The Circular 02/2023/TT-NHNN issued by the State Bank of Vietnam in late April 2023 regulates the restructuring of credit institutions, foreign bank branches to reschedule loan repayments, while keeping the same debt group to support customers facing difficulties. The Circular is effective until June 30, 2024. The eligible customers for loan rescheduling and maintaining the same debt group are those facing difficulties in business activities and facing difficulties in repaying borrowings for daily expenses and consumer purposes.
In fact, since the issuance of Circular 02, it has created conditions for businesses facing difficulties in cash flows, incomes, and declining revenues due to market disruptions, product consumption, and reduced business activities to reduce the pressure of loan repayments… Businesses are granted loan extensions and deferments without being moved to another debt group, and are still able to access capital sources conveniently to overcome difficulties, maintain production, recovery, and development.
Currently, nearly 188,000 customers have been granted loan rescheduling and maintaining the same debt group until the end of 2023, with a total rescheduled principal and interest amounting to over VND 183,500 billion. Banks believe that if the extension is not continued, borrowers will face pressure to repay both old and new debts at the same time.
Nearly 188,000 customers have been granted loan rescheduling and maintaining the same debt group until the end of 2023
Mr. Pham Nhu Anh, General Director of Military Commercial Joint Stock Bank (MB) said: “Customers who were granted extensions in 2023 will have to focus on repaying this year, meaning that the accumulated debt from 2023 will be transferred to 2024, and repayments for 2023 debts will continue to be difficult while the economy is still relatively challenging.
Factors impacting when Circular 02 expires in June 2024 can be mentioned as previously restructured debts will return to the correct debt classification group; the banks’ provisioning buffers narrowed in 2023, causing less room for handling debts in the following year.
Therefore, banks with diverse customer portfolios, adequate provisions, and strong provisioning buffers, low risks in real estate and corporate bonds will have the ability to better control credit risk costs than other banks. The remaining group of banks will face more pressure and have no room to remove bad debts from their balance sheets…
Economic expert Nguyen Minh Phong said that bad debts will still be a significant pressure in 2024: “2023 is a very difficult year, during which the banking system faces these difficulties. The banking system has implemented quite well the regulations of the Government and the State Bank of rescheduling, maintaining the same debt group… for businesses. We see that bad debts are continuously increasing, creating a significant amount of bad debt overall.”
Many businesses are still struggling with debt restructuring and production borrowing
Faced with the difficulties that many banks and enterprises will have to face, Mr. Pham Toan Vuong, General Director of Agribank proposes that the State Bank of Vietnam allow credit institutions to reschedule debts and keep the same debt group according to Circular 02 for principal debts arising in 2023, and extend the restructuring period until December 31, 2024 instead of June 30, 2024 as currently regulated. Based on that, it is proposed to allocate additional provisions over 3 years, up to December 31, 2025, to reach a sufficient 100%.
Mr. Nguyen Hung, General Director of Tpbank, believes that Circular 02 should also be revised towards having a common policy for all commercial banks regarding debt restructuring.
“The issue is that if one bank restructures debts for customers but another bank does not, at that bank, the customer will be restructured into the bad debt group. Therefore, other banks will not lend, and restructuring will be granted to those customers, so it is also proposed that the State Bank of Vietnam has a common policy or amends Circular 02 in a way that is favorable for businesses,” said Mr. Nguyen Hung.
In addition to extending the deadline, banks also propose extending the calculation period for extended borrowings. According to regulations, only debts arising before April 24, 2023 are eligible for debt restructuring. In addition, there needs to be more guidance on debt structuring for customers with borrowings arising from multiple banks.
Deputy Director of the State Bank of Vietnam – Dao Minh Tu said that the State Bank of Vietnam is considering extending Circular 02: “We will study extending Circular 02 to a suitable point in time, and during the extension of this policy, it must also be monitored to ensure that the policy reaches the right target, ensuring a balanced support for businesses to overcome difficulties, ensuring credit quality, and safety for commercial banks”.
The proposal to extend Circular 02 is being considered by the State Bank of Vietnam and the amended Circular will be issued soon. However, the regulations on debt restructuring and maintaining the same debt group have been issued since 2020 to support businesses facing difficulties due to the pandemic and have been continuously extended until now. Therefore, experts also recommend considering the ability to repay debts and the safety of the banking system and avoiding potential bad debt risks.
