Restructuring Repayment Time, Softening Loans

By March 2, 2020, as many as 23 credit institutions had reported to the SBV that there was an estimated VND926 trillion of outstanding loans caused by Covid-19 epidemic, accounting for about 14.27% of the total outstanding loans of the 23 institutions and about 11.3% of the system's total outstanding loans. Potentially affected sectors include agriculture, forestry and fisheries, import-export, accommodation, catering, food, beverages, transportation, textiles, footwear, electronics, refrigeration, oil and gas, tourism, education and so on.

At the meeting with credit institutions on banks’ solutions to support those affected by Covid-19, Mr. Nguyen Quoc Hung, Head of Economic Sectors Credit Department of the State Bank of Vietnam (SBV), said that within three weeks of the meeting with the SBV, credit institutions urgently reviewed the situation of borrowers to actively develop programs and action scenarios to solve difficulties for borrowers. Credit institutions have supported more than 44,000 customers with an outstanding loan of about VND222 trillion, through measures such as rescheduling, exemption and reduction of interest on existing debts, reducing interest rates of new loans, fee exemptions, implementation credit products to share difficulties, support businesses and people to overcome losses. In particular, 20 commercial banks have aggressively implemented support solutions such as Agribank, Vietcombank, VietinBank, BIDV, Sacombank, TPBank, VPBank, Nam A Bank, ACB, Techcombank, OCB, MB, SCB, Viet Capital, Kien Long, Eximbank, PVCombank, CoopBank, Shinhanbank and UOB.

In addition, nearly 30 commercial banks have joined hands with Napas to reduce or exempt transfer fees to share responsibility with the community and customers, helping to promote cashless payments.

The National Credit Information Center of Vietnam (CIC) has also reduced credit information service fees to help credit institutions reduce costs and lower interest rates, thereby indirectly improving access to credit.

Dr. Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council, said that the above solution was both practical and proper. In fact, the current difficulty of businesses is not capital or interest, but the market. Interest rate support or credit support now does not make much sense, because businesses do not need to borrow. Monetary policy to support businesses by allowing debt restructuring is a very correct solution. We should not offer support credit packages on a large scale, otherwise it will be difficult to control.

In the current context, according to economic experts, in monetary policy, we don’t need to adjust interest rates or credit hastily, but just support the right subjects. The ultimate goal of current monetary policies must create macro stability, as well as create a premise and foundation to coordinate with other solutions.

SBV Deputy Governor Dao Minh Tu said that the SBV is working with relevant ministries and agencies to actively and urgently complete the legal system to create favorable conditions for both credit institutions and businesses in overcoming difficulties caused by the disease. In particular, the SBV is conducting procedures to promulgate guidelines for credit institutions to restructure loan repayment term, exempt or reduce loan interest rates, and maintain debt groups for customers affected by the epidemic.

According to the draft mechanism of supporting enterprises affected by Covid-19 to borrow capital, credit institutions and foreign bank branches can restructure loan repayment time, exempt and reduce interest rates for debts arising from credit extension activities in one of the following cases:

First, the outstanding undue debt, which the customer is assessed that he is unable to fully repay the principal and/or interest under the signed contract due to Covid-19.

Second, the debt has been transferred to overdue debt from January 23, 2020 to the date the Circular is signed due to the impact of Covid-19 epidemic. The total time for repayment rescheduling shall not exceed the time for initial credit extension under the signed contract.

Credit institutions, foreign banks' branches are allowed to keep the same debt group as classified according to the State Bank's regulations as of the latest time before January 23, 2020 for the outstanding debts of the prescribed debts. The above-mentioned time limit for repayment of principal and/or interest is from January 23, 2020 to the next 90 days after the competent State agency announces the end of the Covid-19 epidemic, including outstanding loans which have been restructured, exempted or reduced loan interest for the period from January 23, 2020 to the effective date of this Circular and have transferred the debt group in accordance with the regulations of the SBV’s previous regulations.

Therefore, under the above mechanism, the SBV has calculated the additional support period of 90 days after the end of the epidemic, creating a stepping stone for both banks and businesses. This period of time is explained by the State Bank to ensure its ability to recover customers' cash flow after the epidemic is over.

Regarding the receivable interest amount of the outstanding debt which is restructured the debt repayment term or exempted or reduced interest rate, keeping the standard debt group (group 1) as prescribed in this Circular, credit institutions and foreign banks branches are not required to account the income but follow the off-balance sheet to urge the collection. When collected, they shall be accounted as income.

Thus, according to the expected mechanism, for businesses, the debt repayment rescheduling and the debt group remain unchanged, creating favorable conditions for cash flow balancing, avoiding credit downgrading. For banks, this solution helps not record bad debt immediately, accordingly, there is no need to increase provision expenses. On the other hand, when customers have more conditions to repay the debt, the pressure of bad debt is also minimized.

By Quynh Chi, Vietnam Business Forum