According to experts, bad debt is currently at a fairly high level and is likely to continue to increase in the coming time. In addition, the economy is still facing many difficulties and the health of many businesses is weakening.
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| The State Bank requires stepping up measures to improve credit quality. |
Therefore, supportive solutions are needed for businesses to recover; in which, continuing to restructure debt repayment terms and maintaining the debt group are solutions that need to be considered.
Circular No. 02/2023/TT-NHNN (Circular 02) issued on April 23, 2023 stipulates that credit institutions and foreign bank branches restructure debt repayment terms and maintain debt groups to support customers facing difficulties in production and business activities and customers facing difficulties in repaying loans for living and consumption needs. According to regulations, Circular 02 is effective until June 30, 2024.
Bad debt tends to increase
Since the circular was issued, at some commercial banks, the restructuring of debt repayment terms and maintaining the same debt group has had initial results. For example, at Lien Viet Post Joint Stock Commercial Bank ( LPBank ), up to now, LPBank has implemented debt repayment term restructuring according to Circular 02 for 192 customers with a total outstanding principal of more than VND 7,237 billion, with a restructured interest of VND 327 billion.
At Vietnam Technological and Commercial Joint Stock Bank ( Techcombank ), Deputy General Director Pham Quang Thang said that Techcombank's bad debt by the end of January 2024 was equal to the end of 2023, at a rate of 1.2%. The debt structure of customers at Techcombank according to Circular 02 by the end of January 2024 was about 6,000 billion VND.
In general, according to the Director of the Department of Credit for Economic Sectors (State Bank of Vietnam) Ha Thu Giang, after nearly 8 months of implementing this circular (accumulated from April 24, 2023 to November 30, 2023), the total value of principal and interest debt restructured by credit institutions and kept in the same debt group is VND 171,083 billion, with 175,581 customers having their debt restructured and their debt group kept in the same.
However, the 2023 financial reports of many commercial banks show that bad debt tends to "rise". According to data updated to the end of the third quarter of 2023 by the State Bank, the total bad debt at the end of the third quarter of 2023 of banks increased by 61% compared to the end of the previous quarter, to VND 196,755 billion. At Tien Phong Commercial Joint Stock Bank (TPBank), the total bad debt by the end of 2023 had reached VND 4,200 billion, 3 times higher than at the end of 2022.
Correspondingly, TPBank's bad debt/customer loan balance ratio also increased to 2.04% at the end of 2023. For Sacombank, by the end of 2023, the bank's total bad debt was VND 10,984 billion, an increase of 155.5% compared to the beginning of the year. Some other banks also recorded high bad debt ratios such as: Bac A Bank reached nearly VND 914 billion, an increase of 78% compared to the end of 2022; NCB reached VND 16,469 billion, an increase of 92.5%; ACB reached VND 5,887 billion, an increase of 93.3%;...
In addition, the report from the State Bank also shows that the ratio of bad debt on the balance sheet plus debt sold to the Vietnam Asset Management Company (VAMC) that has not been processed and potential bad debt of the entire credit institution system is 6.16%. However, on the other hand, opinions from many economic experts and some bank leaders stated that in reality, if "calculated correctly and fully", the bad debt ratio in the entire system would increase much more than the announced figure.
Find solutions to support businesses and the economy
In the context of economic difficulties and weak market demand affecting customers' ability to repay debts, many leaders of commercial banks proposed to extend Circular 02 from 6 months to 1 year so that customers and banks have more favorable conditions to repay debts.
According to Tran Long, Deputy General Director of the Bank for Investment and Development of Vietnam (BIDV), currently, the financial capacity of enterprises is declining, their tolerance is weak, as well as many large enterprises in the fields of petroleum and electricity, facing legal risks leading to an increase in the scale of bad debt and a decrease in the coverage ratio of bad debt at banks; restructured debts according to Circular 02 are due in 2024 and 2025, so the pressure to reduce bad debt when due will be very large. The value of collateral assets decreases, making it more difficult to handle bad debt due to the decline in liquidity in the real estate market. Therefore, BIDV representatives proposed to extend the application period of the circular until the end of 2024.
In the context of economic difficulties and weak market demand affecting customers' ability to repay debts, many leaders of commercial banks proposed to extend Circular 02 from 6 months to 1 year so that customers and banks have more favorable conditions to repay debts.
Deputy General Director in charge of the Executive Board of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) Do Thanh Son also assessed that customers will continue to face difficulties in 2024 and until early 2025, so extending Circular 02 on debt restructuring and maintaining the debt group is necessary.
At the same time, Mr. Son proposed the issue of setting aside specific provisions for medium-term debts that have been restructured and kept in the same debt group. Accordingly, for terms in which this group of customers has fully paid off their debts, there is no need to set aside additional provisions for the remaining portion because the medium-term loan period is still long.
Meanwhile, Techcombank Deputy General Director Pham Quang Thang said that up to now, customers have also started to gradually repay their debts. However, to create conditions for businesses to have time to repay their debts, Techcombank proposed to extend the time for debt restructuring and repayment in Circular 02.
Sharing the same view, Vice Chairman of the Board of Directors and General Director of LPBank Ho Nam Tien commented that the restructuring of customers' debt repayment terms by a maximum of 12 months will result in the periodic repayment amount being doubled for customers borrowing medium and long-term loans (including the periodic due amount and the debt restructuring amount), leading to difficulties in repaying debts when the restructuring debt repayment deadline comes. Therefore, LPBank proposes to extend the validity period of Circular 02 by 12 months (until June 30, 2025) to continue supporting customers with the ability to recover.
In addition to recommending that the State Bank extend the time limit for Circular 02 from 6 months to 1 year to give borrowers time to repay their debts in difficult circumstances, Vice Chairman and General Secretary of the Vietnam Banking Association Nguyen Quoc Hung also proposed the need for additional measures to deal with "debt default" groups that are currently operating openly on social networks.
Regarding the above recommendations, Deputy Governor of the State Bank Dao Minh Tu said: The management agency agrees with the policy of extending Circular 02, but the issue of extending it for another 6 months or 1 year needs to be carefully considered. "The State Bank cannot confirm how long this circular will be extended because it needs to be further evaluated. In the immediate future, units such as the Department of Credit for Economic Sectors, the Inspection and Supervision Agency, the Legal Department, and the Monetary Policy Department will complete the proposed mechanism in this circular in the first quarter of 2024," Deputy Governor Dao Minh Tu suggested.
| Agribank proposed that the State Bank allow credit institutions to restructure debt to maintain the debt group for outstanding principal arising in 2023, and extend the restructuring period to December 31, 2024 instead of June 30, 2024 as at present. On that basis, it is proposed to allocate additional provisions for 3 years, with a maximum of 100% provisioned by December 31, 2025; for debts that are restructured to maintain the debt group, credit institutions are allowed not to apply the principle of adjusting debt groups according to CIC right in the debt classification period (not having to wait until the next debt group adjustment period according to CIC). General Director of Vietnam Bank for Agriculture and Rural Development (Agribank) PHAM TOAN VUONG |
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