On October 11, 2021, the State Bank of Vietnam announced the Draft amending and supplementing a number of articles of Circular 09/2015/TT-NHNN (“Circular 09“) on debt purchase and sale of financial institutions and foreign bank branches. This article includes a few prominent new regulations as follows:
1. Clearly define the scope of application for non-performing loans of credit institutions, foreign bank branches.
The credit institutions, foreign bank branches, organizations in which the State owns 100% of charter capital to handle bad debts of credit institutions falling within the scope of Resolution 42/2017/QH14 (“Resolution“). Details of non-performing loans are specified in the Appendix attached to the Resolution.
Article 17 of Resolution 42/2017/QH14 also stipulates that the handling of non-performing loans and their attached security assets of credit institutions, foreign bank branches shall be carried out in accordance with the provisions of this Resolution. In case there are differences between this Resolution and other provisions on the same issue, the regulations of this Resolution shall prevail.
Thus, the debts specified in Clause 1, Article 1 of Circular 09 shall be subject to the regulation of Resolution if they are non-performing loans. Accordingly, the trading of non-performing loans, which is a measure to deal with debts, would also be implemented in accordance with the Resolution. In case the Resolution does not have specific regulations, the current regulations are applicable.
2. Broaden the of debt purchaser.
The debt purchaser under the Draft means an organization or individual, including a credit institution, a foreign bank branch that has been approved by the State Bank for debt purchases, organizations and individuals (both residents and non-residents).
Previously, the Investment Law 2014 limited debt trading as a conditional business line specified in Decree 69/2019/ND-CP. For example, an enterprise must have a minimum charter capital, and its manager must meet the conditions for professional certificates. However, with the Investment Law 2021 that took effect from January 1, 2021, “debt trading service business” is not a conditional business activity. Therefore, organizations other than credit institutions and individuals will not be restricted when participating in debt purchases.
For credit institutions, Clause 2, Article 90 of the Law on Credit Institutions stipulates that credit institutions may not conduct any business activities other than those specified in the License granted by the State Bank. Thus, credit institutions participating in debt purchases are still subject to the approval of the State Bank.
3. Credit institutions are not allowed to auction debts themselves but must go through professional auction organizations.
Regarding debt auction, according to Circular 09, credit institutions and foreign bank branches must issue a debt auction process in case of debt auction themselves. The Draft is revised to remove this provision. Instead, credit institutions and bank branches promulgate a process of decentralization of authority and separation between the appraisal and decision to purchase and sale debt; method of payment; debt purchasing and sale process, debt valuation method.
At the same time, Clause 12, Article 5 of the Law on Property Auction stipulates: “An asset auction organization includes an asset auction service centre and an asset auction enterprise“. Therefore, based on the above provisions, it can be understood that the Drafting Committee is adjusting the Draft to be consistent with the Law on Asset Auction and credit institutions and foreign bank branches are not allowed to organize debt auctions by themselves.
4. Credit institutions are not entitled to commit to guaranteeing debt repayment obligations of the debtor.
The Draft stipulates that credit institutions are not entitled to commit to guaranteeing debt repayment obligations of the debtor to the debt purchaser. According to Clause 2, Article 95 of the Law on Credit Institutions, purchasing and selling debt of a credit institution is a debt settlement measure. According to Clause 2, Article 450 of the Civil Code 2015, the debt seller can commit to guarantee the debtor’s solvency. However, the Drafting Committee believes that if the debt seller commits to ensuring the debtor’s solvency, it is no longer a debt settlement measure but a joint responsibility borne by the credit institution and the debtor.
5. Credit institutions, foreign bank branches are not allowed to grant credit to customers to purchase debts of such organizations or other credit institutions, foreign bank branches.
Decree 69/2016/ND-CP provided that debt trading enterprises cannot receive credits from credit institutions and bank branches to buy debts from borrowers at that credit institution. Although Decree 69/2016/ND-CP has expired, Draft Circular 09 still incorporates into a provision, once again, affirming the primary purpose is to prevent cross-debt trading, leading to non-performing loans concealment.