By Vo Ha Duyen
November 2014

Vietnam’s New Regulation on Capital Adequacy and Liquidity of Credit Institutions

The SBV has just issued Circular 36/2014/TT-NHNN (Circular 36) on capital adequacy and liquidity requirements for credit institutions including branches of foreign banks (Institutions). Circular 36 will take effect in February 2015.

Circular 36 exhibits the SBV’s efforts in bringing Vietnam’s regulatory framework closer to Basel II, strengthening the transparency of Institutions’ operations, and both promoting the development of and mitigating the risks of the local capital market.

With respect to the financing of securities activities, the following changes are significant:

investments in a controlling equity stake in an enterprise in the securities sector are deducted from tier 1 capital;

  • for the purpose of risk-weighted assets (RWA), the risk weight of loans granted to finance the trading of securities is reduced from the current 250% to 150%;
  • an Institution may not lend to customers to finance the investment in shares if its bad debts ratio is 3% or higher; this would therefore exclude many local banks from this business;
  • the aggregate balances of all loans granted to finance the investment in shares may not exceed 5% of the charter capital of the Institution (the limit under the repealed regulations is 20% but applies more broadly to all securities);
  • a loan to finance the investment in shares must be a short-term loan and may not be secured with the same shares or secured with shares of another Institution;
  • shares listed on the Vietnam stock exchanges are no longer on the list of liquid assets for purpose of the liquidity ratios.


Each Institution is required to maintain a capital ratio of at least 9%, which is a similar requirement under the repealed regulations.

The capital ratio is the ratio of the capital to the RWA.  The capital is the aggregate of tier 1 capital and tier 2 capital.

Circular 36 adds more items to the list of assets that must be deducted from tier 1 capital. Among those added items are treasury shares, balance of loans granted to finance the contribution of equity capital or purchase of shares in other Institutions, investments in a controlling equity stake in enterprises operating in the insurance sector, securities sector, foreign exchange, gold, factoring, credit cards issuance, consumer credit, intermediary payment services and credit information services.

In the determination of tier 2 capital, the distinction between bonds and “other debt instruments” is removed. The required first tenor for “other debt instruments” is now five years, same as bonds, instead of 10 years as required under the repealed regulations.

With respect to the RWA, credit risk is assessed according to a scale of 0%, 20%, 50%, 100%, and 150%. The previous 250% risk weight level has now been removed. As a result, the risk weight of loans granted to finance the real estate business is 150% and no longer 250%.

Among the assets with 0% risk weight level, Circular 36 adds receivables from or guaranteed by “international financial institutions” and receivables secured with valuable papers issued by or guaranteed by “international financial institutions.” Circular 36 provides a detailed list of entities defined as “international financial institutions,” such as the International Finance Corporation, the International Development Association, the Asian Development Bank, the European Investment Bank, the European Investment Fund and the Council of Europe Development Bank etc.


The aggregate debt balances of one single customer may not exceed 15% of the capital of a bank, and 25% of the capital of a non-bank Institution. The aggregate debt balances of one single customer and its related persons may not exceed 25% of the capital of a bank, and 50% of the capital of a non-bank Institution. These limits were 15% and 50% respectively under the repealed regulations.


The liquidity ratio is the ratio of the total liquid assets to total liabilities. Circular 36 lowers the required continuing liquidity ratios and changes the previous weekly liquidity ratio requirement to a monthly liquidity ratio requirement as below:  

Type of Institution


Monthly VND

Monthly foreign currency





Branch of foreign bank




Non-bank Institution




Cooperative bank




 The list of “liquid assets” is slightly changed. International bonds on this list now must be issued or guaranteed by Governments or central banks of countries with credit ratings from AA.


Circular 36 increases the permited short-term funds used for medium-long term financing.

The changes are as below:

                                                                        Circular 36         Repealed regulations

Banks and branch of foreign banks:                60%                  30%

Non-bank credit institutions:                            200%                30%

An Institution may use short-term funds to invest in Government bonds at the following ratio:

State-owned banks:                               15%

Branches of foreign banks:                    15%

Other banks:                                           35%

Non-bank Insitutions:                              5%

Coop banks:                                           40%

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