Debt rescheduling circular to be extended if needed: central bank

The State Bank of Vietnam (SBV) will consider extending a circular on debt rescheduling to remove difficulties for businesses and ease the economic situation if needed, a senior official has said.

“If the economy and businesses still need Circular 02, about three months before the expiration date, we will propose the government extend it,” SBV deputy governor Dao Minh Tu said at a press conference in Hanoi Wednesday.

Circular 02, which provides instructions for credit institutions and foreign branch banks on debt rescheduling and retention of debt category to assist borrowers, was issued in April 2023 and is set to expire on June 30, 2024.

However, debt rescheduling must deliver practical results and avoid potential bad debts in the economy, he stressed.

Also at the press conference, head of the SBV’s Department of Credit for Economic Sectors Ha Thu Giang said that after nearly eight months of implementing Circular 02 (from April 24, 2023 to November 30, 2023), over VND171 trillion ($7.02 billion) worth of principal and interest were restructured and had debt category unchanged by credit institutions, with 175,581 customers benefiting.

Due to difficult economic conditions, bad debt on banks’ balance sheets has sharply increased, currently at 4.95%, not to mention a large amount of debts sold to the SBV-run Vietnam Assets Management Corporation (VAMC), she added.

Regarding the monetary policy management orientation in 2024, Tu said the State Bank of Vietnam will promote drastic and effective implementation of a project to restructure the system of credit institutions associated with handling bad debts in the 2021-2025 period, with a focus on effectively handling weak banks.

It will direct credit institutions to accelerate the handling and recovery of bad debts, striving to have an on-balance sheet bad debt ratio (excluding debts of weak commercial banks) of below 3% in 2024, he said.

According to MBBank Securities (MSB), extending the validity of Circular 02 will help reduce the pressure of increasing bad debt on banks with a high proportion of real estate loans such as Techcombank, MBBank and VPBank in the context of “stuck” cash flows from both borrowers and project developers.

“Borrowers will have more time to arrange money to repay debt, thereby completely resolving potential bad debts of the banking system,” the brokerage said.

In addition, the extension will help gradually reduce provisioning pressure on commercial banks when business results in 2024 are expected to be more positive, increasing their provision buffers, it added.