On 18 March 2014, the State Bank of Vietnam (SBV) issued Circular No. 09/2014/TT-NHNN (Circular 09) to amend and supplement a number of articles in Circular No. 02/2013/TT-NHNN regulating the classification of debt, the establishment and levels of risk reserves, and the use of reserves for dealing with risks during the operation of credit institutions and foreign bank branches.

Circular 09 clarifies the SBV’s internal regulations on the extension of credit, loan management, risk prevention policy, methods and principles for the classification of debts and levels of specific risk reserves. Among the amendments and clarifications, there is one new provision that requires the immediate attention of all lenders. Article 1.11 supplements the conditions for  restructuring a debt repayment schedule. In particular, it allows credit institutions and foreign bank branches to restructure the repayment schedule of a loan while still preserving its original classification, provided that the following conditions are met:

  1. The extension of credit with respect to the loan does not violate applicable regulations;
  2. The proposed restructuring of the debt repayment schedule conforms with the purpose of financing under the loan agreement;
  3. The borrower utilizing the loan proceeds in compliance with the purpose of financing;
  4. The proposed restructuring of the debt repayment schedule is permitted only when the borrower (a) fails to repay the loan principal and/or interest in accordance with the repayment schedule or (b) fails to repay, in full, the loan principal and/or interest within the loan term as agreed in the loan agreement, and the borrower can propose a new and feasible repayment solution suitable for its business situation; and
  5. The applicable credit institutions and foreign bank branches satisfy the SBV’s regulations on prudential ratios in banking operations;

In addition to the above conditions, credit institutions and foreign bank branches must also satisfy, among others, the following requirements:

  1. The applicable credit institutions and foreign bank branches must promulgate internal policy to supervise and ensure consistent implementation of debt restructuring in its network and avoid, abusing debt restructuring practice to reflect the quality of debt incorrectly;
  2. The applicable credit institutions and foreign bank branches must supervise and be responsible for the reason of debt restructuring of each loan;
  3. The applicable credit institutions and foreign bank branches are able to restructure the repayment schedule and preserve debt classification in accordance with Article 10.3(a) only one (01) time for each loan;
  4. Should the borrower still fails to repay the loan in accordance with the restructured schedule, the applicable credit institutions and foreign bank branches must re-classify such loan in accordance with the regulations of debt classification; and
  5. The applicable credit institutions and foreign bank branches must send a report in the form attached to Appendix 01 of Circular 14 to the SBV within the first five (05) days of each month or at any time upon the SBV’s request. Debt restructuring under Article 10.3(a) is permitted from 20 March 2014 to 31 March 2015 only.