Another six months for debt restructuring but need to manage bad debt risks

Allowing debt repayment term to be restructured and debt group kept intact according to Circular 02 until the end of 2024. Photo: Internet

The State Bank (SBV) has issued Circular 06/2024/TT-NHNN (Circular 06) amending and supplementing a number of articles of Circular 02/2023/TT-NHNN dated April 23, 2023 (Circular Circular 02) to regulate credit institutions and foreign bank branches to restructure debt repayment terms and maintain the same debt group to support customers in difficulty.

Circular 06 has allowed an extension of six months to implement the solution to restructure the debt repayment period and maintain the debt group according to Circular 02 until December 31, 2024.

According to the State Bank, in the first months of 2024, the economy will show signs of recovery but there are many potential risks and challenges. Production and business activities in some industries and fields are difficult, the economy's demand is weak, and credit growth is slow.

Therefore, the State Bank believes that extending the implementation time of the policy to restructure debt repayment periods and maintain the same debt group according to Circular 02 until December 31, 2024 will continue to contribute to solving difficulties for businesses, and people, helping customers reduce debt repayment pressure, facilitate capital turnover and access new loans, have more investment resources, restore production and business, and serve life and consumption, in line with the policy of the National Assembly and the Government to continue supporting in removing difficulties to promote economic growth and economic stability.

On the banks' side, extending the debt restructuring policy will help promote credit growth in the last six months of the year, while reducing bad debt pressure on the banking system.

According to data from the State Bank, as of mid-June 2024, credit growth increased by 3.79% compared to the end of 2023. Although the credit growth rate gradually improved over the months, the credit sales that credit institutions have provided more to the economy in the first six months of 2024 than the sales of the same period three years ago.

However, the State Bank said that there are still some localities with low credit growth, and some credit institutions with credit growth lower than the general credit growth rate, even negative growth.

Information from some commercial banks shows that credit growth is not high, such as Vietcombank increased by 2.1% as of June 17, VPBank increased by 1.91% as of the end of May, VIB only increased by 1.14% as of May 31…

Although it will bring many benefits, experts note that banks need to carefully evaluate the subjects applied in the direction that businesses with the ability to recover will find all solutions, but for businesses weak businesses should not restructure debt, need to convert to bad debt and handle security assets.

In particular, banks must also be careful with bad debt "hidden" in the form of debt structure and keeping the debt group intact. Credit rating organization VIS Rating predicts that the capital adequacy ratio of the banking industry will still be low, about 11-12% in 2024. In particular, the bad debt coverage ratio of private banks lower than the industry average as it takes longer to improve provision ratios after a sharp decline in asset quality in 2023.

SSI Securities Company's report predicts that the bad debt ratio at the end of 2024 may only increase slightly compared to the end of 2023 (estimated from 1.63% to 1.68% of total outstanding debt), because the bank will promote bad debt write-off and the economy is forecast to recover stronger by the end of this year. However, according to SSI, problem debts (including group 2 debts, restructured loans, overdue corporate bonds, old loans) need to be closely monitored.

According to financial expert Associate Professor, PhD. Dinh Trong Thinh, the extension of Circular 02 is a positive solution for both businesses and banks. To promote this, businesses must restructure and use capital effectively to meet debt and interest repayment goals.

Banks must also carefully check and monitor businesses, properly evaluate businesses' ability to recover and repay debt...

The regulatory agency needs to require banks to manage risks, make appropriate provisions, and not let bad debt increase, causing risks to the whole system.