Vietnam – Guiding On Problems In Setting Up Risk Provisions For Special Corporate Bonds.

8 July 2021

The General Department of Taxation issued Official Letter No.990/TCT-DNL dated 06 April 2021 for guiding on problems in setting up risk provisions for special corporate bonds of Saigon Commercial Joint Stock Bank (“SCB Bank”) with the following contents:

• Foreign credit institutions and bank branches that are legally established in Vietnam shall make and settle their provisions. Particularly, for provisions for risks in operation, foreign credit institutions and bank branches shall make provisions in accordance with regulations stipulated by the State Bank of Vietnam after reaching an agreement with the Ministry of Finance.
• Special bonds are valuable papers issued by Vietnam Asset Management Company to buy bad debts of credit institutions.
• During the term of special bonds, the debt-selling credit institution shall include risk provision for special bonds in the expense. Every year, within 05 working days before the maturity date of special bonds, the debt-selling credit institution shall make a specific provision for each special bond.
• The original period of a special bond is the term of a special bond when the Vietnam Asset Management Company issues it to buy bad debts from a credit institution. Extension of the term of a special bond is an extension of the term of a special bond that has been issued, ensuring that the total extension term and the principal period of a special bond do not exceed 10 years from the date of issuance.
• In case a credit institution is approved to extend the term of a special bond by the State Bank if the actual pre-tax fee difference in the year of the credit institution is larger than the expected pre-tax revenue and expenditure difference which was reported to the State Bank:
  • The credit institutions may use up to this difference to make additional provisions for special bonds which have been approved for renewal in that year;
  • This difference is used until the estimated amount provision for special bonds after being made additionally equal to the amount of provision to be made for special bonds.
• The additional provisioning shall be applied to special bonds which have been approved for an extension by the State Bank in accordance with regulations.

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