Regulations on risk provisioning levels in credit institution operations

Decree 86/2024/ND-CP stipulates the specific provisioning ratio for debts classified from group 1 to group 5 of credit institutions (except microfinance institutions) and foreign bank branches.

For credit institutions (except microfinance institutions) and foreign bank branches, the general provision amount to be set aside is determined at 0.75% of the total outstanding balance of debts classified from group 1 to group 4. (Illustration photo. Source: VNA)

The Government has just issued Decree No. 86/2024/ND-CP dated July 11, 2024, stipulating the level of provisioning, methods of setting up risk provisions, the use of provisions to handle risks in the operations of credit institutions, foreign bank branches and cases where credit institutions allocate interest receivables to be withdrawn.

The Decree stipulates the specific provisioning ratio for debts classified from group 1 to group 5 of credit institutions (except microfinance institutions) and foreign bank branches as follows:

Group 1 (standard debt): 0%; group 2 (debt requiring attention): 5%; group 3 (substandard debt): 20%; group 4 (doubtful debt): 50%; group 5 (debt with potential loss of capital): 100%.

The specific provisioning ratio for debts classified from group 1 to group 5 of microfinance institutions is as follows: group 1: 0%; group 2: 2%; group 3: 25%; group 4: 50%; group 5: 100%.

General provision level

The Decree stipulates that for credit institutions (except microfinance institutions) and foreign bank branches, the general provision amount that must be set aside is determined by 0.75% of the total outstanding balance of debts classified from group 1 to group 4, except for the following amounts:

Deposits at credit institutions, foreign bank branches as prescribed by law and deposits at credit institutions abroad;

Loans and term purchases of valuable papers between credit institutions and foreign bank branches in Vietnam;

Purchase of deposit certificates and bonds issued domestically by other credit institutions and foreign bank branches;

The repurchase of Government bonds on the stock market in accordance with the provisions of law on issuance, registration, depository, listing and trading of Government debt instruments on the stock market;

Other debts arising from activities specified in Clause 2, Article 3 of this Decree between credit institutions and foreign bank branches in Vietnam in accordance with the provisions of law.

Customers transact at a bank. (Photo: Tran Viet/VNA)

For microfinance institutions, the general provision amount to be set aside is determined by 0.5% of the total outstanding balance of debts classified from group 1 to group 4 (excluding deposits at credit institutions and foreign bank branches as prescribed by law).

Time of risk provisioning

The Decree stipulates that commercial banks, non-bank credit institutions, and foreign bank branches shall make risk provisions as follows:

Within the first 7 days of the month, commercial banks, non-bank credit institutions, and foreign bank branches shall make provisions for the end of the last day of the previous month based on the debt group with a higher risk level between the Debt Group according to the results of self-classification of debt for the end of the last day of the previous month according to the regulations of the Governor of the State Bank on classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches and the Debt Group that has been adjusted according to the debt group of the customer list provided by the National Credit Information Center of Vietnam (CIC) according to the regulations of the Governor of the State Bank on classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches at the most recent time.

The Decree clearly states that for the first month of a quarter, within 3 days from the date of receiving the customer list provided by CIC for the end of the last day of the previous month, commercial banks, non-bank credit institutions, and foreign bank branches shall, based on the results of debt classification adjusted according to the debt group of the customer list provided by CIC in accordance with the regulations of the Governor of the State Bank on classification of assets in the operations of commercial banks, non-bank credit institutions, and foreign bank branches, adjust the amount of risk provisions for the end of the last day of the previous month and show this amount of risk provisions on the financial statements for the end of the last day of the previous month.

Credit institutions that are cooperatives and microfinance institutions shall make risk provisions as follows: Within the first 7 days of the month, credit institutions that are cooperatives and microfinance institutions shall, based on the results of debt classification according to the regulations of the Governor of the State Bank on classification of assets in the operations of credit institutions that are cooperatives and microfinance institutions, make risk provisions for the end of the last day of the previous month./.

Source: https://baolangson.vn/quy-dinh-muc-trich-lap-du-phong-rui-ro-trong-hoat-dong-cua-to-chuc-tin-dung-5014706.html