On May 16, 2024, the State Bank of Vietnam has just issued Circular No. 03/2024/TT-NHNN (“Circular 03”) amending and supplementing a number of Articles of Circulars related to selling and handling bad debts of asset management companies of Vietnamese credit institutions. Circular 03 provides some notable contents as follows:
1. Bad debt includes bad debt that has been purchased but has not yet been recovered
Circular 03 supplements the definition of bad debt, which is debt determined as follows:
a. Bad debts of credit institutions ("CIs") and foreign bank branches include bad debts that are accounted for in the balance sheet according to regulations and bad debts for which risk provisions have been used to handle bad debts. but the debt has not been recovered and is being monitored off-balance sheet;
b. Bad debt that the Asset Management Company has purchased from credit institutions and foreign bank branches but the debt has not been recovered.
2. Buying and selling bad debts of foreign-invested credit institutions and foreign bank branches can only be carried out at market prices.
Circular 03 supplements the principles for buying and selling bad debts as follows: Asset Management Company's purchase of bad debts from joint-venture credit institutions, credit institutions with 100% foreign capital, foreign bank branches can only be carried out according to value. market.
The value of bad debts and collateral assets of bad debts will be evaluated by the Asset Management Company or hired by a valuation company before purchasing the bad debts at market price.
3. Supplementing regulations to create a flexible mechanism and improve the efficiency of bad debt handling and trading activities without being required to do so at market prices
Circular 03 adds flexible regulations, contributing to promoting the debt collection process, specifically as follows:
a. Allows the sale of bad debt and secured assets of purchased bad debt at a price higher or lower than the principal balance of that bad debt.
b. Requires posting information on bad debts and collateral assets of purchased bad debts on the Debt Exchange and the Asset Management Company's website.
4. Adjusting the time of calculation of criteria to determine the level of provisioning for bad debts purchased at market value
Circular 03 postpones the time limit for determining provisioning levels for bad debts purchased at market value to December 30 every year, instead of December 15 as before.
Specifically, December 31 will be the time for the Asset Management Company to finalize the book value of the principal balance of bad debts and is also the last time for the Asset Management Company to revalue its assets. collateral for each debt, determine the amount of money that must be set aside for the year's provision for each debt according to regulations.
Circular 03 takes effect from July 1, 2024.
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