The Governor of the State Bank of Vietnam has decided to delay the implementation of the Circular No. 02 guiding the provisioning against the risks in credit activities.
What do businesses and banks say?
In 2012, the government urged the banking sector to restructure the bad debts incurred by the enterprises which had great potentials for development, but met temporary financial problems.
On April 23, 2012, the State Bank issued the Decision No. 780, allowing credit institutions to maintain the enterprises’ bad debt situations.
Governor of the State Bank Nguyen Van Binh said at a conference that the decision then gave enterprises and commercial banks some more time to restructure the debt worth VND272 trillion, which should have been exposed if utilizing the current debt classification method.
However, just 9 months later, the State Bank released the Circular No. 02 with stricter requirements on provisioning against risks and bad debt classification. The circular would be officially valid from June 1, 2013.
Nguyen Thi Dung, Director of the Binh Duong branch of the Bank for Investment and Development of Vietnam (BIDV), said if referring to the new debt classification method, the clients’ bad debts would “get worse.” If so, the efforts by the government to help businesses ease difficulties would be in vain.
According to Dung, in the current difficulties of the national economies, the debt classification methods with fixed criteria, in many cases, cannot truly reflect the enterprises’ real situation.
An enterprise with good business performance may still have the debts to be classified as “bad debts” just because its partners are late in making payment.
Vo Quoc Thang, Chair of Dong Tam JSC, also said that if the Circular No. 02 is applied immediately, a lot of businesses would “die”, because their bad debts may be put into the bad debt groups at higher levels. If so, enterprises would not be able to continue borrowing money from banks to restore their operation.
Thang, on one hand, said the State Bank’s circular No. 02 could be seen as a necessary “shield” to protect commercial banks from bad debts, on the other hand said that the State Bank should consider the current circumstances and “cut banks’ coats according to their cloth.”
If the State Bank insists on the application of the international standards, it would not help enterprises ease difficulties and escape from the current bad situation. If enterprises die because of the lack of capital, the whole economy would suffer then.
Central bank makes compromise
Finally, the State Bank has decided to delay the implementation of the Circular 02, thus making enterprises sigh with relief.
The current bad debt ratio is reportedly at 5-6 percent. And if not applying the Decision No 780, the total bad debt ratio would climb to 15-16 percent of the total outstanding loans, which would threaten to put big difficulties for both businesses and banks.
As for businesses, they would not be able to access bank loans. Meanwhile, banks would have to make higher provisions against risks, which may lead to the sharp falls of the profits.
However, governor of the State Bank — Nguyen Van Binh, has requested commercial banks to classify debts according to the new circular to have a true vision about the current bad debt panorama. A reasonable process for debt classification would be designed for enterprises.