Regulations on the level of risk provision in the operations of credit institutions - Lang Son Online Newspaper

Decree 86/2024/ND-CP stipulates specific provision rates for loans classified from group 1 to group 5 of credit institutions (excluding microfinance institutions) and branches of foreign banks.

For credit institutions (excluding microfinance institutions) and branches of foreign banks, the general provision amount to be set aside is determined by 0.75% of the total outstanding balance of loans classified from Group 1 to Group 4. (Illustrative image. Source: VNA)

The government has just issued Decree No. 86/2024/ND-CP dated July 11, 2024, regulating the level and method of risk provision allocation, the use of provisions to handle risks in the operations of credit institutions and branches of foreign banks, and cases where credit institutions allocate receivable interest that must be reversed.

The Decree stipulates the specific provision rates for loans classified from Group 1 to Group 5 of credit institutions (excluding microfinance institutions) and branches of foreign banks as follows:

Group 1 (standard loans): 0%; Group 2 (loans requiring attention): 5%; Group 3 (substandard loans): 20%; Group 4 (doubtful loans): 50%; Group 5 (loans with a high risk of loss): 100%.

The specific provision rates for loans classified from Group 1 to Group 5 of microfinance institutions are as follows: Group 1: 0%; Group 2: 2%; Group 3: 25%; Group 4: 50%; Group 5: 100%.

General provision rate

The decree stipulates that for credit institutions (excluding microfinance institutions) and branches of foreign banks, the amount of general provisions to be set aside is determined by 0.75% of the total balance of loans classified from group 1 to group 4, excluding the following:

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

Loans and repurchase agreements for securities between credit institutions and branches of foreign banks in Vietnam;

Purchases of certificates of deposit and bonds issued domestically by other credit institutions and branches of foreign banks;

The repurchase of government bonds on the stock market is governed by the law on the issuance, registration, custody, listing, and trading of government debt instruments on the stock market;

Other debts arising from activities stipulated in Clause 2, Article 3 of this Decree between credit institutions and branches of foreign banks in Vietnam as prescribed by law.

Customers conducting transactions 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 balance of loans classified from group 1 to group 4 (excluding deposits at credit institutions and branches of foreign banks as stipulated by law).

Timing of risk provisioning

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

During the first seven days of each month, commercial banks, non-bank credit institutions, and branches of foreign banks shall make provisions for bad debts based on the risk level between the bad debt group according to the self-classification results at the end of the last day of the preceding month as stipulated by the Governor of the State Bank of Vietnam on asset classification in the operations of commercial banks, non-bank credit institutions, and branches of foreign banks, and the bad debt group adjusted according to the bad debt group of the customer list provided by the Vietnam National Credit Information Center (CIC) as stipulated by the Governor of the State Bank of Vietnam on asset classification in the operations of commercial banks, non-bank credit institutions, and branches of foreign banks at the most recent time.

Illustrative image. (Source: Vietnam+)

The Decree stipulates that for the first month of a quarter, within 3 days of receiving the customer list provided by CIC, based on the last day of the preceding month, commercial banks, non-bank credit institutions, and branches of foreign banks shall adjust the amount of risk provision for the last day of the preceding month based on the adjusted debt classification results according to the debt group of the customer list provided by CIC, as prescribed by the Governor of the State Bank of Vietnam on the classification of assets in the operations of commercial banks, non-bank credit institutions, and branches of foreign banks, and reflect this amount of risk provision in the financial statements for the last day of the preceding month.

Credit institutions that are cooperatives or microfinance institutions shall make provisions for risk reserves as follows: Within the first 7 days of the month, credit institutions that are cooperatives or microfinance institutions shall, based on the results of loan classification as stipulated by the Governor of the State Bank of Vietnam on the classification of assets in the operations of credit institutions that are cooperatives or microfinance institutions, make provisions for risk reserves for the last day of the preceding month./.

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