Many enterprises are in dire need of capital to buy input materials to materials to prepare for their recovery. — Photo courtesy of nld.com.vn
A week after the State Bank of Vietnam issued Circular 14 on debt rescheduling to alleviate the difficulties faced by businesses due to the COVID-19 pandemic, many individual and corporate borrowers said they are still waiting to hear from banks.
The director of a tourism and transport company in HCM City said his company has borrowed from three banks to buy cars.
Twenty cars were "in the parking lot" when the city mandated social distancing, and so generated no revenues, but every month his company received notices from the banks for payment of principal and interest, he said.
"I have contacted all three banks to ask for rolling over the loans until the end of this year, but have not received a response. If the debt is extended until the end of the year, my company might repay the debt because of the great opportunity for the recovery of the tourism industry.”
Pham Van Viet, general director of Viet Thang Jeans Co and vice chairman of the HCM City Garment-Textile, Embroidery and Knitting Association, told Nguoi Lao Dong (Labourers) newspaper that many export firms could sustain cash flows only for a short time more but face great pressure to pay loans.
Recently banks reduced interest rates as mandated by Circulars 01 and 03, but only by around 1 percentage point, and businesses expect banks to provide more support when Circular 14 comes into effect, he said.
"Besides debt restructuring, businesses also want fresh credit to buy raw materials to prepare for their recovery. It is very difficult to get new loans … because most of their assets have been mortgaged and have nothing more left.
Phan Dinh Tue, Sacombank’s deputy CEO, said Circular 14 is more open than the other two circulars for providing support to individual and corporate customers.
Customers’ debts payable between January 2020 and August 2021 have been deferred until June 2022, and this would help ease financial pressure and enable a recovery.
"As soon as Circular 14 took effect, Sacombank continued to restructure the debts of individual and corporate customers. As for reducing interest rates as prescribed by the new circular, the bank considers each case based on the epidemic’s impact by sector.”
Nguyen Dinh Tung, general director of the Orient Commercial Joint Stock Bank (OCB), said not all customers having outstanding loans at banks are supported. As for reducing interest rates, his bank could only shave off 1-2 percentage points and not 3-4 percentage points as many customers expect, he said.
"At OCB, customers in priority areas or in production - trading who have suffered heavy losses due to COVID-19 will have their loan interest reduced. Some retailers and workers losing jobs will even get an interest waiver for one to two months.”
According to bank managements, not only businesses but also banks have been hit hard by the pandemic as many customers fail to repay their debts.
The head of a commercial bank said: “We do not know when businesses will resume production and trading activities. The bank does not have much reserves. It is very difficult to ask commercial banks to sharply reduce loan interest rates at this time.”
Bank borrowers benefit from new debt extension policy
Borrowers will be the beneficiary of a newly-issued State Bank of Vietnam (SBV) circular on extending debt rescheduling as it helps them to keep cash flows stable, experts said.
The SBV last week issued Circular 14/2021/TT-NHNN, which revised Circular 03/2021/TT-NHNN, allowing banks to extend the repayment term for customers by another six months compared to Circular 03, until June 30, 2022.
In addition, the restructuring of overdue debts will also be extended from July 17, 2021 to before September 7, 2021.
According to Nguyen Dinh Duong, an analyst at Pinetree Securities Company, the circular was issued to directly support borrowers who have been adversely affected by the COVID-19 pandemic. However, the circular will not help banks gain more profits in the remaining months of the year.
Duong explained banks would not be the beneficiary of the new circular as the new policy kept the time of provisions on COVID-19 loans unchanged compared with Circular 03/2021/TT-NHNN to ensure the safety of credit institutions and the national financial system. Under the new circular, banks will still have to increase the ratio of the provisions gradually, from 30 per cent of COVID-19-affected loans by the end of 2021 to 60 per cent by the end of 2022 and 100 per cent by the end of 2023 as stated in the previous circular.
Sharing the same view, Phan Le Thanh Long, Director of the Australian Institute of Corporate Management Accountants (CMA Australia) in Viet Nam, said the circular targeted bank borrowers as it aimed to support firms which have been greatly affected by the pandemic.
According to the new circular, firms will also see lending interest rates and fees exempted or reduced, which will have a direct impact on helping firms stabilise cash flow, especially when they have to spend significantly to keep business and production going during the pandemic.
According to the SBV’s statistics, banks restructured loans worth about VND350 trillion (US$15.2 billion) for COVID-19-affected borrowers by the end of 2020. Industry insiders estimated if half of the loans became bad loans, the bad debt ratio of the banking system would increase to more than 3 per cent by the end of this year.
To control the risk of bad debt, banking expert Nguyen Tri Hieu recommended that besides recovering bad loans, banks must set aside provisions for bad and risky loans.
Some banks have already increased provisions for risky loans.
VietinBank, for example, increased its provisions from 120 per cent in 2019 to 130 per cent of loans in 2020. In 2021, VietinBank aimed to keep the bad debt ratio below 2 per cent.
The State Bank of Vietnam (SBV) has agreed to extend debt rescheduling for customers for a further six months.