How to extend and defer loan repayments for businesses?

The extension and postponement of loan repayments for businesses is critical in the current challenging environment.

>> Enterprises’ worry is being in the debt group for banks

However, the loans rescheduling time must be lengthy enough, and bank debt groups must be maintained in order to assist firms in overcoming present challenges.

Urgent need

Despite falling interest rates, loan growth remained slow in the first months of the year. According to the State Bank of Vietnam, loan growth in March was just 2.06%, less than half of the growth rate in the same month previous year.

The slow growth of credit was mostly owing to challenges in production and commercial operations; in fact, many enterprises were obliged to cut output due to a lack of orders. According to General Statistics Office statistics, export turnover in 1Q23 was only approximately 79.17 billion USD, down 11.9% from the same time previous year.

“Currently, demand is declining, which is having a negative impact on company operations, so firms do not need to borrow funds for production and business, but they do need to borrow to survive. As a result, banks must have debt rescheduling strategies in place for firms,” suggested Mr. Nguyen Ngoc Hoa, Chairman of Ho Chi Minh City Business Association.

>> Interest rates gradually cool down

How to do?

Deputy Governor of the State Bank Dao Minh Tu stated recently at a news conference that it is vital to extend and postpone bank obligations for enterprises. It must, however, assure the safety and character of the economy's debt, so that bad debt is not camouflaged in this type of loan prolongation or deferral.

Many analysts feel that bank loan extension and postponement will be effective only if accompanied by regulations that maintain the debt group intact. Bank loans that are postponed for repayment will be classed as lesser debt groupings otherwise.

“Restructuring the loan payback period and keeping the debt group same would assist firms in avoiding the late penalty interest rate while gaining easier access to fresh loans. This will also provide several benefits to corporations when issuing bonds to generate finance,” said an analyst.

This strategy will help not just enterprises, but also banks. As a result, debt restructuring and maintaining the debt group will assist the bank decrease the risk of NPLs, lowering the cost of risk. This also makes it possible for banks to have greater resources to lower interest rates in order to help businesses.

However, analysts believe that the SBV must calculate a realistic period for debt restructuring because global economic uncertainties are projected to endure, particularly in light of the current global banking crisis. While the Vietnamese economy is very open, it is difficult for the business community to escape negative effects from the global economy.