Supplement and expand the conditions for debt restructuringAccording to the recently announced Circular 03, the State Bank has added more conditions to allow credit institutions and foreign bank branches to restructure their remaining due debts. Specifically, the State Bank allows credit institutions to reschedule the repayment term with debts arising from debt repayment obligations from January 23, 2020 to the end of 2021. Previously, Circular 01/2020 only allowed restructuring with debts incurable obligations from 23/01/2020 to 03 months from the date the Prime Minister announced the end of the epidemic. This makes it difficult for credit institutions to identify debts eligible for restructuring, as well as monitoring and accounting in accounting when the date of sampling may not coincide with the bank’s accounting period.
In addition, the State Bank still maintains the regulation that the time to restructure the repayment term does not exceed 12 months from the date the credit institution implements the restructuring. The debt payment rescheduling will be implemented until December 31, 2021.
Allocate the provisioning roadmap
For the classification of debts, Circular 03 stipulates that the restructured debt balance will be retained in the group of classified debts, not the principle of classification into the group of debts with a higher level of risk as prescribed. However, in order to avoid a “profit” shock that takes place at the end of the restructuring period, banks will have to start setting up provisions based on the nature of those debts.
Specifically, according to the revised content, the amount of specific provisions to be additionally made is the difference between the specific provision to be set up for the entire customer loan balance if there is no restructuring and the above set-up amount. The customer structure’s outstanding balance is affected by Covid-19 translation. This rate of provisioning will have to reach at least 30% of the specific provision to be additionally made, by December 31, 2021, and increase to at least 60% and 100% at the end of 2022 and 2023, respectively.
Reduce the setting pressure of commercial banks
VNDIRECT believes that the issuance of Circular 03 will help businesses more favorable in business recovery as well as reduce the pressure on the provision of commercial banks.
For enterprises, the addition of conditions to allow restructuring of debts will support enterprises to borrow production capital, when loans are classified as structured will be extended in terms of repayment time, alleering financial cost pressure on businesses during the production recovery period after covid-19. For commercial banks, this amendment will have many positive effects in the short and long term.
Firstly, VNDIRECT believes that the restructured debt portfolio of banks may increase slightly in 2021 due to the conditions that allow restructured debts to be expanded. However, the impact on asset yields of banks is negligible.
In fact, since the end of 2020, many commercial banks have stopped expanding their restructured debt portfolio due to concerns about the timing of the previous Circular 01 (only for the restructuring of debts incurable debt repayment obligations between January 23, 2020 and the date immediately after 3 months when the Prime Minister announces the end of the epidemic). Specifically, according to data of the State Bank until mid-November 2020, credit institutions have restructured the repayment term for over VND 341,800 billion in outstanding debts, not much increased compared to the vnd 321,000 billion estimated in mid-September.
Second, VNDIRECT believes that the addition of regulations on the allocation of provisioning for bad debts gradually over 3 years will reduce the cost of provisions for banks, especially in 2021. Circular 01 currently regulates organizations. Credit will have to classify and set up provisions over the rescheduled term, which means that credit institutions will have to make normal provisioning when the restructured liabilities expire.
This creates enormous cost-of-provision pressure for commercial banks with large restructured debt balances (BID, VPB) at a time when debts are expired to be extended to pay interest (specifically in 2021 according to the roadmap). However, with the extension of the roadmap for setting up reserves, VNDIRECT expects that the reserve costs of banks will not increase too sharply in 2021, thereby helping commercial banks have room for retained income to support capital safety and promote lending for production business.
Source: enternews.vn – Translated by fintel.vn