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Thursday, May 23, 2024

Vietnam extends debt restructuring policy

The Saigon Times

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HCMC – Vietnam’s central bank has announced an extension of its debt restructuring policy, thus allowing commercial banks to maintain current debt classifications for struggling businesses for another six months, until the end of 2024, the local media reported.

The State Bank of Vietnam (SBV) announced the extension at a press conference today, April 19, saying efforts are being made to facilitate credit flow and alleviate financial pressure on businesses and banks.

The extension is provided in Circular 02/2023/TT-NHNN, which permits banks to reschedule debt repayment and keep debt classifications unchanged for debtors in difficulty.

According to Deputy Governor Dao Minh Tu, this move comes due to concerns in the banking sector regarding the expiration on June 30 of the circular. The expiration raised fears of increased repayment pressure on businesses and difficulties in addressing non-performing loans.

“This policy supports both businesses and banks. However, if abused, it may eventually affect the national financial system, as cautioned by the global community. This is because this policy conceals some bad debts and allows them to fester, posing a long-term threat,” said Tu.

He added that the policy will be reviewed by the end of 2024, and if businesses still face difficulties, alternative support mechanisms will be explored.

Under the circular, eligible borrowers can have their loan terms restructured while maintaining debt classifications. Local banks and foreign bank branches can assess customers’ financial situations for debt restructuring purposes.

The latest data from the SBV showed that as of December 31, 2023, nearly 188,000 customers had had their loan repayment terms restructured and debt groups maintained, with total principal and interest amounting to over VND183.5 trillion.

Post-restructuring, banks are required to set aside risk provisions in accordance with specified timelines, ensuring prudential management of loan portfolios.

Despite a sluggish start to the year, credit growth rebounded in March following two consecutive months of decline. As of March 29, credit had increased by 1.34% against the end of 2023.

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