Debt Structure Entangles Not Only Businesses But Also Banks

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Banks were more burdened with profit worries because they could not record accrued interest from restructuring debts for businesses. The proof of damage caused by Covid-19 not only made it difficult for companies but also banks themselves.

Not accrued interest, banks’ income dropped

In the past two months, banks have restructured debt for over 215,000 businesses with a loan balance of 130 trillion dong. This money was directly supporting businesses’ finance, but the bank’s revenue had plummeted.

Pham Thi Trung Ha, deputy general director of Military Commercial Joint Stock Bank (MB), said that recently the bank had restructured debts for businesses but could not accrue interest collection with structural deficits. This would have a strong impact on the revenue of branches, resulting in lower employee salaries.

In the official dispatch guiding the implementation of debt structure under the Circular No. 01/2020/TT-NHNN issued by the State Bank of Vietnam (SBV), SBV affirmed that, for the receivable interest amount of the outstanding debt kept in group 1 as prescribed in Circular 01, from the date of restructuring, credit institutions, bank branches were not required to record income (accruals), but performed off-balance-sheet monitoring to urge collection; make accounting into income after receipt.

Many commercial banks believed that credit was still the main source of income for banks. While the restructuring debt of many banks was up to trillion dong, if not having record accrued interest, the bank’s next quarter earnings would fall sharply. This was a considerable difficulty that banks looked forward to solving.

Can Van Luc, a banking expert, also said that SBV should consider amending Circular 01 in a way that allowed banks to account accrued interest on debt structure loans (but keeping group 1) right away. After the first time, customers had paid all principal and interest within the restructured term.

Besides, banks were facing several obstacles, such as when debt structuring a loan with multiple repayment periods, banks had to carry out a lot of procedures. Therefore, Luc said that SBV should allow commercial banks to proactively consider restructuring the repayment term for the entire loan, instead of the balance in the time of debt repayment because it was currently not clear when the epidemic would end. This caused banks to restructure a debt many times, especially medium and long-term debt, increasing administrative procedures.

Reconsider a request to prove damage

In addition to accrued interest, proving damage caused by Covid-19 was a hot issue that had been proposed by many businesses recently. There was almost no dialogue with the business for which this issue had been raised.

Nguyen Cong Hung, Chair of Hanoi Taxi Association, said that in order for banks to extend or postpone debts, enterprises must prove the losses by using figures in their financial statements. However, because the current influence had not been clearly shown on the report, waiting for the time to prove it, the business might have closed.

Similarly, Vu Duc Giang, Chair of the Vietnam Textile and Apparel Association, suggested that the effects of Covid-19 were real existing. The credit support policy was for businesses to survive and recover after the epidemic, not for businesses to close and then support. Businesses hoped that SBV would direct commercial banks not to ask enterprises to prove the losses in their accounting reports about the impact of epidemics, which reduced their solvency, Giang said.

According to many enterprises, since the epidemic, the cash flow of enterprises had been stopped. Not only the orders delivered were not paid, but with new orders (importing raw materials or exporting finished products), businesses could not receive or return goods nor receive a refund. The partner in force majeure terms applied the contract. Although these had not been shown in Q1 financial statements, in Q2 financial statements and even Q3′s, this number would be more precise. However, not all businesses were strong enough to survive a few more months if there were no timely response.

This difficulty was not only for businesses but also for banks themselves. Ho Van Tuan, director of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) Transaction Office, assessed that nowadays, the basis for consideration was based on the reduction of revenue in accounting books. However, some businesses in Q1/2020 had not been affected by income, but later, the cash flow decreased due to epidemics. Accordingly, the bank proposed to add reduced cash flow criteria to the assessment of businesses affected by Covid-19.


Category: Finance, Vietnam

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