Quyết định 56/2012/QĐ-TTg của Thủ tướng Chính phủ về việc ban hành Quy chế quản lý và xử lý rủi ro đối với danh mục nợ công

DECISION

PROMULGATING A REGULATION OF MANAGEMENT AND HANDLING OF RISKS TO THE LIST OF PUBLIC DEBTS

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Pursuant to the Law on public debt management dated June 17, 2009;

Pursuant to the Government s the Decree No.79/2010/ND-CP of July 14, 2010 on public debt management operation;

At the proposal of the Minister of Finance;

The Prime Minister issues a Decision on Regulation of management and handling risks to the list of public debts,

Article 1.To issue together with this Decision the Regulation on management and handling of risks to the list of public debts.

Article 2.This Decision takes effect from March 01, 2013.

Article 3.The Ministers, heads of ministerial-level agencies, presidents of People s Committees of provinces and cities directly under the Central Government, heads of the agencies, organizations and individuals related to risk management and handling for public debts are responsible for the implementation of this Decision./.

REGULATION
ON MANAGEMENT AND HANDLING OF RISKS TO THE LIST OF PUBLIC DEBTS

(Issued together with the Decision No.56/2012/QD-TTg 21 12 2012 of the Prime Minister)

Chapter 1.

GENERAL PROVISIONS

Article 1. Scope of regulation

1. This Regulation defines the management and handling of risks to the list of public debts, including risk detection, risk assessment, risk handling and responsibilities of the concerned organizations and individuals in the management and handling of risks to the list of public debts.

2. The risks set out in this Regulation include:

a) Market Risk.

b) Liquidity risk.

c) Credit risk.

d) The operational risk.

3. Financial tools for handling risks to the public debt list, including:

a) Derivative transactions include: options and swap transactions.

b) The debt restructuring activities, including: debt extension, debt frozen, debt cancellation, refinancing, debt swap and acquisition.

Article 2. Application subjects

This Regulation applies to the agencies, organizations and individuals involved in the management and handling of risks to the public debt list.

Article 3. Interpretation of terms

In this Decision, apart from the terms explained in the Law on Public Debt Management dated June 17, 2009 and the Decrees guiding the implementation of the Law on Public Debt Management, the terms below are construed as follows:

1. Market risk means the possibility of loss of public debt due to the fluctuations of interest rate and exchange rate on the financial market.

2. Credit risk means the possibility of loss of public debt due to the Government s loan borrower, the guarantee of the Government fails to perform full and timely loan repayment obligations in accordance with the conditions and terms of the loan agreement or issuance.

3. Liquidity risk means the possibility of loss of public debt due to failure to raise capital, lack of liquidity financial asset to perform fully, timely due debt obligations or commitments to look for new loans with unusually high costs compared to the market conditions.

4. Operational risk means the possibility of losses derived from a process to implement the activities of public debt management; human; machinery system used in public debt management activities which are incomplete, do not meet demand on management or derived from external factors of the process to make the public debt management activities (such as database of debts stolen/damaged, papers relating to the public debt management process which is forged...).

5. Interest rate option contract means a legal agreement between two parties that allows the option buyer to have the right to fix interest rate of a loan or nominal loan at a specific time in the future.

6. Currency option contract means a legal agreement that allows the option buyer to have the right to buy or sell a certain amount of nominal foreign currency with an exchange rate determined at a specific time in the future.

7. Currency swap contract means a legal binding agreement between two parties to exchange two different currencies by an agreed duration and at the end of the time limit, the parties must return to each other the original principal amount with a rate determined at the commencement of the transaction.

8. Interest rate swap contract means a legal agreement whereby each party commits to pay to the other party an amount of interest by a type of interest rate (floating or fixed) committed on a certain amount of principal in a determined period of time.

9. Debt extension means the permission to extend the repayment term committed and during the debt extension, the borrower/re-borrower must still pay for the loan interest.

10. Debt frozen means the matter that a part or all of the debts shall be suspended the collection in a certain time and interest incurred shall not be counted during the period of the debt frozen.

11. Debt cancellation (principal, interest and fees) means the permission of not collecting a part or the whole of the outstanding balance (principal, interest and fees) not paid by the original commitment.

12. Refinancing means the mobilization of new loans to prepay a part or the entire former loans.

13. Debt swap means the same purchase and sale of two (02) different loans of the same issuing subject at the same time with the aim of restructuring the debt list.

14. Debt acquisition means the acquisition of the whole or part of the debts of the borrower or issuer.

15. Risk reserve means the amount appropriated for provision for risks arising in the process of mobilization, allocation and use of loan, debt repayment and public debt management.

16. ISDA framework contract means a contract form issued and agreed to use when performing the derivative transactions by the International Association of swaps and derivatives (International Swaps and Derivatives Association). This contract includes the conditions and terms binding the two parties to the transaction and standardizing the legal documents for these transactions.

17. The discount factor means the percentage (%) of annual interest, as basis for the value exchange of the future cash flows of the debt into the current value.

Chapter 2.

MANAGEMENT AND HANDLING OF RISK FOR THE LIST OF PUBLIC DEBTS

Article 4. The objective of risk management

1. Optimize the structure of public debt, ensure the repayment obligations and improve the performance of the management of public debts.

2. Make sure not to increase the public debt obligations handled compared to the original debt to be converted into the current value at the time of handling risk.

3. Minimize the damages that can occur in the worst situations with reasonably incurred costs.

Article 5. Principles for handling risk

1. The handling of risk applies only to the objective reasons.

2. Risk prevention and handling must be based on the loan agreement or original debt instruments in the current public debt list, the cause of arising risks in accordance with the provisions of Vietnamese law and the international practices.

3. The prevention of risks to the public debt list must be performed in accordance with long-term strategy of public debt and the country s foreign debt, medium-term debt management program at each period.

4. The public debts at risk due to the subjective reasons, the organizations and individuals that caused loss must be responsible for handling and compensation in accordance with law provisions.

Article 6. The causes of risk

1. The objective causes, including:

a) Natural disasters, sabotage, fires, epidemics causing direct damage to the programs and projects using loans of the list of public debts.

b) Adjustment of mechanism, macro-economic policies, changes in political conditions, laws having a direct impact on the size and obligations of public debts.

c) The impact of economy of the world and the region, the volatility of international capital markets, the process of financial liberalization, monetary and international integration.

d) The re-borrower of foreign loans of the Government, the one guaranteed by the Government for loaning that have been decided on dissolution or bankrupt under the provisions of law.

2. Subjective causes, including:

a) Use of loans for the improper purposes and deliberately violating the provisions.

b) The borrower, the re-borrower and the guaranteed one lack of goodwill, deliberately delay the repayment of due debt obligations in accordance with the conditions and terms of the loan agreement or the issuance of debt instruments.

c) The other subjective causes as prescribed by law.

Article 7. Risk assessment and forecast

1. The process of risk assessment and forecast for the public debt list, including the following principal contents:

a) Evaluation of the legal, institutional environment, macro-economy, fiscal year, monetary, exchange rate, interest rate and volatility of the domestic and international capital markets having an impact on the public debt list.

b) Periodic and regular analysis, structural happening evaluation of the currency, interest rate, term, size, public debt payment obligations, present and future trends in order to identify the level of risk to take appropriate risk handling measures.

c) Building a model and technical measure to quantify risks for the debt list to estimate the costs that may arise in the case of risk occurred due to adverse changes of the market.

d) Assessment of the levels of damage caused by credit risk to determine the probability of the loss of re-borrower s ability to repay for the government’s loan, the guaranteed one through the classification of debts.

đ) Development of matrix to describe the impact of operational risk in the management of public debts.

2. The Ministry of Finance shall preside over and coordinate with the relevant agencies, re-lending institutions to assess and predict the levels of risk to the public debt list under the provisions of this Regulation.

Article 8. Present value of the debts

1. Present value of the debts means the total due debt obligations (principal and interest) in the future converted into the present time applying the appropriate discount factor.

2. Discount factor to calculate the present value of the debt is determined at the time of building the plan to handle risks in accordance with provisions of market and international practices.

3. Risk handling agencies based on the transaction value of the debt similar to the debt handled risk (maturity, grace period, loan type, interest rate, remaining time of maturity) at the time of handling to determine the discount factor. If the transaction value is not determined, the discount interest rate is calculated by the real interest rate of the loan to be handled (including nominal interest rate plus fees).

4. Determination of the present value of the debt is made as follows:

In which:

- PV means the present value of the debt;

- DSimeans the obligation to pay the debt (principal and interest) of the ithyear;

- r means the discount factor to calculate the present value of the debt;

- n means the remaining time (number of years) of the loan.

5. Present value is the basis for determining the reasonable value of the financial instruments to handle risks to the public debt list

Article 9. Market risk handling

1. Market risk for the public debt list, including interest rate risk and foreign exchange rate.

2. The handling of market risk is done through the main operation of derivative transaction of interest rates and currencies, including: The options (interest rate, currency) and swap contract (interest rate, currency).

3. Bases to handle market risks, including:

a) Identify the objects, type of risks and applied tools to handle risk.

b) The risk handling agency based on the loan agreement, the principal instrument to select the appropriate derivative transactions.

c) The effectiveness of risk handling instrument is determined in a reliable manner, and consistent with the objective of the debt structure set out in strategy, medium-term debt management program at each period.

d) The selection of risk handling instruments need to consider the risk factors such as the level of uncertainty of cash flows, the cost required to be paid immediately related to the transaction and the objective to offset risk.

4. The risk handling agencies are appropriated for provision for handling market risk in accordance with provisions. For the debt list of the Government, the Ministry of Finance synthesizes into the annual borrowing and repayment plan to submit to the Prime Minister for approval.

5. Competence and responsibilities

a) For the list of debts of the Government: The Ministry of Finance shall preside over and coordinate with the relevant agencies to implement the derivative transaction activities to deal with market risks.

b) For loans guaranteed by the Government: The guaranteed ones actively build up and implement the market risk prevention plan in accordance with the provisions of this Regulation. Where the risk handling plan has changed obligations of the guaranteed ones under the commitment, it must be submitted to the Ministry of Finance for appraisal before the implementation.

c) For debts of the local government: People s Committees of provinces and cities directly under the Central Government build up the plans, submit to the People s Councils for consideration and decision, and send the handling results to the Ministry of Finance for synthesis, adjustment of the current public debt list.

6. Legal procedure for handling market risk through transitional activities of the derivatives is the ISDA framework contract. Other contents shall be agreed upon by the parties, but not contrary to the provisions of Vietnamese law and international practices.

Article 10. Liquidity risk handling

1. The liquidity risk management measures, including:

a) Identification of liquidity risk in the public debt list on the basis of determining changes in the obligation to pay the due principal and interest of the current public debts and future trends, in accordance with financial assets available for debt repayment under commitments.

b) Development of the plans to handle liquidity risk to submit to the competent authority for approval.

c) Organization of the implementation, monitoring, supervision, evaluation and report on the implementation results of the plans for handling liquidity risk.

2. The professional skill for handling liquidity risk, including: refinancing and debt swap and debt acquisition.

3. Conditions to carry out the handling of liquidity risk, including:

a) To apply for commercial loans and bonds.

b) To ensure the target of public debt limit approved by the competent authority in each period.

4. Capital source for handling liquidity risk

a) For governmental debts: the Ministry of Finance is raised from idle capital (from accumulated fund for paying debt, the state budget or from other legitimate financial sources) or the new loans to refinance debt, repay the former debts, acquire debt to continue the restructuring of the public debt list in accordance with the objectives of the debt strategy and medium-term debt management program.

b) For the debts guaranteed by the government: The guaranteed ones actively appropriate for provision for risks and other legal financial resources to handle the risks.

c) With respect to local government’s debt: People s Committees of provinces and cities directly under the central government actively allocate budget and appropriate for provisions for handling risk.

5. Competence and responsibilities

a) The Ministry of Finance shall preside over and coordinate with the concerned agencies to set up, approve and implement the plan to handle liquidity risk to ensure compliance with strategy, program of medium-term debt management and the annual plan of loan and repayment approved by the competent authority.

c) The guaranteed ones build up the plan for handling liquidity risk for the debts guaranteed by the government; ask for the agreement of the Government Guarantee Agency (Ministry of Finance) to perform.

b) The People s Committees of provinces and cities directly under the Central Government build up the plan of handling liquidity risk, ask for the agreement of the Ministry of Finance before approval for implementation.

Article 11. Handling for credit risks

1. The credit risk management measures, including:

a) Regularly collect information on re-borrowers, the guaranteed ones to carry out the assessment and classification of debs and calculate the levels of credit risk for taking the appropriate handling measures.

b) The handling of credit risk must be considered in a case by case based on the cause of the risk, the level of risk and repayment capacity of the re-borrowers, the guaranteed ones.

c) When the overdue principal or interest arises, it must make the re-assessment of the repayment ability of the re-borrowers, the guaranteed ones.

2. The handling of credit risk must meet at least one of the following principal conditions:

a) Program, investment projects under the scope to be loaned in accordance with provisions, used the loans for the right purpose.

b) The re-borrowers, the ones guaranteed by the Government are damaged due to objective reasons causing loss of a part or all of the capital, assets.

c) The re-borrowers, the guaranteed ones meet financial difficulties leading to not be able to repay or not to repay debts.

3. Classification of credit risk debts

The classification of debts should be conducted according to the following 05 groups:

a) Group 1 (standard): Includes debts in term and considered as capable of full recovery of both principal and interest debt on time.

b) Group 2 (remark): Includes debts with overdue debts arising under 90 days,

c) Group 3 (Substandard): Includes the debts with overdue debts from 90 days to less than 180 days; debts extended 1 time; debts exempted from or reduced interest but the re-borrowers, the guaranteed ones do not implement properly and fully as committed in the contracts.

d) Group 4 (doubtful): Includes the debts with overdue debts from 180 days to 360 days; debts which have been revised repayment period for the first time continue to arise overdue debts and required to restructure repayment period for the second time.

đ) Group 5 (Bad): Includes overdue debts for more than 360 days; debts which have been revised repayment period for the second time continue to arise overdue debts and required to restructure repayment period for the third time; frozen debts, pending debts.

4. The Ministry of Finance shall preside over and coordinate with the concerned agencies to classify credit risk debts under the provisions of this Regulation; to promulgate criteria for evaluation and rating of the repayment capacity of the re-borrowers, the guaranteed ones.

5. The implementation of the professional skills of processing credit risk (debt extension, debt frozen, debt cancellation), implementation mechanism and competence to handle credit risk shall follow the Decree No.15/2011/ND- CP dated February 16, 2011 on the issuance and management of government guarantee and the Decree No.78/2010/ND-CP of July 14, 2010 on re-lending of foreign loans of the Government.

6. Funding for the assessment, rating of the re-borrowers, the guaranteed ones as arising overdue debts that the state is the one suffered from credit risk shall be ensured by state budget. For loans that lending agencies are suffered from credit risk, the lending agencies shall take responsibility for such funding.

7. For loans of local authorities, local budgets shall ensure resources to carry out annual handling of credit risk.

Article 12. Operational risk management

1. Principles of management

a) Operational risk managementare mainly focused on the agencies and organizations directly related to public debt management activities.

b) Operational risk management is an important, frequent, and continuous throughout task toward the entire public debt management activities.

2. Operational risk management activities mainly include:

a) Develop environment of operational risk management accordingly, offer guidelines on how to identify, assess, monitor and control internally to reduce operational risk.

b) Transfer the risk to a third party through the purchase of operational risk insurance.

c) Develop instruments to control and risk warning system, regularly maintain and inspect the procedures to carry out the public debt management activity.

d) Strengthen material facilities, specialized training, equipment, modernization of information technology of risk management.

3. The Ministry of Finance issues the process, professional skill of operational risk management applied to the public debt management agencies.

4. Funding to carry out professional skill of operational risk management of the public debt management agencies shall be ensured by the state budget.

5. The damages occurred in the debt management activities related to objective reasons will be ensured by state budget and the damages caused by the subjective reasons will be taken responsibility for compensation in accordance with law by the individuals who directly cause them.

Article 13. Competence and responsibility to handle risk

1. Prime Minister shall:

a) Decide on the cancellation, frozen of debts at risk at the request of the Ministry of Finance.

b) Approve the overall debt restructuring scheme; international bond issuing scheme of the Government to refinance debts; debt acquisition in the case of benefits under 5% but deems it necessary for debt restructuring to ensure the objectives of the structure and safety limits on debt in public debt strategy and foreign debt of the country approved by the competent authorities.

2. The Ministry of Finance shall:

a) Decide on the debt extension, debt refinancing, debt swap and make the professional skill of transactions of derivatives for the Government debt list, ensuring the principle of risk handling under the provisions of this Regulation.

b) Actively deploy the plan and carry out the debt acquisition as ensuring the benefits of at least 5% compared to liabilities handled initially converted to the current value at the time of handling risk.

c) Preside over and coordinate with the relevant agencies to organize the inspection of dossier applying for debt cancellation, debt frozen, to submit to the Prime Minister for decision.

d) Preside over and coordinate with the Ministry of Justice and other relevant agencies guiding negotiation of ISDA contract in accordance with Vietnamese law and international practices; actively select the financial institutions having credit rating from Aa1 (rated by Moody s) or AA + (rated by S&P/Fitch s) or higher to be partners for implementing the transactions of derivatives to list of government debt.

đ) Submit to the Prime Minister for assigning the authorities to handle by law the organizations and individuals taking responsibility for the insolvency if it is determined as a cause of subjective reason; and perform other assigned tasks in accordance with the provisions of this Regulation.

3. The re-borrowers, the guaranteed ones:

a) Actively build specific plan, select risk handling instrument under competence to manage, make risk prevention and treatment, in accordance with the provisions of the Law on public debt management, the documents guiding the implementation and provisions in this Regulation.

b) Fulfill the relevant obligations arising from loan agreements, guarantee agreements and risk handling. Actively allocate provisions for risk in accordance with the law in order to create funds to handle when risks occur.

c) Submit to the inspection, monitoring, close cooperation and create conditions for the debt management agencies to find out information, to assess the status of the debts, classify debts and determine the level of concerned risks.

4. People s Committees of provinces and cities directly under the Central Government shall:

a) Take the measures to manage and handle risk to the debt lists of local authorities under the provisions of this Regulation.

b) Be responsible for the management, monitoring, timely detection of risks arising to the debt lists of local authorities, debts of funds of local development, debts committed to allocate local budgets to ensure debt repayment obligations by local authorities.

c) Actively allocate the annual local budget reserve to prevent risks of debts of the local authorities.

Article 14. Implementation organization

1. The Minister of Finance shall preside over and coordinate with the concerned agencies to guide, organize, direct and inspect the implementation of this Regulation.

2. The ministries, ministerial-level agencies, the agencies attached to the Government shall:

a) Coordinate with the Ministry of Finance, the re-lending agencies in the evaluation, rating and classification of debts at risk under the provisions of this Regulation.

b) Participate in and coordinate with the Ministry of Finance in developing plans for cancellation, frozen of debts to be at risk, the overall restructuring of public debt and issue international bonds to submit to the Prime Minister for consideration and decision./.