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STATE
BANK OF VIETNAM
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SOCIALIST
REPUBLIC OF VIETNAM
Independence- Freedom- Happiness
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No. 2601/NHNN-TCKT
Ref: guiding the checking up of
classification and foundations for setting up provisions against the fall of financial
investments’ price
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Hanoi,
April 14, 2009
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To:
- Credit Institutions
- Pursuant to Accounts System
of Credit Institutions issued in conjunction with the Decision No.
479/2004/QD-NHNN dated 29 April 2004 and related decisions on the amendment, supplement
thereof of the Governor of the State Bank of Vietnam (hereinafter referred to
as Accounts System of CIs)
- Pursuant to the Circular No. 13/2006/TT-BTC dated 27 February 2006 of the
Ministry of Finance guiding the regime on provisioning and use of provisions
for the fall of inventories’ price, loss of financial investments, bad debts
and warranty for products, goods and building and erection works at
enterprises.
In order to ensure the
consistence in the classification of securities portfolio and provisioning for
the fall of securities’ price, the State Bank of Vietnam would like to provide
guidance to credit institutions on the implementation of some contents as
follows:
1. Regarding classification
of securities
Credit institutions shall check
up portfolio of securities investment, trading, long term capital investments
(financial portfolio) and classify again investment portfolio under the
following table:
Classification
Categories
of classification (1)
Business securities (to be recorded
on account 14)
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- CI has no purpose of
enterprise control
Available for sale securities
(to be recorded on account 15)
- Being debit securities,
capital securities or other securities
- Amount invested in an
enterprise is less than 20% of voting right
CI invests for a long term
objective and possibly sells once they are profitable
- CI buys them not for purpose
of enterprise control (2)
- CI is neither founding
shareholder nor strategic partner
- Securities classified into
group of available for sale securities (CI shall not classify them into
business securities and held -to- maturity securities)
- Being freely traded in the
market (both in official market and OTC market)
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- Being debt securities
- CI outright purchases for investment
purpose to enjoy interests
- CI is sure about ability to
hold securities to the maturity
Long term investments (to be
recorded on Account 344 and 348)
- Including capital
securities, other capital contributions for long term investment (other than
capital contributions, investment in joint venture, associated company and
subsidiary company);
- CI invests for purpose of
gaining profit in following cases: (i) CI is founding shareholder; or (ii) CI
is strategic partner; or (iii) CI is capable of controlling, to some extent,
process of drawing, deciding financial and operational policies of
enterprises by a written agreement on delegating personnel to take part in
Board of Directors/Executive Board;
- Term for holding, revocation
or payment is over 1 year
Notes:
(1) In order to be classified
into such groups as mentioned in above Table, securities must concurrently
satisfy such categories as listed.
(2) Term: “control” shall be construed under the Accounting Standards of Vietnam,
specifically, control means the right to govern financial and operational
policies of an enterprise in order to gain economic benefits from activities of
such enterprise.
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- The State Bank (SBV) would
like to request CIs to check up and classify portfolio of securities and long
term investments in accordance with provisions in this Official Dispatch. The
checking up, reclassification must be completed prior to Quarter III/2009 at
the latest.
- After- purchase
reclassification shall only be performed once for each item of securities
already invested at most. In special cases or where big volume of securities
need reclassifying (over or equal to 50% of such item’s value), CI shall
explain on its financial statements about the impact of such reclassification
on total assets, liabilities and capital source as well as income, expenses of
the CI.
2. Accounting
- The accounting for business
securities, available for sale securities and held-to-maturity securities shall
be performed in accordance with applicable provisions in the Accounts System of
CIs and guidance in the Official Dispatch No. 7459/NHNN-KTTC mentioned above.
- The accounting of capital
contributions to subsidiary company, joint venture company, or associated
company shall be performed in accordance with relative Accounting Standard of
Vietnam.
3. Regarding the level of provisioning for the fall of securities’
price and the fall of long term investments’ price
3.1. CI shall set up provisions
for the fall of securities’ price and provisions for the fall of long term
investments’ price under the guidance of the regime on provisioning and use of
provisions for the fall of inventories’ price, loss of financial investments,
bad debts and warranty of products, goods, building and erection works at
enterprise (issued in conjunction with the Circular No. 13/2006/TT-BTC dated 27
February 2006 of Ministry of Finance).
3.2. While pending for the
issuance of an official document, by Ministry of Finance, on foundations to use
actual securities’ price on the market to calculate provisions amount required
to set up, SBV provides guidance to CI on implementation as follows:
a. For group of business
securities and available for sale securities
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- For unlisted capital
securities (to be traded on OTC market):
+ CI shall use the average price
of three (3) prestigious securities companies (of which charter capital is more
than 300 billion dong) in the market.
+ Where securities, investments
don’t have reasonable value/actual market value or their value is unable to
determine reliably (for example: securities are listed by 2 or less than 2
qualified securities companies mentioned above or there is no successful
transaction to be performed near the time of preparing Financial Statements),
then CI shall (i) set up, by itself, the most prudential model of provisioning
or/and (ii) make reference to the model or result of other CIs (in case of
availability of information) to calculate and set up provisions for the fall of
such securities and investments’ price.
CI should state the list of
securities companies already selected to refer to securities’ prices and
describe the most prudential model or result of provisioning for the fall in
price of securities and other long term investments on the Notes to financial statements.
b. Regarding group of other long
term investments
CI shall make provisions if
economic organization, in which CI is investing, suffers loss (except for case
of loss under the plan determined in the business plan prior to investment).
Amount of provisioning shall be in accordance with provisions in point 2.1(b)
and point 2.2 (b) of the Circular No. 13/2006/TT-BTC dated 27 February 2006 of
Ministry of Finance.
3.3. Accounting for provisioning
and use of provisions for loss shall be performed in accordance with provisions
in the Accounts System of CIs and guidance in the Official Dispatch No.
7459/NHNN-KTTC mentioned above.
Hereinabove is guidance of SBV
on classification of financial investments and foundations to set up provisions
for the loss of financial investments. It is requested for CIs to check up and
correctly comply with guidance in this Official Dispatch.
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AUTHORIZED
BY THE GOVERNOR OF THE STATE BANK OF VIETNAM
FOR DIRECTOR OF FINANCE- ACCOUNTING DEPARTMENT
DEPUTY DIRECTOR
Nguyen Thi Thanh Huong