Amending Circular 03: Extending debt restructuring period, not extending provisioning

The exemption and reduction of interest and fees for customers can also be extended until June 30, 2022. Photo: NCB

The State Bank of Vietnam (SBV) is collecting comments on the draft amendment and supplement to a number of articles of Circular No. 01/2020/TT-NHNN dated March 13, 2020 on credit institutions, foreign bank branches to restructure debt repayment terms, exempt and reduce interest and fees, and maintain debt groups to support customers affected by the Covid-19 pandemic as amended and supplemented by Circular No. 03 2021/TT-NHNN.

Extend the debt restructuring period for another six months

Article 4 of the Circular stipulates that credit institutions shall restructure the repayment term for the outstanding balance of principal and interest of a debt, including debts within the scope of Decree No. 55/2015/ND -CP dated June 9, 2015 of the Government on credit policy for agricultural and rural development (amended and supplemented) when a number of conditions are fully met.

Accordingly, the draft proposes the condition that the outstanding balance arises before August 1, 2021 from lending and financial leasing activities, while the regulation under Circular 03 is June 10, 2020.

The reason given by the State Bank is that the 4th wave of the Covid-19 pandemic is complicated, with a wider and more serious impact than previously, affecting the ability of customers to repay loans due after July 17, 2021. Therefore, these balances belonging to customers' debts incurred until the end of July 2021 will be affected by social distancing to prevent the pandemic.

Along with that, the draft amends the debt balance that incurs the obligation to repay the principal and interest in the period from January 23, 2020 to June 30, 2022, while the current regulations under Circular No. 03 are extended until December 31, 2021.

The reason for the State Bank to extend the debt restructuring period for another six months is to better support businesses and people affected by the pandemic to restore production and business.

Moreover, the reason is also due to the import and production roadmap of the Covid-19 vaccination plan, which is expected to reach 70-75% of the population to be vaccinated by the end of 2021 and early 2022.

Moreover, on August 8, 2021, the Government issued Resolution No. 86/NQ-CP on urgent measures to prevent and control the Covid-19 pandemic, which set the goal of Ho Chi Minh City to strive to control the pandemic before September 15, 2021. The provinces of Binh Duong, Long An and Dong Nai strive to control the pandemic before September 1, 2021. Other provinces and cities strive to control the pandemic before August 25, 2021.

In addition, the fee waiver for customers is also extended to June 30, 2022 instead of the end of 2021 as before.

Do not extend provision for five years

Compared with Circular 03, the revised draft Circular has additional provisions. The debt balance is restructured in the repayment term when the outstanding balance of the debt arises from June 10, 2020 to before August 1, 2021 and overdue from July 17, 2021 to before the effective date of the draft Circular.

The Drafting Board said that on July 17, 2021, the Prime Minister issued an official dispatch on the implementation of social distancing to prevent and control the pandemic in some localities, of which nineteen provinces and cities were allowed to implement Directive 16/CT-TTg.

This has a negative impact on the production, business and debt repayment ability of customers for the due balances in the period from July 17, 2021 to the date of the draft circular enforcement.

Because this debt balance is not within the scope of application of Circular 01 and Circular 03 to the credit institution to restructure the repayment term, this debt balance will be converted into overdue debt by the credit institution.

In particular, the above draft Circular of the State Bank does not mention the extension of time for risk provisioning. While according to the provisions of Circular 03, credit institutions must make provision for all restructured debts in three years, from this year.

Previously, the Banking Association suggested that the SBV consider extending the time limit  for additional provision (maybe for five years) and reducing the allocation ratio for risk provisioning to reduce financial pressure for the bank, helping the bank have more resources for business development and customer support. However, to ensure system safety, the SBV did not amend this regulation.