreign bank branches	All types of deadlines	15
Stocks included in the VN30/HNX30 stock index (including convertible bonds of these stocks) and Gold		15
Other stocks listed on the Vietnam Stock Exchange		25

Regulations and procedures for determining market risk status for market risk management

To determine the capital requirements for market risks, banks and foreign bank branches must have written regulations on the conditions and criteria for determining items within the scope of the trading book to calculate risk positions in the trading book, ensuring separation from the banking book. Banks and foreign bank branches must:

- Distinguish between transactions in the business book and the bank book. Transaction data must be recorded accurately, completely and promptly in the risk management database system and the accounting system of the bank or foreign bank branch.

- Identify the business department directly performing the transaction.

- Transactions in the business books and bank accounts must be reflected in the accounting system and must be compared with the recorded data of the business department (transaction journal or other form of recording).

- The internal audit department must regularly review and evaluate items in the business and banking books.

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