Debt restructuring: Beware of hidden bad debts.

Extending Circular 02 for another 6 months will help businesses reduce financial pressure and repay loans - Photo: NGOC HIEN

Speaking to Tuoi Tre newspaper, financial experts said that extending debt deferral helps banks avoid having to set aside provisions, which would affect their profits, while giving businesses more time to repay their debts.

However, experts warn that solutions are needed to improve the quality of loans, to truly strengthen businesses, and to avoid the risk of a sudden surge in bad debt ratios and loans being reclassified into higher categories when this circular expires at the end of the year.

* Assoc. Prof. Dr. Nguyen Huu Huan (Senior Lecturer, University of Economics Ho Chi Minh City):

The non-performing loan ratio will increase when Circular 02 expires.

The economic situation remains challenging, with slow recovery both domestically and internationally, impacting the debt repayment capacity of businesses. As a result, non-performing loans are trending upwards across the banking sector, potentially leading to a wave of asset foreclosures and corporate bankruptcies.

Therefore, extending Circular 02 gives banks more time to deal with and resolve bad debts, and also eases difficulties for businesses in accessing capital and planning appropriate debt repayments. When the economic situation improves, businesses will be able to repay their debts.

However, alongside its positive aspects, this policy also has a downside: it acts as a "curtain to hide bad debt," as the actual scale and percentage of bad debt remain "hidden" because it hasn't been repaid yet, and the debt categories are still maintained.

If the State Bank of Vietnam does not extend the circular by the end of this year, the non-performing loan ratio could increase significantly, even doubling or tripling compared to the current figure if businesses still fail to increase their cash flow and improve their business performance. This could cause a psychological shock to investors and the public, creating potential risks for the banking system.

The way we're currently handling bad debt is like trying to cool down an overheating engine, but it also affects the temperature gauge. However, overall, debt extension remains the best temporary solution at present, because with the current financial capacity of businesses and the difficult real estate situation, it's very difficult to resolve bad debt and find a more optimal solution.

By the end of this year, if the business situation remains unfavorable, the State Bank of Vietnam will certainly have to consider extending the circular. However, I predict that the peak of bad debt will occur in the third quarter of this year and remain at a high level, then tend to decrease if a crucial factor emerges: economic recovery. These are also the conditions for gradually tightening the handling of bad debt.

* Assoc. Prof. Dr. Dinh Trong Thinh (financial expert):

Require banks to manage risks and make appropriate provisions.

Extending Circular 02 is a positive solution for both businesses and banks. For businesses, the circular helps prevent outstanding or potentially risky debts from being reclassified as bad debts or moving up in debt categories, while still allowing businesses to access loans from the banking system. This enables businesses to continue operating, restructure effectively, and maintain the resources to repay principal and interest to banks.

Banks also benefit because when debt is deferred, they don't upgrade the debt classification or impose restrictions, so they still disburse funds, helping businesses overcome difficulties and repay debts. This also reduces the risk of banks losing interest or principal...

However, there is a danger in implementing this policy: alongside businesses that actively take advantage of the policy as mentioned above, there will also be businesses that fail to take advantage of the opportunities from this capital source. If banks continue to lend, it will increase the burden on the businesses themselves, bad debts will also increase, leading to the risk of capital loss.

Clearly, this policy has positive aspects, so both businesses and banks are looking forward to debt restructuring and deferral. However, to maximize the positive effects of the policy, businesses must restructure themselves, use capital efficiently, and set targets for repaying principal and interest.

At the same time, banks must also monitor and supervise businesses, accurately assessing which businesses have the potential to recover and repay loans and interest, in order to support them in the restructuring process and provide funding for production and business operations. This will create a sustainable situation for both sides.

The government also needs to inspect and supervise businesses to ensure they comply with state regulations, and relevant authorities should create the best possible conditions for businesses to produce, sell, and consume products, helping them recover.

In particular, the State Bank of Vietnam and the Government need to require banks to manage risks and make appropriate provisions to avoid a sudden surge in bad debts in the near future, which could affect banking operations and even pose risks to the entire system.

* Mr. Le Viet Hai (Permanent Vice President of the Vietnam Association of Construction Contractors - VACC):

Please let me know soon.

In reality, real estate businesses are still facing significant difficulties; their ability to repay contractors remains very slow, and many businesses have yet to balance their cash flow to continue project implementation. Many projects are stalled and construction has not resumed. Therefore, debt restructuring and deferral will alleviate some of the difficulties for these businesses.

Currently, contractors are still facing significant financial difficulties, with some businesses experiencing severe hardship. Therefore, businesses hope that this debt deferral policy will be extended for another year, until mid-2025. However, if this circular is extended further, it needs to be announced about two months before the deadline, for example, in April 2024 instead of June 2024, because at the last minute, businesses will face significant difficulties with debts that are due for payment.

Furthermore, businesses themselves must make significant efforts to improve their finances and repay principal and interest on loans. For example, our company had to issue shares to subcontractors to reduce debt repayment pressure and sell equipment and machinery. Businesses also need to accelerate restructuring.

Regarding the real estate sector, we recommend that relevant authorities quickly implement concrete solutions to promptly resolve legal obstacles for projects, helping the market recover so that businesses can have a stable financial flow.

Source: https://tuoitre.vn/gia-han-no-can-than-no-xau-an-minh-20240623232822045.htm