VietNamNet Bridge – Commercial banks have warned that the
credit flow may get stuck when the new regulation on debt classification takes
effects on June 1, 2013.
From June 2013, when the new
regulation on bank debt classification becomes valid, a lot of “good debts”
would turn into “bad debts.” This also means that banks would have to make
higher provisions against the debts, which would lead to the higher capital
costs. If so, banks would have to raise the lending interest rates, or curb the
lending.
According to Ngo Van Dung,
Director of the Hanoi branch of the Bank for Investment and Development of
Vietnam (BIDV), said the government has released two resolutions requesting
commercial banks to restructure debts and accept debt payment delays in order
to create best conditions for businesses to access new loans. However, it would
be very difficult for commercial banks to implement the instruction, when banks
have to obey the new regulation on debt classification.
Under the Circular No. 02, which
has replaced the Decision No. 493 on debt classification and provisioning
against bad debts, a lot of debts would be listed as “bad debts” for which
banks would have to make provisions.
Under the current regulation,
some kinds of debts are classified as ”safe”, including the loans guaranteed by
the credit institutions’ or credit institutions’ subsidiaries’ shares. However,
when the circular No. 02 takes effect, the loans would be listed as the third-group
bad debts.
Meanwhile, the other kinds of
debts which are now listed as the bad debts with “medium alarms” would be
classified as the fifth-group bad debt, or irrecoverable debts.
With the new regulation, the
State Bank of Vietnam shows its determination to take one more step towards the
international standards. At present, Vietnam is believed to set up easier
conditions on debt classification, because of which the bad debt panorama in
Vietnam cannot be seen clearly.
Dung from BIDV, on one hand, said
that he understands the reason behind the central bank’s decision, on the other
hand, said it is now still not the right time to apply the new stricter
regulations on debt classification.
The government has requested
banks and businesses to sit together to discuss the debt restructuring to make
it easier for businesses to approach bank loans. Meanwhile, the State Bank has
requested to apply the new regulation on debt classification, which would
certainly lead to the fewer opportunities for banks to push up lending and for
businesses to access bank loans.
Once the bad debt ratios
increase, banks would have to make higher provisions against bad debts, which
means that they would have to curb the lending. Meanwhile, businesses would not
be able to satisfy the requirements to be eligible for getting loans, because a
lot of debts would turn into bad debts.
A banker who asks to be
anonymous, has predicted that once the new regulation is applied, the bank’s
provisioning against bad debts would increase by 20-30 percent due to the
increase of the bad debts.
With the higher capital costs,
banks would have to narrow the credit growth, focus on collecting debts, set up
stricter requirements on borrowers. “It would be a tough year for banks in
2013,” he said.
However, the State Bank has been
very resolute in the issue. Nguyen Dang Hong, Deputy Chief Inspector of the
State Bank said the bank once discovered that different banks classified the
same debt in different groups. Therefore, it’s necessary to set up the criteria
for banks to refer when classifying debts. In the long term, this would help
ease the bad debt ratios and improve the credit quality.
DDDN
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