VietNamNet Bridge – The lending interest rates are on the decrease, which is hoped to help businesses more easily access bank loans. However, the efforts by the banks to slash interest rates would be useless if the bad debts suddenly increase.

At a recent working session with the State Bank of Vietnam, leaders of the An Giang provincial authorities insisted on the bank’s measures to rescue businesses, or they would die because of the lack of capital.

One of the measures they suggested was the delay of the implementation of the new method on bad debt classification. If the new regulation takes effect on June 1, 2013 as initially planned, businesses would not be able to borrow capital, because of their unpaid debts.

The problem is that if the Circular No. 02 is implemented, a lot of the businesses’ loans may be classified as bad debts, which would make businesses ineligible for borrowing more money from banks. If so, even if the lending interest rates go down, the capital would not reach out to businesses to ease capital thirst of the enterprises.

Tran Luc Lang, Deputy General Director of BIDV, one of the biggest commercial banks in Vietnam, said the Circular No. 02 stipulates the regulations on classifying loans in accordance with the international practice, which can help banks better manage their loans. However, Lang said, it would be a barrier for businesses to approach bank loans.

The new method of debt classification comprises of the stricter regulations for debt management. Therefore, it may happen that the businesses’ debts would be moved to the higher groups of bad debts, which would bring disadvantages to businesses.

“In general, a business can borrow money from many different banks. If a bank lists the business’ debt as “bad debt,” other banks would also have to give similar assessments. This would make it difficult for businesses to obtain loans,” he explained.

A senior executive of Vietcombank also said that if the new regulations are applied as of June 1 as previously planned, the banks’ bad debt ratios would be higher, which means that they would have to make higher provisioning against the risks.

However, more seriously, once the bad debts increase, commercial banks would have to say “no” to the businesses which ask for loans. If so, businesses would die because of the lack of capital.

Deputy President of Lien Viet Post Bank Nguyen Duc Huong has warned that if the high requirements are applied as planned, a lot of farmers would become homeless, because they are the big debtors of banks. The failed crops and the market price fluctuations have made farmers incur big losses over the last few years.

Huong said that the application of the new regulations would mean no more way for farmers, because they cannot borrow capital to resume farming, while their assets would be taken away by the banks to compensate the unpaid debts.

Huong went on to say that though banks have been trying to slash the interest rates, he is not sure if businesses can borrow money at lower costs. The problem that when the banks’ bad debts increase, they would have to make higher provisions for the loans, which would lead to the higher capital costs. If so, banks would not be able to lend money at low prices.

Ngoc Son