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SBV delays classification of debt to aid companies

Update: May, 30/2013 - 09:32

HA NOI (VNS)— The State Bank of Viet Nam (SBV) announced on Monday that it would delay the application of a circular classifying and making provisions for bad debts by one year, until June 2014.

The delay is intended to help enterprises access credit, boost lending and reduce lending interest rates in the current context of economic hardship.

Additionally, it gives banks more time to prepare for the application of the regulation. The circular covers asset classification, risk provisioning and unitisation of provisioning by credit institutions and foreign bank branches. It aims to make the banking system safer and gradually comply with international rules.

However, many experts and business community recommended that the regulation be delayed, as it would turn many existing extended loans into non-performing loans (NPLs), meaning businesses would have trouble accessing loans.

If the circular took effect, roughly VND272 trillion (US$12.9 billion) worth of loans at credit institutions would become NPLs.

Currently, NPLs account for 5 to 6 per cent of outstanding loans. With the circular in effect, they would account for 15-16 per cent of outstanding loans – causing difficulties for both enterprises and credit institutions.

The new regulation also asks banks to make more risk provisions for credit grants, so banks fear their profits would be eaten up as they were forced to raise their lending interest rates to offset the losses.

Businesses claimed that if the central bank insisted in applying the regulation, it would cause their production to stagnate, bad debts to rise and credit to be even slower. — VNS


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