According to experts, non-performing loans are currently at a fairly high level and are likely to continue increasing in the future. In addition, the economy is still facing many difficulties, and the health of many businesses is weakening.
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| The State Bank of Vietnam has called for intensified measures to improve credit quality. |
Therefore, supportive solutions are urgently needed to help businesses recover; among them, continuing to restructure debt repayment terms and maintaining the same debt classification is a solution that should be considered.
Circular No. 02/2023/TT-NHNN (Circular 02), issued on April 23, 2023, stipulates that credit institutions and branches of foreign banks may restructure loan repayment terms while maintaining the same loan classification to support customers facing difficulties in production and business activities, and customers facing difficulties in repaying loans for living expenses and consumption. According to the regulations, Circular 02 is effective until June 30, 2024.
Non-performing loans tend to increase.
Since the circular was issued, some commercial banks have shown initial results in restructuring loan repayment terms while maintaining the same loan classification. For example, Lien Viet Post Commercial Bank ( LPBank ) has, to date, restructured loan repayment terms according to Circular 02 for 192 customers with a total principal debt of over VND 7,237 billion, and restructured interest amounting to VND 327 billion.
Meanwhile, at Techcombank (Vietnam Technological and Commercial Bank), Deputy General Director Pham Quang Thang stated that Techcombank's non-performing loans at the end of January 2024 were the same as at the end of 2023, at 1.2%. The debt structure of Techcombank's customers, according to Circular 02, at the end of January 2024 was approximately VND 6,000 billion.
Overall, according to Ha Thu Giang, Director of Credit for Economic Sectors (State Bank of Vietnam), after nearly 8 months of implementing this circular (cumulative from April 24, 2023 to November 30, 2023), the total value of principal and interest restructured by credit institutions while maintaining the same debt classification is VND 171,083 billion, with 175,581 customers having their debt restructured while maintaining the same debt classification.
However, financial reports from many commercial banks in 2023 show that non-performing loans (NPLs) are trending upwards. According to data updated to the end of the third quarter of 2023 by the State Bank of Vietnam, the total NPLs of banks at the end of the third quarter of 2023 increased by 61% compared to the end of the previous quarter, reaching VND 196,755 billion. At Tien Phong Commercial Joint Stock Bank (TPBank), the total NPLs at the end of 2023 reached VND 4,200 billion, a threefold increase compared to the end of 2022.
Accordingly, TPBank's non-performing loan ratio also increased to 2.04% at the end of 2023. For Sacombank, by the end of 2023, the bank's total non-performing loans amounted to VND 10,984 billion, an increase of 155.5% compared to the beginning of the year. Several other banks also recorded high increases in non-performing loan ratios, such as: Bac A Bank reaching nearly VND 914 billion, an increase of 78% compared to the end of 2022; NCB reaching VND 16,469 billion, an increase of 92.5%; ACB reaching VND 5,887 billion, an increase of 93.3%;…
Furthermore, a report from the State Bank of Vietnam also shows that the ratio of non-performing loans (NPLs) on the balance sheet, plus loans sold to the Vietnam Asset Management Company (VAMC) that have not yet been resolved and potential NPLs, for the entire system of credit institutions is 6.16%. However, on the other hand, opinions from many economic experts and some bank leaders suggest that, in reality, if calculated correctly and comprehensively, the NPL ratio in the entire system would be much higher than the published figure.
Finding solutions to support businesses and the economy.
Given the challenging economic climate and weak market demand impacting customers' ability to repay loans, many leaders of commercial banks have proposed extending Circular 02 for another 6 months to 1 year to give both customers and banks more time to repay their debts.
According to Tran Long, Deputy General Director of the Vietnam Investment and Development Bank (BIDV), the current financial capacity of businesses is declining, their resilience is weak, and many large businesses in the oil and electricity sectors are facing legal risks, leading to an increase in the scale of bad debts and a decrease in the bad debt coverage ratio at banks. Restructured debts under Circular 02 are due in 2024 and 2025, so the pressure to reduce bad debts when they mature will be very high. The decrease in the value of collateral assets makes handling bad debts even more difficult due to the reduced liquidity in the real estate market. Therefore, the BIDV representative proposed extending the application period of the circular until the end of 2024.
Given the challenging economic climate and weak market demand impacting customers' ability to repay loans, many leaders of commercial banks have proposed extending Circular 02 for another 6 months to 1 year to give both customers and banks more time to repay their debts.
According to Do Thanh Son, Deputy General Director in charge of the Executive Board of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), customers will continue to face difficulties in 2024 and into early 2025, therefore extending Circular 02 on debt restructuring and maintaining the same debt classification is necessary.
At the same time, Mr. Son proposed a specific provision for medium-term loans that have been restructured and remain in the same loan classification. Accordingly, for the terms in which these customers have fully repaid their debts, no additional provision should be made for the remaining amount because the medium-term loan period is still long.
Meanwhile, Techcombank's Deputy General Director Pham Quang Thang said that customers have begun gradually repaying their debts. However, to give businesses more time to repay their debts, Techcombank proposes extending the time for debt restructuring and repayment as stipulated in Circular 02.
Sharing the same view, LPBank's Vice Chairman of the Board and General Director, Ho Nam Tien, stated that extending the repayment period for customers by a maximum of 12 months means that when the restructured loan repayment is due, the amount of each installment will be doubled for customers with medium and long-term loans (including the amount due periodically and the restructured amount), leading to difficulties in repayment when the restructured loan repayment is due. Therefore, LPBank proposes extending the validity of Circular 02 by another 12 months (until June 30, 2025) to continue supporting customers with the potential for recovery.
Besides proposing that the State Bank of Vietnam extend Circular 02 from 6 months to 1 year to give borrowers more time to repay their debts in the current difficult circumstances, Nguyen Quoc Hung, Vice Chairman and General Secretary of the Vietnam Banking Association, also suggested that additional measures are needed to deal with the "debt defaulting" groups currently operating openly on social media.
Regarding the aforementioned proposals, Deputy Governor of the State Bank of Vietnam, Dao Minh Tu, stated: The regulatory body agrees with the principle of extending Circular 02, but the issue of extending it for another 6 months or 1 year needs careful consideration. “The State Bank of Vietnam cannot yet confirm how long this circular will be extended because a more thorough assessment is needed. For now, units such as the Department of Credit for Economic Sectors, the Inspection and Supervision Agency, the Legal Department, and the Monetary Policy Department will finalize the proposed mechanism in this circular in the first quarter of 2024,” Deputy Governor Dao Minh Tu suggested.
| Agribank has proposed that the State Bank of Vietnam allow credit institutions to restructure debts while maintaining the same debt classification for principal outstanding in 2023, and extend the restructuring period to December 31, 2024, instead of June 30, 2024, as currently stipulated. Based on this, it is proposed to allocate additional provisions over three years, with a maximum of 100% provision by December 31, 2025; for restructured debts maintaining the same debt classification, credit institutions should be exempt from applying the principle of adjusting the debt classification according to the Credit Information Center (CIC) during the debt classification period (without having to wait until the next CIC adjustment period). General Director of Vietnam Agricultural and Rural Development Bank (Agribank) PHAM TOAN VUONG |
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