Good circular but should not last too long
Talking to Lao Dong, Associate Professor Dr. Dinh Trong Thinh said: "Circular 02 is a sharing of difficulties between banks and enterprises in the national economy . If enterprises are unable to repay loans and interest, the bank can demand payment, but the enterprises cannot repay the debt. In the conditions where enterprises are in difficulty, have bad debts, or are bankrupt, the enterprises cannot collect the debt.
With Circular 02 not transferring debt groups, extending or postponing debt collection periods and not transferring bad debts, businesses can manage to survive, develop and repay loans to banks. This is good for both businesses and banks."
However, before the proposal to extend Circular 02, Associate Professor, Dr. Dinh Trong Thinh disagreed and said that the Circular should be ended at the right time.
Accordingly, Associate Professor Dr. Dinh Trong Thinh analyzed: "In reality, on one hand we need to support businesses, but on the other hand, extending Circular 02 will cause the bad debt bubble to inflate even more, thereby posing a bad threat to the entire financial and monetary system.
We should also carefully consider whether to extend Circular 02 or not. In my opinion, if by June 2024, we predict that businesses will recover relatively. Therefore, bad debts should also be handled. We must put the interests of the economy first."
Sharing the same opinion that Circular 02 should not be extended for too long, Dr. Le Xuan Nghia - an economic expert, said that it could be extended for a maximum of 1 year, until June 2025, when the real estate market is expected to recover.
Dr. Le Xuan Nghia, an economic expert, said that if Circular 02 is not extended, banks will face difficulties because they will have to re-account according to the correct debt group and it is very likely that many of these debts will have to be transferred to deeper groups, risk provisions will be increased, and profits will even decrease sharply. Extending the effective period of the Circular is to delay the debt settlement process, helping the risk provisioning process to take place gradually, without greatly affecting the financial foundation.
In the context of increasing bad debt, Dr. Le Xuan Nghia warned that the banking system needs to prepare mentally to face a new "storm" which is that if bad debt is not handled today, new bad debt will arise and thus will put great pressure on the financial situation of commercial banks.
If including debt extension, deferral, and debt group transfer, the banking industry's bad debt will at least double.
How bad debt at banks increases?
At the end of the third quarter of 2023, financial reports of commercial banks showed that bad debts continued to put pressure on banks. Profits of many banks decreased.
Specifically, by the end of the third quarter of 2023, Vietcombank 's bad debt ratio increased to 1.21%, from 0.83% at the end of the second quarter. At MB, bad debt was 1.89%, the highest level since 2016.
HDBank 's bad debt ratio started to increase from the second quarter and reached 2.3% by the third quarter of 2023 (an increase of 0.1% compared to the end of the second quarter).
Similarly, ACB's bad debt ratio has continuously increased since the fourth quarter of 2022, reaching 1.2% by the end of the third quarter of 2023.
Techcombank's bad debt ratio in the last 3 quarters was 0.8%, 1.1% and 1.4% respectively.
VPBank's bad debt ratio increased from 3.88% at the end of the second quarter to 3.96% at the end of the third quarter of 2023.
Although the number of bad debts in financial reports is increasing, experts say that the numbers in the reports are only "half of the truth".
Dr. Le Xuan Nghia said: "Bad debt of banks has not been accounted for including deferral, postponement, and debt group transfer, and if added together, it will increase at least double."
At the Credit Conference for Real Estate and Social Housing Development jointly organized by the State Bank and the Ministry of Construction last week, Permanent Deputy Governor of the State Bank Dao Minh Tu said: Circular 02 is a very unique policy of Vietnam. Right in the midst of the COVID-19 pandemic, the State Bank issued Circular 01, then Circular 02 to solve the difficulties of 2023.
The extension of Circular 02, from a macro perspective, needs to be considered in harmony. In the short term, the circular is very effective, but in the medium and long term, Circular 02 will leave a burden on safety, finance and security for credit institutions.
Over the past time, the State Bank has always considered creating favorable conditions for businesses as an important task in the current period. Circular 02 is one of the practical solutions to remove difficulties for businesses today.
With the extended term for due debts and the maximum restructuring period of one year, it has created favorable conditions for businesses to have more resources and conditions to regenerate business capital. Businesses also have more financial conditions to ensure that unsettled inventory orders are resolved and overcome difficulties.
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