CIRCULAR

REGULATING PRUDENTIAL LIMITS AND RATIOS OF NON-BANK CREDIT INSTITUTIONS

Pursuant to the Law on State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Institutions No. 47/2010/QH12 dated June 16, 2010 and the Law on Amending and Supplementing certain Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Government’s Decree No. 39/2014/ND-CP dated May 7, 2014 on business operations of finance companies and financial leasing companies;

Pursuant to the Government’s Decree No. 16/2019/ND-CP dated February 1, 2019 on amendments and supplements to several articles of the Decrees on conditions for business transactions under the regulatory authority of the State Bank of Vietnam;

Pursuant to the Government's Decree No. 16/2017/ND-CP dated February 17, 2017, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

Upon the request of the Chief of Banking Inspection and Supervision Agency;

The Governor of the State Bank of Vietnam promulgates the Circular regulating the prudential limits and ratios of non-bank credit institutions.

Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. This Circular prescribes the prudential limits and ratios that non-bank credit institutions must regularly maintain, including:

a) Minimum prudential capital ratio;

b) Lending restrictions or credit limits;

c) Solvency ratio;

d) Ratio of short-term capital used for mid-term and long-term lending activities;

dd) Ratio of purchase of and investment in municipal bonds, Government-guaranteed bonds;

e) Capital contribution and share purchase limit.

2. Based on results of supervision, examination and inspection of non-bank credit institutions conducted by the State Bank of Vietnam (hereinafter referred to as SBV), if it is necessary to guarantee prudent operations of non-bank credit institutions, depending on the risk characteristics and levels, SBV shall request them to apply one or several stricter prudential ratios than those prescribed herein.

3. If non-bank credit institutions go into special administration, they must be subject to prudential limits and ratios covered by Article 146d in the Law on Credit Institutions (revised).

4. If non-bank credit institutions offer support according to approved recovery plans, they must implement ratios of purchase of or investment in municipal bonds or Government-guaranteed bonds as provided by clause 8 of Article 148d in the Law on Credit Institutions (revised).

5. If non-bank credit institutions are involved in financing programs and projects under decisions of the Government or the Prime Minister, the examination and assessment of assets and liabilities in each of these programs or projects for determination of prudential limits or ratios shall be subject to the decisions of the Government or the Prime Minister.

Article 2. Subjects of application

1. Non-bank credit institutions: Financial companies and financial leasing companies.

2. Other entities and persons related to prudential limits and ratios of non-bank credit institutions.

Article 3. Definition

For the purposes of this Circular, terms used herein shall be construed as follows:

1. Receivables include deposits made at other credit institutions, foreign bank branches, and deposits made at foreign credit institutions; investments in securities; loans, financial leases, factors, discounts, rediscounts on negotiable instruments, securities, credit existing in the form of credit cards, and other credit lines provided by SBV’s regulations; trust loans and financial leases; payments on behalf of under off-balance sheet commitments.

2. Customer in a credit relationship with a non-bank credit institution (hereinafter referred to as customer) is an organization (including credit institution, foreign bank branch), individual and other entity stipulated in the civil legislation.

A customer is an organization or an individual or another entity, subject to civil law.

3. Real property business means the act of investing capital in creation, construction, repair, purchase, acquisition through disposal, renting or hire-purchase of real estate which is then sold, disposed of, leased, on-lent or hired under a hire-purchase arrangement for profit.

4. Secondary liability means a debt which the creditor is paid only after all other secured and unsecured obligations and debts are paid according to an agreement upon the debtor’s bankruptcy or dissolution.

5. Goodwill means the positive difference between the amount paid for a financial asset and its book value payable by a credit institution when it acquires another enterprise or credit institution as prescribed by law. This financial asset is fully recorded in a non-bank credit institution’s balance sheet.

6. OECD stands for Organization for Economic Cooperation and Development.

7. International financial institutions include:

a) World-class banks, including International Bank for Reconstruction and Development (IBRD), International Financial Company (IFC), International Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA);

b) Asian Development Bank (ADB);

c) African Development Bank (AfDB);

d) European Bank for Reconstruction and Development (EBRD);

dd) Inter-American Development Bank (IADB);

e) European Investment Bank (EIB);

g) European Investment Fund (EIF);

h) Nordic Investment Bank (NIB);

i) Caribbean Development Bank (CDB);

k) Islamic Development Bank (IDB);

l) Council of Europe Development Bank (CEDB);

m) Other international financial institutions whose charter capital is contributed by governments.

8. Controlling company means:

a) A company that directly or indirectly owns more than 20% of charter capital or voting shares of a non-bank credit institution or has the control over a non-bank credit institution;

b) A financial bank that has subsidiaries or associate companies.

9. Security means an evidence of the issuer’s debt repayment obligation to the holder which arises for a definite period of time, and contains interest payment and other terms and conditions. Security comprises bonds, treasury bills, sovereign bonds, deposit certificates, promissory notes and other types of security.

10. “Extend/offer/provide credit” means an act involving a non-bank credit institution’s agreement under which it allows or undertakes to allow an organization or individual to use a sum of money according to the rules whereunder that sum must be repaid through such operations as lending, discounting, finance leasing, factoring, investing in corporate bonds, issuing credit cards, providing bank guarantees or offering of other credit facilities in accordance with SBV’s regulations, including the act of offering credit by using another juridical person’s assets from which all risks arising are incurred by the non-bank credit institution.

11. Total amount of credit extended includes the aggregate outstanding balance arising from loans, discounts, rediscounts, factoring, total investments in corporate bonds (except special bonds, bonds issued directly to debt-selling credit institutions in order for them to buy bad debts of Vietnam Asset Management Company (VAMC) at the market prices), and other credit facilities extended as defined by the State Bank (including those of credit offered by using funds of other juridical persons of which any risks are borne by non-bank credit institutions in accordance with regulations of laws); undisbursed loan limits, credit limits, bank guarantee balance and balance of other funds held in trust by other credit institutions for lending or finance leasing purposes.

12. Investment in corporate bonds means the purchase of bonds of enterprises.

13. Related person of an organization or individual means a person who is directly or indirectly related to such organization or individual.

a) A related person of an organization (including credit institutions) can be:

(i) The parent company or a credit institution that is the parent company (hereinafter referred to as parent credit institution) of that organization;

(ii) A subsidiary of that organization;

(iii) A company that has the same parent company or parent credit institution as that of that organization;

(iv) An executive or member of the Control Board of the parent company or parent credit institution of that organization;

(v) An individual or organization that has the power to designate executives or members of the Control Board of the parent company or parent credit institution of that organization;

(vi) An executive or member of the Control Board of that organization;

(vii) A company or organization that has the power to designate executives or members of the Control Board of that organization;

(viii) A spouse, parent, offspring (including adoptive parent, adopted offspring, father in law, mother in law, son in law, daughter in law, step parent, step child), sibling (including half siblings), brother in law, sister in law of an executive, the Control Board’s member, capital contributor or shareholder who holds at least 5% of charter capital or voting shares of that organization;

(ix) An organization or individual that holds at least 5% of charter capital or voting shares of that organization;

(x) An individual authorized to represent that organization’s stakes or shares;

(xi) A company or credit institution at least 5% of charter capital or voting shares of which is held by that organization;

(xii) A company or credit institution whose executives or members of the Control Board are designated under the authority of that organization;

(xiii) A company or credit institution that has a parent company whose executives or members of the Control Board are designated within that organization’s competence.

b) A related person of an individual can be:

(i) A spouse, parent, child (including adoptive parent, adopted child, father in law, mother in law, son in law, daughter in law, step parent, step child), sibling, (including half siblings), brother in law, sister in law of the said individual;

(ii) A company or credit institution at least 5% of charter capital or voting shares of which is held by that individual;

(iii) A subsidiary of a parent company or parent credit institution where that individual is an executive or member of the Control Board;

(iv) A subsidiary of a parent company or parent credit institution where that individual has competence in appointing executives and members of the Control Board;

(v) A company or credit institution whose executive or member of the Control Board is that individual;

(vi) A company or credit institution whose executive, member of the Control Board, capital contributor or shareholder holding at least 5% of its charter capital or voting shares is that individual’s spouse, parent, child (including adoptive parent, adopted child, father in law, mother in law, son in law, daughter in law, step parent, step child), sibling, (including half siblings), brother in law, sister in law;

(vii) An organization or individual that authorizes that individual to represent his/her stakes or shares;

(viii) Another individual, together with that individual, authorized by an organization to represent its stakes or shares in another organization;

(ix) An individual who is authorized by that individual to represent his/her stakes or shares.

c) Other juridical persons or natural persons in a relationship that poses potential risks to the operations of a non-bank credit institution shall be determined in accordance with its rules and regulations, or under SBV’s written request through inspection or supervision on a case-by-case basis.

14. Capital contribution or purchase of shares by a financial company means a financial company’s charter capital contribution, purchase of shares or other involvement that serves the purposes of becoming a shareholder or capital contributor of another enterprise, including provision of charter capital, contribution of capital to a subsidiary or associate company of a financial company; its capital participation in an investment fund.

15. Irrevocable means the impossibility of cancelling or changing established commitments in any form, unless otherwise prescribed by law.

16. Extending/offering/providing credit for investment or trade in stocks means the act of a financial company’s granting or entrusting extension of credit under laws so that a juridical person or natural person can use such credit to invest in or trade stocks and owning shares.

17. Extending/offering/providing credit for investment or trade in corporate bonds means the act of a financial company’s granting or entrusting extension of credit under laws so that a juridical person or natural person can use such credit to invest in or trade stocks and owning shares.

18. Non-bank credit institution means a financial company or finance leasing company established and operated within Vietnam in accordance with Vietnam’s domestic laws.

19. Financial institution means an organization prescribed in anti-money laundering (AML) laws.

20. State-owned financial institution means a financial institution referred to in clause 19 herein of which more than 50% of charter capital or total voting share is held by the State.

21. Overseas financial institution means a financial institution established abroad in accordance with the foreign law.

22. Average total liabilities for a month is calculated by dividing the gross balance of Total Liabilities on a balance sheet at end of each day by total days of the month.

23. Forward means a transaction in which a non-bank credit institution (the buyer) purchases and gains ownership of an undue security from another credit institution or foreign bank branch (the seller) while the seller promises to re-purchase it after a specified period of time.

24. Exchange rate used for calculating prudential limits and ratios referred to herein (hereinafter referred to as exchange rate) is regulated as follows:

a) The rates of exchange of foreign currencies into VND:

 (i) On working days other than the last days of months, quarters or years: The exchange rates shall be subject to regulations of the State Bank on exchange rates used on account systems of credit institutions;

 (ii) On working days which are the last days of months, quarters or years: The exchange rates shall be subject to regulations of the State Bank on rates of exchange of foreign currencies into Vietnamese dong on balance sheets of months, quarters or years if credit institutions and foreign bank branches use VND for accounting purposes; or rates of exchange of foreign currencies into Vietnamese dong on financial statements if credit institutions and foreign bank branches use foreign currencies subject to account systems of credit institutions and the financial reporting regimes for accounting purposes;

b) Rates of exchange of other foreign currencies into USD shall be quoted by non-bank credit institutions.

Article 4. Internal rules and regulations

1. Non-bank credit institutions shall issue their own rules and regulations on credit extension and loan management to ensure proper use of loans in accordance with this Circular and relevant documents. The rules and regulations must include but not limited to the followings:

a) Criteria for identification of a customer, or a customer and related persons of that customer defined in Clause 2 and 13 of Article 3 of this Circular; credit policies for a customer, or a customer and related persons of that customer; regulations on principles of decentralization and delegation of the powers to decide or approve credit extension; debt restructuring for a customer, or a customer and related persons of that customer;

b) Regulations on spreading or diversification of risks arising in credit offering activities; methods for monitoring, managing, approving and deciding the offering of credit to a customer, or a customer and related persons of that customer if the credit extended is worth at least 1% of the equity of the non-bank credit institution. These regulations shall be made public and transparent, especially those on appraisal, credit extension, debt restructuring, prevention of conflict of interest between the appraiser, the credit extension decision maker and the customer who is related to these persons;

c) Rules and criteria for assessment and leveling of risks of credit extension for prioritized or restricted customers and sectors, which serve as a basis for formulation and development of annual business plans and strategies;

d) Regulations under which consideration prior to approval of credit extension and debt restructuring (including debt deferment and rescheduling) must be transparent, free of conflict of interest, and must not conceal information about credit quality. In this pre-approval process, the maker of the decision on debt restructuring must be different from the maker of the decision to offer such credit, unless the credit extension is approved by the Governing Board or the Board of Directors. In case the consideration prior to approval of credit extension and debt restructuring is carried out according to the council-based mechanism, at least two thirds of the members of the Debt Restructuring Review Council must be different from members of the Credit Review Council;

dd) Regulations on management of risks incurred from extending credit for investment and trade in shares, corporate bonds; real estate business; implementation of PPP projects;

e) Regulations on extending credit that are binding on directors (deputy directors) of branches, affiliated units and holders of equivalent positions of non-bank credit institutions according to the rules specified in Point a, b, c, d and dd of this Clause. Equivalent positions shall be determined according to internal rules and regulations of non-bank credit institutions.

2. Non-bank credit institutions shall issue their internal rules and regulations on assessment of assets and compliance to minimum prudential capital ratios that are made according to the principles of management of asset-related risks, on the basis of credit demands, characteristics and levels of operating risks and in light of business cycles, adaptability to risks and their business strategies. These rules and regulations must conform to this Circular and other relevant documents, and must include but not limited to the followings:

a) Regulations on the organizational structure, decentralization or authorization mechanism, functions and duties of each managerial department that match minimum prudential capital ratios;

b) Rules, policies, procedures for identification, measurement, monitoring, control, reporting and exchange of risk-related information that are aimed at ensuring conformance to minimum prudential capital ratios;

c) Regulations on management of the structure of equity and assets, including assessment of risk levels and trends, their impacts on the need for equity to mitigate the risks; the amount and quality of equity; the tolerance of risks from macroeconomic factors, accessibility to sources of additional equity, including financial assistance from shareholders where necessary to maintain the minimum prudential capital adequacy ratio; obligations to provide capital for subsidiaries and associate companies; short-term and long-term equity targets; estimated costs of addition of equity and solutions for achievement of equity targets. Regulations on management of the structure of equity and assets include:

(i) Procedures and methods for monitoring and assessment of the magnitude, components and quality of equity and assets;

(ii) Management system for minimum prudential capital;

(iii) Early warning system, which can detect signs of risks that lead to decrease in the minimum prudential capital ratio; supervision and reporting thereof in accordance with regulations;

(iv) Plan for maintenance of individual and consolidated minimum prudential capital ratios, including:

- Measures for management and development of equity and assets in response to decrease in or breach of regulations on the minimum prudential capital ratio;

- Responsibilities, powers and obligations and cooperation amongst relevant departments and individuals in development of the plan or action for response to decrease in or breach of regulations on minimum prudential capital ratios.

3. Non-bank credit institutions shall issue internal rules and regulations on liquidity management in accordance with this Circular and relevant documents. Such rules and regulations shall include but not limited to the followings:

a) Regulations on decentralization, authorization, functions and duties of each department involved in management of assets, liabilities and maintenance of solvency and liquidity ratios;

b) Procedures and limits for management of liquidity, limits of difference in terms of assets and liabilities on the basis of cash inflow and outflow in Appendix 3 hereof;

c) Rules, policies, procedures for identification, measurement, monitoring, control, reporting and exchange of information about solvency and liquidity risks; criteria for early warning of risks from low solvency and liquidity, and response plans;

d) Plans and measures for acquisition of securities with high liquidity;

dd) Instructions, inspection, intracorporate control and audit of the maintenance of solvency and liquidity ratios;

e) A model for assessment and testing of solvency and liquidity scenarios. Scenario analysis shall ensure:

(i) Analysis of at least two cases:

- The cash flow from business operation in normal conditions;

- The cash flow from business operation in case of facing solvency or liquidity problems.

(ii) Scenario analysis shall demonstrate:

- The ability to fulfill daily commitments and duties;

- Measures for maintenance of solvency.

4. The internal rules and regulations mentioned in Clause 1, Clause 2 and Clause 3 of this Article shall be periodically reviewed and revised at least once a year.

5. Within 10 days from the date of revision of those internal rules and regulations stated in clause 1, 2 and 3 of this Article, the non-bank credit institution shall send the revised rules and regulations to the State Bank (Bank Supervision and Inspection Agency), whether directly or by post.

Article 5. Information technology system

Non-bank credit institutions shall have interconnected IT systems to implement regulations of this Circular. The IT systems must meet the minimum requirements, including:

1. Store, assess and add data about customers and markets; manage risks in accordance with regulations of SBV and internal regulations of non-bank credit institutions.

2. Monitor and manage cash flows, capital, assets, liabilities; calculate, manage and supervise the prudential limits and ratios for operations.

3. Prepare statistical reports as requested by SBV.

Chapter II

SPECIFIC PROVISIONS

Section 1. ACTUAL VALUE OF CHARTER CAPITAL; WHAT TO DO WHEN ACTUAL VALUE OF CHARTER CAPITAL FALLS BELOW LEGAL CAPITAL

Article 6. Actual value of charter capital

1. Actual value of charter capital of a non-bank credit institution is the remaining value of the charter capital determined according to Clause 2 and is calculated according to the formula stipulated in Clause 3 of this Article.

2. Rules for determination of actual value of charter capital:

A non-bank credit institution shall determine the remaining value of charter capital when:

a) Provisions for losses are sufficient as prescribed by law;

b) Revenues and expenses are fully accounted for to determine business performance.

3. Formula for calculation of actual value of charter capital:

Actual value of charter capital equals (=) charter capital plus (+) share premium ± undistributed cumulative profit (untreated accumulative loss) on accounting book.

4. A non-bank credit institution shall regularly monitor and assess the actual value of its charter capital and submit periodic reports on such value to SBV (Bank Supervision and Inspection Agency) as follows:

a) If the fiscal year of the non-bank credit institution ends on December 31:

The report on actual value of charter capital at the end of June 30 and December 31 shall be submitted by July 15 and January 15 at the latest, respectively;

b) If the fiscal year of the bank or FBB does not end on December 31:

The report on actual value of charter capital at the end of the last day of the previous quarter shall be submitted by the 15th of the first months of the first quarter and the third quarter at the latest;

c) In case the actual value of charter capital mentioned in Point a and Point b of this Clause does not include adjustments by independent auditors (if any), they may be added to the next financial statement.

Article 7. What to do when the actual value of charter capital falls below legal capital

1. When the actual value of charter capital falls below legal capital, the non-bank credit institution shall:

a) Develop and implement a plan to make sure the actual value of charter capital is not smaller than legal capital;

b) Within 30 days after the actual value of charter capital falls below the legal capital, send a written document on a response plan and commitment to executing the plan directly or by post to SBV (Bank Supervision and Inspection Agency). Such plan and commitment must include but not limited to:

(i) The actual value of charter capital prescribed in Article 6 of this Circular;

(ii) The reasons why it falls below legal capital;

(iii) Measures for ensuring the actual value of charter capital is equal to or greater than the legal capital and maintaining prudential ratios;

c) Organize the implementation of the corrective measures at the SBV’s request (if any).

2. Whenever the charter capital of a non-bank credit institution falls below the legal capital, SBV shall:

a) Carry out an assessment, inspection or request the non-bank credit institution to undergo independent audit for determination of actual value of charter capital in the response plan reported by the non-bank credit institution according to Clause 1 of this Article;

b) Request changes or completion of the corrective measures to be implemented by the non-bank credit institution when the actual value of charter capital falls below the legal capital stated in the plan prescribed in clause 1 of this Article where necessary;

c) Supervise and inspect the implementation of the response plan, including the corrective measures requested by SBV;

d) SBV shall, depending on level of the decrease in actual value of charter capital compared to the legal capital, decide on the following corrective measures applicable to each non-bank credit institution:

(i) The measures specified in Clause 2 of Article 59 of the Law on the State Bank shall be applied when the actual value of charter capital is below 80% of legal capital;

(ii) Apply restructuring measures prescribed by law; revoke the license if the non-bank credit institution’s charter capital is below 50% of legal capital or is below legal capital for 6 consecutive months despite implementation of the measures mentioned in Clause 1 of this Article.

Section 2. EQUITY AND MINIMUM PRUDENTIAL CAPITAL RATIO

Article 8. Equity

The equity equals (=) Tier 1 capital plus (+) Tier 2 capital minus (-) the deductions stipulated in Appendix 1 hereto.

Article 9. Minimum prudential capital ratio

1. The minimum prudential capital ratio (MPCR) reflects the capital adequacy of the non-bank credit institution based on the value of its equity and level of operational risk. Every non-bank credit institution shall maintain MPCARs in accordance with Clause 2 of this Article.

2. A non-bank credit institution’s MPCR:

a) MPCR of a non-bank credit institution consists of standalone MPCAR and consolidated MPCAR.

b) Standalone MPCR: Each non-bank credit institution’s MPCR must ve 9%.

It is calculated according to the following formula:

Where:

- Standalone equity is determined according to Appendix 1 hereto.

- Total standalone risk-weighted assets is the sum of on-balance assets, determined according to the level of risks and value of corresponding on-balance assets of off-balance sheet commitments according to the level of risk specified in Appendix 2 hereto.

c) Consolidated MPCAR: With respect to a financial company that has a subsidiary, it shall maintain a consolidated MPCR of 9% in addition to the individual CAR specified in Point b of this Clause.

It is calculated according to the following formula:

Where:

- Consolidated equity is determined according to Appendix 1 hereto.

- Total consolidated risk-weighted asset is determined according to Appendix 2 hereto.

Section 3. LIMITS FOR EXTENSION OF CREDIT

Article 10. Limits for extension of credit

1. Non-bank credit institutions shall comply with regulations on the cases in which credit extension is banned or limited and the credit extension limits specified in Articles 126, 127 and 128 of the Law on credit institutions (amended).

2. A non-bank credit institution shall determine its credit extension limits mentioned in Clause 1 of this Article on the basis of its standalone equity specified in Clause 3 of this Article at the end of the last working day.

Article 11. Conditions and limits for credit extension for investment in corporate bonds

1. A financial company may extend credit with terms of up to 01 (one) year for customers to invest in corporate bonds if the following conditions are met:

a) The credit extension comply with the prudential limits and ratios prescribed by law;

b) Bad debt ratio must be below 3%;

c) Risks are properly managed in accordance with regulations of SBV on internal control systems of non-bank credit institutions, regulations on classification of assets, rates of funds set aside for and use of provisions for losses for risk management by credit institutions and foreign bank branches.

2. A financial company must not extend credit with for a customer to invest in corporate bonds in the following cases:

a) The collateral is a bond issued by a credit institution, subsidiary of a credit institution or foreign bank branch;

b) The collateral is a bond of an enterprise borrowed by the customer to buy that enterprise’s bond;

c) The customer is one of the organizations and individuals mentioned in Clause 1 Article 126 of the Law on credit institutions (amended);

d) The client is a related person of any of the organizations or individuals mentioned in Clause 1 and Clause 4 Article 126 of the Law on credit institutions (amended);

dd) The customer is or is related to one of the organizations or individuals mentioned in Clause 1 Article 127 of the Law on credit institutions (amended);

e) The bonds are not listed or registered on the Unlisted Public Company Market (Upcom);

g) The bonds are issued by a subsidiary of the financial company;

h) The customer is a subsidiary or associate company of the credit institution.

3. The total balance of credit extended for investment in corporate bonds (including bonds of credit institutions and foreign bank branches) must not exceed 5% of the charter capital of a financial company.

Article 12. Conditions and limits for credit extension for investment in shares

1. A financial company may extend credit with terms of up to 01 (one) year for customers to invest in shares if the following conditions are met:

a) The credit extension comply with the prudential limits and ratios prescribed by law;

b) Bad debt ratio must be below 3%;

c) Risks are properly managed in accordance with regulations of SBV on internal control systems of non-bank credit institutions, regulations on classification of assets, rates of funds set aside for and use of provisions for losses for risk management by credit institutions and foreign bank branches.

2. A financial company must not extend credit to a customer for investment in shares in the following cases:

a) The collateral is shares of a credit institution or its subsidiary;

b) The collateral is the shares of an issuing enterprise that the customer borrows for purchase of shares of that enterprise;

c) Credit is used for investment in shares of credit institutions;

d) The customer is one of the organizations and individuals mentioned in Clause 1 Article 126 of the Law on credit institutions (amended);

dd) The client is a related person of any of the organizations or individuals mentioned in Clause 1 and Clause 4 Article 126 of the Law on credit institutions (amended);

e) The customer is or is related to one of the organizations or individuals mentioned in Clause 1 Article 127 of the Law on credit institutions (amended);

g) The customer is a subsidiary or associate company of the credit institution.

3. The total balance of credit extended for investment in shares of a financial company must not exceed 5% of its charter capital.

Article 13. Management of extension of credit

1. Non-bank credit institutions shall manage credit extension in accordance with law their internal rules and regulations on credit extension and loan management to ensure the proper use of loans according to Clause 1 Article 4 of this Circular.

2. Non-bank credit institutions shall keep updating the list of founding shareholders, major shareholders, capital contributors, members of the Governing Board, the Board of Directors, the Board of Controllers, executives and holders of other managerial positions in accordanc with laws and charters of non-bank credit institutions and other related persons thereof. This list must be sent directly or by post to SBV (Bank Supervision and Inspection Agency), except positions to which any change is reported in accordance with law.

3. A non-bank credit institution must report to:

a) the General Meeting of Shareholders or Board of Directors on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions (amended) by the time of collection of data needed for the general meeting of shareholders or the meeting of the Board of Directors is held;

b) the owner, capital contributors, executives on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions (amended);

c) SBV on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions (amended) under SBV’s regulations regarding statistical reporting regime.

4. Extension of credit to subsidiaries, associate companies and the entities mentioned in Clause 2 of this Article (except for the cases in which credit extension is not allowed according to Article 126 of the Law on credit institutions (amended)) is subject to approval by the Governing Board, the Board of Directors, except for credit extension decided by the General Meeting of Shareholders. The Board of Controllers shall monitor the approval of credit extension for the aforementioned entities.

Section 4. SOLVENCY RATIO

Article 14. Solvency ratio

1. Non-bank credit institutions shall, in accordance with the regulations in Appendix 3 hereto, prepare cash inflow and outflow worksheets at the end of each working day for monitoring solvency ratios specified in Clause 2 and Clause 3 of this Article.

2. Liquidity ratio:

a) Every non-bank credit institution shall hold liquid assets in order to be prepared for payment of debts when they are due and unexpected expenses.

b) Every non-bank credit institution shall maintain a minimum liquidity ratio of 1%.

c) The liquidity ratio shall be calculated as follows:

Where:

- Liquid assets are specified in Appendix 3 hereto;

- Total liability is the total liability on the balance sheet minus (-):

+ Refinancing by SBV in the form of discounting on securities, loans backed by securities (minus the refinancing by SBV on the basis of special bonds and bonds directly issued to the debt seller at market prices of VAMC); overnight loan in electronic interbank payment; forward of securities (minus the revenue from sale of bonds directly issued to the debt seller at market prices of VAMC) through open market operation of SBV.

+ Credit extension by other credit institutions and foreign bank branches in the form of forwards, discounting, rediscounting and secured loans: (i) securities used in transactions of SBV; (ii) bonds, treasury bills issued or guaranteed by governments and central banks of other countries and rated by international credit rating agencies (Standard & Poor’s, Fitch Rating) as AA or above, or equivalently rated by another independent credit rating enterprise.

d) Liquid assets and total liability shall be expressed as VND and other convertible foreign currencies (at the rates specified in Point a Clause 24 Article 3 of this Circular).

3. 30-day solvency ratio:

a) A non-bank credit institution shall calculate and maintain its 30-day solvency for VND, USD and other foreign currencies that can be exchanged into USD at the rates specified in Point b Clause 24 Article 3 of this Circular;

b) 30-day solvency ratio is calculated according to the following formula:

Where:

(i) Liquid assets are specified in Appendix 3 hereto;

(ii) Net cash outflow in the next 30 days is the difference between the cash outflow and cash inflow of 30 consecutive days from the next day according to Appendix 3 hereto.

c) In case a non-bank credit institution finds that the net cash outflow in VND in the next 30 days is a positive number, it shall maintain a minimum 30-day solvency ratio defined in point b of this clause for VND of 20%.

d) In case a non-bank credit institution finds that the net cash outflow in foreign currency in the next 30 days is a positive number, it shall maintain a minimum 30-day solvency ratio defined in point b of this clause for that foreign currency of 5%.

Article 15. Management and handling of failure to maintain solvency ratios

1. A non-bank credit institution shall establish a department (or equivalent) at its headquarter in charge of liabilities and assets to monitor and manage solvency on a daily basis. The department shall be managed by the General Director (Director) or Deputy General Director (Deputy Director).

2. In case the 30-day solvency ratio of a non-bank credit institution is below the rate specified in with Point c and Point d Clause 3 Article 14 of this Circular, SBV shall consider whether administrative penalties for offences arising in currency and banking activities are imposed, and carry out solvency supervision. The non-bank credit institution shall promptly implement the corrective measure, including: taking out a loan from another credit institution or foreign bank branch; taking out a loan from an overseas financial institution; concluding an irrevocable term deposit agreement, irrevocable loan agreement and other irrevocable approaches with other credit institutions, foreign bank branches or overseas financial institutions in other to maintain the solvency ratio. If any of the corrective measures mentioned above involves at least 20% of the liquid assets, SBV shall implement additional supervision measures and take actions as prescribed by law.

3. Non-bank credit institutions shall submit solvency ratio reports to SBV in accordance with regulations on statistical reporting applicable to credit institutions and foreign bank branches. Before 10 a.m. of the next day, the non-bank credit institution shall submit a written report on the temporarily inadequate solvency ratio (if any) and implemented measures, send it to SBV (Bank Supervision and Inspection Agency) directly or by post.

4. A non-bank credit institution may only grant loans and enter into such irrevocable term deposit agreements, irrevocable loan agreements with other credit institutions and foreign bank branches to offset such indequacy if its 30-day solvency ratio is still conformable with Article 14 of this Circular after taking these measures.

5. After taking the corrective measures mentioned in Clause 2 of this Article, if the non-bank credit institution remains in difficult solvency situation, it shall promptly notify SBV (Bank Supervision and Inspection Agency).

Section 5. MAXIMUM RATIOS OF SHORT-TERM CAPITAL FOR PROVISION OF MEDIUM-TERM AND LONG-TERM LOANS

Article 16. Maximum ratios of short-term capital for provision of medium-term and long-term loans

1. Non-bank credit institutions shall apply the following formula to calculate the maximum ratio of short-term capital for provision of medium-term and long-term loans in VND and other foreign currencies that can be exchanged into VND at the rates specified in Point a Clause 26 Article 3 of this Circular:

Where:

- A: Maximum ratio of short-term capital for provision of medium-term and long-term loans.

- B: Total medium-term and long-term loan balance specified in Clause 2 of this Article minus (-) total medium-term and long-term capital specified in Clause 3 of this Article.

- C: Short-term capital specified in clause 4 of this Article.

2. Total medium-term and long-term loan balance, including:

a) Balance of the following loans with the remaining term of over 01 (one) year:

(i) Loans, financial leases (including those taken by other credit institutions and foreign bank branches in Vietnam), except:

- Loans, financial leases from trust funds of the Government, individuals and other organizations (including other credit institutions and foreign bank branches in Vietnam), the risks of which are taken by the trustors;

- Loans, financial leases granted to programs and projects refinanced by SBV under decisions of the Government or the Prime Minister.

(ii) Trust funds granted by other credit institutions under a loan or financial lease agreement, the risks of which are borne by the trustors;

(iii) Purchases of and investments in securities, except securities used in transactions of SBV (exclusive of bonds issued by VAMC);

(iv) If the loans, financial leases, trust loans or financial leases mentioned in (i) and (ii) have various repayment terms, the remaining term of debts to be included in the medium-term and long-term loan or financial lease balance shall be determined on the basis of the respective original terms of these loan or financial lease debts.

b) Overdue principal of loans, financial leases, trust loans or financial leases; balance of purchases and investments in securities.

3. Medium-term and long-term capital with the remaining term of over 01 (one) year includes:

a) Deposits of domestic and foreign organizations (including those of other credit institutions or foreign bank branches in Vietnam), except deposits of all kinds of the State Treasury;

b) Loans from domestic and overseas financial institutions (including those from credit institutions and foreign bank branches in Vietnam);

c) Trust funds from the Government, the risks of which are taken by the non-bank credit institution;

d) Loans from lead credit institutions or foreign bank branches that are subsequently on-lent by non-bank credit institutions to projects receiving finances, trusted investments, and the risks of which are borne by non-bank credit institutions;

dd) Funds from issuance of promissory notes, treasury bills, certificates of deposit, bonds;

e) Charter capital, fund for charter capital increase, development investment funds and financial reserve funds that remain after deduction of cumulative loss (according to the balance sheet when calculating the maximum ratio of short-term capital for provision of medium-term and long-term loans), historical costs of fixed assets acquired through purchases or investments, capital contributions, purchases of shares prescribed by law;

g) Share premiums, undistributed profit (according to the balance sheet when calculating the maximum ratio of short-term capital for provision of medium-term and long-term loans) that remains after purchase of treasury stocks;

h) Exchange differences due to reassessment of foreign currency equity on the balance sheet when converting the foreign currency in the financial statement into VND.

4. Short-term capital of which balance has the remaining term of up to 01 (one) year (including demand deposits) includes:

a) Deposits of domestic and foreign organizations (including those of other credit institutions or foreign bank branches in Vietnam), except:

(i) Deposits of all kinds of the State Treasury;

(ii) Escrows and special-purpose deposits of customers;

b) Loans from domestic and overseas financial institutions (including those from credit institutions and foreign bank branches in Vietnam);

c) Trust funds from the Government, the risks of which are taken by the non-bank credit institution;

d) Loans from lead credit institutions or foreign bank branches that are subsequently on-lent by non-bank credit institutions to projects receiving finances, trusted investments, and the risks of which are borne by non-bank credit institutions;

dd) Funds from issuance of promissory notes, treasury bills, certificates of deposit, bonds.

5. Non-bank credit institutions shall comply with the regulatory maximum ratio of short-term capital for provision of medium-term and long-term loans which is 90%.

Section 6. RATIOS OF PURCHASE OF AND INVESTMENT IN GOVERNMENT BONDS AND GOVERNMENT-BACKED BONDS

Article 17. Ratios of purchase of and investment in government bonds and government-backed bonds

1. The maximum ratio of a non-bank credit institution’s purchase of or investment in government bonds and government-backed bonds to its previous month’s total liability must be 10%.

2. Government bonds, including:

a) Treasury bills;

b) Treasury bonds;

c) National development bonds.

3. Government-back bonds, including:

a) Government-back corporate bonds;

b) Government-backed bonds issued by policy banks;

c) Government-backed bonds issued financial institutions and credit institutions.

4. Total purchases of and investments in Government bonds and government-backed bonds for determination of the maximum ratio mentioned in Clause 1 of this Article is the buying prices of Government bonds and government-backed bonds under the ownership of the non-bank credit institution, exclusive of purchases of or investments in Government bonds and government-backed bonds from trust funds, the risks of which are not taken by the non-bank credit institution.

5. A newly established non-bank credit institution (excluding non-bank credit institutions that are reorganized under the Law on credit institutions) that has been operating for less than 02 (two) years and has a total liability smaller than its charter capital may purchase or invest in Government bonds and government-backed bonds with a ratio of up to 30% of its charter capital.

Section 7. CAPITAL CONTRIBUTION AND SHARE PURCHASE LIMITS

Article 18. Capital contribution and share purchase limits

Financial companies, financial companies and their subsidiaries or associate companies shall comply with capital contribution and share purchase limits specified in Article 110, Article 129 and Article 135 of the Law on credit institutions (revised).

Chapter III

IMPLEMENTATION

Article 19. Transitional provisions

1. The contracts that are concluded between non-bank credit institutions and customs before the effective date of this Circular and conformable with applicable laws in effect at the time of conclusion may be executed until their expiration. These contracts may be revised or extended if the revision or extension is conformable with regulations of this Circular and relevant laws.

2. When this Circular comes into force, every non-bank credit institution whose minimum prudential capital ratios are not conformable with Article 9 of this Circular shall prepare a remedial plan that has the following contents:

a) Details of specific non-compliant ratios;

b) Measures for ensuring that the ratios are conformable within 6 months from the effective date of this Circular.

Article 20. Post-transition actions

After the transition period mentioned in Clause 2 Article 19 of this Circular or a time limit imposed by SBV under Clause 2 Article 21 herein, if non-bank credit institutions fail to meet minimum prudential capital requirements set out herein, depending on the level and characteristics of risks, SBV shall consider implementing necessary measures prescribed by laws.

Article 21. Responsibilities of non-bank credit institutions

1. Any non-bank credit institutions that fail to comply with the prudential limits and ratios specified in this Circular shall prepare remedial plans and proactively implement remedial measures to comply with laws.

2. Within 30 days from the date of effective of this Circular, they shall send the remedial plans mentioned in Clause 2 Article 19 of this Circular to SBV (Bank Supervision and Inspection Agency) directly or by post.

In case SBV requests revisions to these remedial plans, non-bank credit institutions shall make the revisions accordingly.

Article 22. Entry into force

1. This Circular enters into force as of February 14, 2021.

2. The following documents shall be repealed:

- Circular No. 36/2014/TT-NHNN dated 20/11/2014 of the Governor of SBV on prudential limits and ratios applicable to credit institutions and foreign bank branches;

- Circular No. 06/2016/TT-NHNN dated 27/5/2016 of the Governor of SBV on amendments to Circular No. 36/2014/TT-NHNN dated 20/11/2014 of the Governor of SBV on prudential limits and ratios applicable to credit institutions and foreign bank branches;

- Circular No. 19/2017/TT-NHNN dated 28/12/2017 of the Governor of SBV on amendments to Circular No. 36/2014/TT-NHNN dated 20/11/2014 of the Governor of SBV on prudential limits and ratios applicable to credit institutions and foreign bank branches;

- Circular No. 16/2018/TT-NHNN dated 31/7/2018 of the Governor of SBV on amendments to Circular No. 36/2014/TT-NHNN dated 20/11/2014 of the Governor of SBV on prudential limits and ratios applicable to credit institutions and foreign bank branches;

- Article 4 of Circular No. 13/2019/TT-NHNN dated 21/8/2019 of the Governor of SBV on amendments to some Circulars on licensing, organization and operation of credit institutions and foreign bank branches.

Article 23. Implementation

The Chief of the Office, Chief of the Banking Inspection and Supervision Agency, Heads of affiliated entities of SBV and non-bank credit institutions shall be responsible for implementing this Circular./.

APPENDIX 1

COMPONENTS AND DETERMINATION OF EQUITY
(to the Circular No. 23/2020/TT-NHNN dated December 31, 2020 of the Governor of the State Bank of Vietnam, regulating the prudential limits and ratios of non-bank credit institutions)

I. Standalone equity:

II. Consolidated equity

1. General principles:

a. Consolidated equity has the components specified in Point 2 below, extracted from the consolidated balance sheet, excluding subsidiary companies that are enterprises operating under the Law on Insurance Business.

b. In case the consolidated financial statement mentioned in (a) does not contain specific items for calculating consolidated Tier 1 and Tier 2 capital, the non-bank credit institution shall acquire statistical data from balance sheets containing standalone accounts of subjects of consolidation to ensure that items of tier 1 and tier 2 capital are calculated in a full and accurate manner.

2. Components and determination of consolidated equity:

APPENDIX 2

INSTRUCTIONS FOR CATEGORIZATION AND DETERMINATION OF TOTAL RISK-WEIGHTED ASSETS (RWA)
(Including on-balance sheet assets and off-balance sheet commitments)
(to the Circular No. 23/2020/TT-NHNN dated December 31, 2020 of the Governor of the State Bank of Vietnam, regulating the prudential limits and ratios of non-bank credit institutions)

Part I. Instructions for calculation of on-balance sheet assets and on-balance value of OBS commitments corresponding to levels of risk.

A. General instructions:

1. On the basis of the balance sheets, relevant documents and database of non-bank credit institutions, their subsidiaries and regulations hereof, they shall determine on-balance sheet assets and on-balance value of OBS commitments according to levels of risk in accordance with Part II of this Appendix.

The database must contain all receivables sorted by debtors, types of money, security methods; collateral and purposes of credit extension.

2. Assets are purchases, investments in convertible bonds of other credit institutions, subordinated debts of other credit institutions and foreign bank branches. Before they are deducted from Tier 2 capital according to Appendix 1 of this Circular, their risk weightings shall be determined similarly to those of receivables owed by other credit institutions and foreign bank branches in the country.

3. Value of receivables for calculation of risk-weighted assets (RWA) includes the principal, interest and fees (if any).

4. Rules for determining risk weightings of assets:

- Rule 1: Each on-balance sheet asset must be classified into a group of risk weightings. If the asset can apply multiple risk weightings, the highest one shall apply. This rule does not apply to:

(i) Receivables that fully satisfy the following conditions:

+ The receivables are secured in terms of duration and value by cash, valuable papers issued or backed by Vietnam’s Government, SBV, the People’s Committees of provinces; term deposits, securities issued by the non-bank credit institution itself; securities issued or backed by the central governments or central banks of OECD countries; valuable papers issued or backed by international financial institutions;

+ The receivables are not used for real estate business; securities investment or trade;

+ The receivables are not provided for: subsidiary companies, associate companies of the credit institutions; securities companies, fund management companies.

(ii) Loans granted for individuals for purchase of social housing and housing under assistance programs/projects of the Government, house purchase loan that is under 1,5 billion and secured by the borrower’s house (including future housing), land use right (LUR), property on land.

- - Rule 2: The non-bank credit institution shall enumerate the receivables by security method, collateral and security ratio of each security method and collateral type in the security contract, which will be the basis for the non-bank credit institution’s valuation of the RWAs of the receivables according to the risk weightings provided for in this Appendix with respect to specific security and collateral.

Situation 1: The asset (receivable) is wholly secured by a type of collateral/or not secured: Apply Rule 1.

Example 1: Bank A takes a loan of 100 billion VND which is secured by 150 billion VND of government bonds. According to Rule 1, this loan will apply the risk weighting of 0% (receivable wholly secured with valuable papers issued by the Government of Vietnam).

Example 2: Client A takes a loan of 100 billion VND with a duration of 2 months for real estate business (risk weighting = 200%). The loan is wholly secured by valuable papers that are worth 120 billion VND for the remaining time of 1 year and issued by another bank (risk weighting = 50%). According to Rule 1, this loan will apply the risk weighting of 200%).

Example 3: Non-bank credit institution A grants a loan of 100 billion VND to a client with a duration of 06 months for investment in shares. The loan is secured by 150 billion VND of government bonds for the remaining time of 02 years. According to Rule 1, this loan will apply the risk weighting of 150% (receivables for investment in securities).

Situation 2: Assets (receivables) partially secured with collateral: Apply Rule 2.

Example: Bank A is granted loan of 100 billion VND with a duration of 2 months, 50 billion VND of which is secured with government bonds for the remaining time of 02 years.

According to Rule 2, the risk weighting of this loan is calculated as follows: (i) the 50 billion VND secured with security issued by the Government of Vietnam will apply the risk weighting of 0%; (ii) The remaining 50 billion VND will apply the risk weighting of 50% (receivables in VND from other domestic banks).

Situation 3: Assets (receivables) secured with different types of collateral: Apply Rule 2.

Example: Enterprise A is granted a loan of 100 billion VND with a duration of 6 months for commercial purposes, 50 billion VND of which is secured with government bonds for the remaining time of 02 years, the remaining 50 billion is secured with land use right.

According to Rule 2, the risk weighting of this loan is calculated as follows: (i) the 50 billion VND secured with security issued by the Government of Vietnam will apply the risk weighting of 0%; (ii) The remaining 50 billion VND as receivable secured by land use right will apply the risk weighting of 50%.

Situation 4: Assets (receivables) are secured with gold; or used for real estate business, securities investment; or issued to subsidiary companies, associate companies of credit institutions; securities companies, fund management companies: Apply both Rule 1 and Rule 2.

Example: Securities company A is granted a loan of 100 billion VND; 50 billion VND of which is secured with government bonds; the remaining 50 billion is secured with land use right.

According to regulations in this Appendix, the 50 billion VND which is secured with government bonds will have the risk weighting of 0%, the remaining 50 billion, which is secured with land use right, will have the risk weighting of 50%. The receivables owed by the securities company have the risk weighting of 150%.

According to both Rules mentioned above, the highest risk weighting of 150% will apply (to receivables of the securities company or the fund management company).

Situation 5: Instructions on how to determine risk weightings and RWAs for consumer loans (in Section 23 and 31 of this Appendix)

Example 1: The non-bank credit institution grants the following loans to individual A, including:

(i) The first mortgage loan is 1.2 billion VND for purchase of a house and is secured by that same house. When minimum prudential capital ratio is calculated, outstanding debt is 1 billion VND.

(ii) The second loan is 800 million VND for purchase of a car. When minimum prudential capital ratio is calculated, outstanding debt is 500 million VND.

(iii) The third loan is 2,5 billion VND for an overseas medical visit. When minimum prudential capital ratio is calculated, outstanding debt is 1 billion VND.

Calculation of risk weightings and total RWAs of these loans:

- When minimum prudential capital ratio is calculated, the customer A’s first loan satisfies the conditions specified in (23) in this Appendix and may apply the risk weighting of 50%.

As sum of the second and third loan: 0.8 billion VND + 2.5 billion VND = 3.3 billion VND (less than 4 billion VND), risk weighting will be 100%.

- When minimum prudential capital ratio is calculated, RWAs of all 3 loans of the customer A: 1 billion VND (first loan) x 50% + 5 billion VND (second loan) x 100% + 1 billion VND (third loan) x 100% = 2 billion VND.

Example 2: The non-bank credit institution grants the following loans to individual B:

(i) The first mortgage loan is 4 billion VND for purchase of a house and is secured by that same house. When minimum prudential capital ratio is calculated, outstanding debt is 500 million VND.

(ii) The second loan is 1 billion VND for purchase of a car. When minimum prudential capital ratio is calculated, outstanding debt is 800 million VND.

Calculation of risk weightings and total RWAs of these loans:

- At the time of calculation of minimum prudential capital ratio, none of the customer B’s loans satisfies the conditions in (23) in this Appendix. Customer B's total loan: 4 billion VND + 1 billion VND = 5 billion VND. Thus, both of them apply the risk weighting of 150% (if minimum prudential capital ratio is calculated after 01/01/2022).

- Total RWAs of these loans when minimum prudential capital ratio is calculated: 0.5 billion VND (first loan) x 150% + 0.8 billion VND (second loan) x 150% = 1.95 billion VND.

Example 3: The non-bank credit institution grants the following loans to individual C:

(i) The first mortgage loan is 1.2 billion VND for purchase of a house and is secured by that same house. When minimum prudential capital ratio is calculated, outstanding debt is 500 million VND.

(i) The second mortgage loan is 1.3 billion VND for purchase of a house and is secured by that same house. When minimum prudential capital ratio is calculated, outstanding debt is 700 million VND.

(iii) The third consumer loan is 3 billion VND. When minimum prudential capital ratio is calculated, outstanding debt is 2 billion VND.

Calculation of risk weightings and total RWAs of these loans:

- When minimum prudential capital ratio is calculated, the customer C’s first and second loan satisfy the conditions specified in (23) in this Appendix. The non-bank credit institution may choose either of them to apply the risk weighting of 50% throughout the loan term. If the non-bank credit institution chooses the first loan with the risk weighting of 50%:

+ Risk weighting of the first loan is 50%.

+ Sum of the second loan and third loan: 1.3 billion VND + 3 billion VND = 4.3 billion VND. Thus, both of them apply the risk weighting of 150% (if minimum prudential capital ratio is calculated after 01/01/2022).

- Total RWAs of these loans when minimum prudential capital ratio is calculated: 0.5 billion VND (first loan) x 50% + 0.7 billion VND (second loan) x 150% + 2 billion dong (third loan) x 150% = 4.3 billion VND.

5. Determination of risk weightings of OBS commitments:

5.1. Values of corresponding on-balance sheet assets of OBS commitments shall be determined as follows:

 (i) Step 1: Determine the values of corresponding on-balance sheet assets of OBS commitments.

Determination method: multiply value of the OBS commitment by the corresponding conversion factor specified in this Appendix.

(ii) Step 2: Determine the values of corresponding on-balance sheet RWAs of OBS commitments.

Determination method: Multiply the value of on-balance sheet asset of each OBS commitment calculated in Step 1 by the corresponding risk weighting specified in this Appendix.

5.2. The OBS commitments that are converted as instructed above will be considered on-balance sheet assets and will apply the risk weightings similarly to those of on-balance sheet assets in order to determine the values of corresponding risk-weighted assets of OBS commitments. The determination method is as follows:

(i) For OBS commitments whose payment is guaranteed by the Government of Vietnam or SBV or whose duration and value are secured by securities issued by the Government of Vietnam or SBV: Risk weighting = 0%.

(ii) For OBS commitments in VND or foreign currencies that are wholly secured by securities issued by state financial institutions: Risk weighting = 20%.

(iii) For OBS commitments in VND or foreign currencies that are wholly secured by all securities issued by other credit institutions and foreign bank branches: Risk weighting = 50%.

(iv) For OBS commitments secured by housing (including future housing), land use right or property on land of the borrower: Risk weighting = 50%.

5.3. Derivative contracts and OBS commitments not elsewhere classified into groups of risk weightings: Risk weighting = 100%.

6. The conversion factor of an OBS commitment, e.g. commitments to providing guarantees, is the lower conversion factor between the conversion factor of a commitment to providing an OBS commitment and the conversion factor of that OBS commitment.

Example:

Non-bank credit institution A issues a commitment to accepting a payment of 100,000 USD to Company B for Company B’s loan at Bank C. Non-bank credit institution A’s commitment to accepting payment is wholly secured by securities issued by Bank A and owned by Company B. In this case:

- Value of corresponding on-balance sheet assets: 100,000 USD (value of the OBS commitments) x 100% (conversion factor in section 43, point 2 of Part II of this Appendix) = 100,000 USD;

- Value of corresponding on-balance sheet RWAs: 100,000 USD (value of corresponding on-balance sheet asset of the OBS commitment) x 20% (risk weighting in section 20, point 1 of Part II of this Appendix) = 20,000 USD.

B. Instructions on how to calculate consolidated risk-weighted assets:

Calculation principles:

1. Use the data on the consolidated balance sheet without subsidiary companies that are enterprises operating under the Law on Insurance Business as legally required.

2. The value of consolidated RWAs (including values of consolidated on-balance sheet RWAs and values of corresponding consolidated on-balance sheet RWAs of consolidated OBS commitments) shall be determined according to Section A Part I of this Appendix.

Part II. Categorization and determination of RWAs

1. Determination of RWAs by level of risk:

2. OBS commitments

APPENDIX 3

INSTRUCTIONS FOR DETERMINATION OF SOLVENCY RATIO
(to the Circular No. 23/2020/TT-NHNN dated December 31, 2020 of the Governor of the State Bank of Vietnam, regulating the prudential limits and ratios of non-bank credit institutions)

Part I. Liquid assets:

1. Samples used for calculation of “Liquid assets:

2. Instructions on how to enter data:

No. 1: Cash balance, gold value on the balance sheet at the end of each day.

No. 2: Balances of demand deposits, overnight deposits and deposits at SBV on the balance sheet at the end of each day.

No. 3: Book values of securities used for transactions with SBV under SBV’s regulations at the end of each day.

Securities purchased under a forward contract may be included in liquid assets before the maturity date specified therein.

Securities sold under a forward contract may be included in liquid assets before the maturity date specified therein.

No. 4: Demand deposits, overnight deposits in correspondent banks, except for those reserved for specific payments, on the balance sheet at the end of each day.

No. 5: Demand deposits, overnight deposits at other foreign bank branches and credit institutions in Vietnam and other countries on the balance sheet at the end of each day.

No. 6: Book values at the end of each day of bonds, treasury bills issued or secured by governments and central banks of the countries with credit rating of AA or better provided by international credit rating agencies (Standard & Poor’s, Fitch Rating) or an equivalent rating given by another independent credit rating agency.

No. 7: 50% of book value at the end of each day of corporate bonds being held by the non-bank credit institution and satisfy the following conditions: (i) the bonds are not issued by a credit institution/foreign bank branch in Vietnam or its subsidiary companies or associate companies; (ii) the corporate bonds are listed; (iii) the corporate bonds are rated AA- or better by international credit rating agencies (Standard & Poor’s, Fitch Rating) or an equivalent rating given by another independent credit rating agency.

Overnight deposits are money deposited during the period from the end of a working day to the beginning of the next working day.

3. Rules of calculation of “Liquid assets:

(i) Assets in No. 3 and 7 must:

- Be immediately used for payment or converted into cash at low transaction costs;

- Not be used as collateral for other liabilities;

- Not include the number of securities that are provided for discount, rediscount, being pledged or sold under forward contracts;

- Not include securities of which the issuers default on interest and principal payment obligations;

- Not include bonds (even special bonds) issued by VAMC;

(ii) Liquid assets that are securities are used for transactions of SBV (except bonds issued by VAMC); bonds and treasury bills issued by governments and central banks of the countries rated AA or better by international credit rating agencies (Standard & Poor’s, Fitch Rating) or an equivalent rating given by another independent credit rating agency, expressed as VND and convertible currencies.

Part II. Cash inflow:

1. Samples for calculation of “Cash inflow”:

2. Instructions on how to enter “cash inflow” data:

No. 1.1: Demand deposits: Enter the balance of demand deposits on the balance sheet in "Next day" column; leave out other columns.

No. 1.2: Term deposits: Enter the balance of demand deposits that are due as referred to in the depositing contract in a column that matches its maturity date.

No. 1.3: Loans granted to credit institutions, foreign bank branches, foreign credit institutions: Enter the loans that are due according to the lending contracts in the columns that match their maturity dates.

No. 2: Loans granted to customers: Enter the loans that are due according to the lending contracts in the columns that match their maturity dates. In case a loan has multiple maturity dates, the cash inflow will be recorded according to the corresponding maturity date.

Financial leases to customers: Enter the balance of financial leases that are due according to the financial lease contracts in the columns that match their maturity dates. In case a financial lease has multiple maturity dates, the cash inflow will be recorded according to the corresponding maturity date.

No. 3: Trading securities:

- Domestically listed or registered trading securities: Enter the book value minus provision for decrease in securities prices in “Next day” column and leave out other columns.

- Unlisted trading securities: Enter book value of securities in the columns that match their maturity dates.

No. 4: investment securities:

- Domestically listed or registered investment securities: Enter the book value minus provision for decrease in securities prices in “Next day” column and leave out other columns.

- Domestically listed or registered investment securities held to maturity: Enter the book value minus provision for decrease in securities prices in a corresponding column that matches the maturity date.

- Unlisted marketable securities: Enter book value of marketable securities in the columns that match their maturity dates.

- Unlisted securities held to maturity: Enter book value of securities in the columns that match their maturity dates.

No. 5: Derivatives and other financial assets: Enter the realizable revenue from the derivatives and other financial assets in the columns that match the collection dates.

No. 6: Interests, fees receivable: Enter the due and realizable interest and fees on the loans, financial leases, deposits, investment securities, derivatives and other financial assets that are qualified for being entered in 1, 2, 3, 4, 5 in the columns that match their maturity dates.

No. 7: Other assets: Enter the amounts definitely receivable from realization of “other assets” according to Decision No. 16/2007/QD-NHNN dated April 18, 2007 of the State Bank, issuing reporting regime for credit institutions and other relevant documents (except cash flows from 1 to 6 on the cash inflow chart) in the columns that match their collection dates.

3. Rules of calculation of “Cash inflow”:

“Cash inflow” shall be calculated according to the following rules:

- The items that have been included in liquid assets must not be included in "cash inflow”.

- Do not include realizable revenue in “cash inflow” if it cannot be estimated.

- In case a loan or financial lease has various due dates, the non-bank credit institution shall calculate cash inflow according to each due date of the loan.

- Loans granted to other credit institutions, foreign bank branches, foreign credit institutions, and loans or financial leases to economic organizations and individuals: Those that have been overdue and/or classified as Group 2 or higher-group debts (according to the latest classification) must not be included in “cash inflow”.

- For domestically listed or registered trading securities and marketable investment securities: The value to be included in “cash inflow” is the book value minus provision for decrease in securities prices and shall be included in the cash inflow of the “next day” column instead of other days.

- For domestically listed or registered investment securities held to maturity: The value to be included in “cash inflow” is the book value minus provision for decrease in securities prices on their maturity date.

- For unlisted securities (unlisted trading securities, unlisted marketable investment securities, unlisted investment securities held to maturity): Enter book value of unlisted securities classified as Group 1 debts in the columns that match their maturity dates.

- The following amounts must not be included in “cash inflow”:

(i) Forwards, discounting, rediscounting, pledging of securities are used for transactions of SBV (except bonds issued by VAMC); bonds and treasury bills issued by governments and central banks of the countries rated of AA or better by international credit rating agencies (Standard & Poor’s, Fitch Rating) or an equivalent rating given by another independent credit rating agency;

(ii) Purchase and resale of government bonds with government bond traders at the Hanoi Stock Exchange (HNX) according to the regulations of the Ministry of Finance on management of trades in government bonds, Government-backed securities and municipal bonds.

Part III. Cash outflow:

1. Samples for calculation of “Cash outflow”:

2. Instructions on how to enter “cash outflow” data:

No. 1: Debts to the Government and SBV: Enter the balance of debts to the Government and SBV in the columns that match their maturity dates.

No. 2.1: Demand deposits: Enter the balance of demand deposit of credit institutions, foreign bank branches and foreign credit institutions on the balance sheet in "Next day" column and leave out other columns.

No. 2.2: Term deposits: Enter the balance of term deposits of credit institutions, foreign bank branches and foreign credit institutions that have matured in the columns that match their maturity dates.

No. 2.3: Loans granted by credit institutions, foreign bank branches, foreign credit institutions Enter the balance of loans granted to credit institutions, foreign bank branches and foreign credit institutions in the columns that match their maturity dates written on the lending contracts.

No. 3.1: Demand deposits: Calculate the average demand deposit withdrawn over the last 30 days and enter the estimated withdrawn deposit in “Next day” column. In case the average demand deposit withdrawn cannot be determined, the value entered in “Next day” column must not fall below 15% of the average balance of demand deposit of customers over the last 30 days.

No. 3.2: Term deposits: Enter the balance of term deposits and saving deposits that are due in the columns that match their maturity dates.

No. 4: Derivatives and other liabilities: Enter the estimated amount incurred from realization of derivatives and other financial liabilities in a column that matches the collection date.

No. 5: Sponsorships, investment trusts, fiduciary loans the risk of which is taken by the non-bank credit institution as prescribed by law: Enter the sponsorships, investment trusts, fiduciary loans the risk of which is taken by the non-bank credit institution in the columns that matches their execution dates according to the sponsorship, trust and fiduciary loan contracts.

No. 6: Issuance of securities: Enter the payables incurred from redemption of the issued securities in the columns that match their maturity dates.

No. 7: Interests, fees payable: Enter the interests and fees payable in the columns that match their due dates.

No. 8: Other debts Enter the amounts payable derived from fulfillment of “other liabilities” according to Decision No. 16/2007/QD-NHNN dated April 18, 2007 of the State Bank, issuing reporting regime for credit institutions and other relevant document (except cash outflow from 1 to 7) in the columns that match their payment dates.

No. 9: Irrevocable commitments to customers: Enter the balances of irrevocable commitments in the columns that match their execution dates according to relevant agreements, contracts and documents.

No. 10: Overdue liabilities: Enter all overdue payables to "Next day" column; leave out other columns.

3. Rules of calculation of “Cash outflow”:

“Cash outflow” is the cash flow caused by liabilities that are due and have to be fulfilled and expected liabilities, and must meet the following rules:

- If a liability does not have a specific due date, it must be written in the “Next day” column.

- Overdue liabilities must be written in the “Next day” column.

- For irrevocable commitments whose term and value are secured with: (i) cash or deposits in VND or foreign currencies; (ii) government bonds, their value must not be included in “Cash outflow”.

- The following amounts must not be included in “cash outflow”:

(i) Loans granted by SBV (including securities sold under forward contracts through open market operation; discounting, pledging of valuable papers, overnight loans in interbank electronic payment);

 (ii) Loans granted by other credit institutions, foreign bank branches in the form of forwards, discounting, rediscounting, pledging of: (i) securities used for transactions of SBV; (ii) bonds and treasury bills issued or secured by governments and central banks of the countries rated AA or better by international credit rating agencies (Standard & Poor’s, Fitch Rating) or an equivalent rating given by another independent credit rating agency.

(iii) Sale and redemption of government bonds with government bond traders at the Hanoi Stock Exchange (HNX) according to the regulations of the Ministry of Finance on management of trades in government bonds, Government-backed securities and municipal bonds.

- Refinancing loans granted by SBV on the basis of bonds issued by VAMC shall be included in “Cash outflow” corresponding to their maturity dates.

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