>> Accumulating bad debt ratio put pressure on banks

This is SBV's helpful action. However, numerous economists have urged that the SBV prolong Circular No. 02/2023/TT-NHNN for one year rather than six months due to the difficulties in business operations.

Supporting both businesses and banks

Dao Minh Tu, Deputy Governor of the SBV, stated that in order to continue to ease customers' restoration to business activities, the SBV proposed that Circular 02/2023/TT-NHNN be extended for another six months, rather than terminating on June 30, 2024.

This is wonderful news for the business community. Because, according to economists, rescheduling debt payments and maintaining debt groups by credit institutions and foreign bank branches not only relieves people and businesses of the pressure to pay interest and avoid penalty interest when debts are overdue, but also provides them with access to new loans to restore production and business.

The extension of Circular 02/2023/TT-NHNN will help both customs and the banking sector. Indeed, restructuring the debt repayment and keeping debt groups in line will alleviate bad debt burden on banks, particularly as bad debts tend to rise rapidly owing to deteriorating consumer repayability. This will decrease the burden on banks to put up risk provisions, giving them more resources to lower interest rates to assist the economy.

It is exactly for this reason that the leaders of the commercial banks have proposed extending Circular 02/2023/TT-NHNN. "The fact that Circular 02/2023/TT-NHNN expires on June 30, 2024, would place a significant burden on enterprises' debt repayment and credit institutions' bad debt management," stated the BIDV head, who suggested to the SBV that Circular 02/2023/TT-NHNN be extended.

>> Bad debt recovery faces many challenges in 2024

Extention for a longer dealine

However, as stated by Dao Minh Tu, the SBV simply recommended extending the deadline for Circular 02/2023/TT-NHNN by six months.

Many analysts stated that such a deadline for Circular 02/2023/TT-NHNN is insufficient because firms' activities are projected to suffer problems as a result of the global economic slowdown and other potentially unforeseen challenges.

Many commercial bank CEOs agreed with this viewpoint. "The firms will not be out of problems in early 2024 and may continue until early 2025," stated Do Thanh Son, Deputy CEO of VietinBank. That is why numerous bank officials, including Ho Nam Tiang, Vice Chairman of the Board of Directors and CEO of LPBank, have advocated extending Circular 02/2023/TT-NHNN for another 12 months, until June 30, 2025.

PGS. Ph.D. Nguyen Huu Huan of Ho Chi Minh City University of Economics also urged that the SBV prolong Circular 02 by one year to assist firms and commercial banks.

According to economists, the SBV's request to extend the deadline for Circular 02/2023/TT-NHNN by only six months is motivated by concerns about potential bad debt risks as a result of the debt restructuring, which causes bad debts to be improperly reported and pushed into the future.

Although these worries are valid, economists suggest the SBV should not be overly anxious. Commercial banks have learned many lessons regarding rapid credit expansion, which resulted in high bad debt ratios in previous decades. Furthermore, banks have a lot of expertise with debt restructuring.

The SBV, in particular, has foreseen the risks of bad debts, so commercial banks must still set aside substantial risk provisions for restructured loans. It is a key resource for banks to use if restructured debt becomes bad debt.