Hanoi (VNS/VNA) - The expiration of Circular 14 ondebt rescheduling and interest rates reduction in late June is likely to exposebanks to higher levels of non-performing loans (NPLs), yet insiders say itis unnecessary to extend it.

Nguyen Quoc Hung, general secretary of the Vietnam Banks Association,said the expiration came at the right time because it laid bare potentialNPLs, giving banks an insight into their situation. Accordingly, there is noneed to keep the circular any longer.

“Rescheduled loans stay at around 300 trillion VND (13 billion USD) onpaper but could be far higher in reality. The expiration would help banksrealise their situation,” he said. 

Tran Dang Phi, deputy chief inspector of the Banking Supervision Agency underthe State Bank of Vietnam (SBV), claimed that the circular not being extendedwould cause no impact on the banking system. He said SBV has ruled out thepossibility of extending it.

An economist asserted that the low levels of NPLs during the pandemic could beattributed to Circular 14 and Decree 42 on NPL settlements. The formerprevented new NPLs from emerging on bank balance sheets, whereas thelatter gave banks the tools to handle them.

"Recently, the National Assembly has agreed to extend the decree but notthe circular. This move means that the legislative body wants banksto handle more NPLs rather than just cover their balance sheets with nicefigures," the economist said.

As Circular 14, issued to replace its previous version Circular 01, was nolonger in effect, many banks had decided to boost their provisions forcredit losses to offset the risk of higher NPLs in the future.

Tran Binh Minh, chairman of VietinBank, revealed that his bank had a totalon-balance-sheet NPLs of 15.3 trillion VND by late Q1, equivalent to 1.25%of its total credits.
The bank has planned to set its provisions for credit losses at 15trillion VND to increase its NPLs coverage. Currently, its coverage ratiosare at 197%.

Vietcombank is taking the lead in terms of NPLs coverage as its ratios reach420%. Other risk-averse banks include BIDV with 235%, MBBank with 250% and ACBwith 198%.

A recent survey on banks conducted by the Vietnam Report showed that 45.5% ofrespondents have plans to raise their provisions for credit losses, 36.4% keepthem unchanged and just 18.2% will lower them.

Securities firm VNDirect said banks were facing many difficulties arisingfrom inflationary pressure, lower net interest margins and the expirationof the circular. 

However, the firm asserted that banks would easily overcome those difficultiesthanks to their financial buffers against risks and their close watch onreal estate loans.

Financial expert Huynh Buu Son forecast that the risk of NPLs would go up in2022 due to the expiration of the circular, but it should not be a matter ofconcern as the economy is recovering and firms' ability to pay debts isimproving.

By late April, total accumulated scheduled loans hit 695 trillion VND since theintroduction of the Circular 01, and 1.1 million borrowersbenefited from the favourable policies./.