Freezing debt
According to the State Bank of Vietnam, as of 31 May 2021, credit institutions have restructured repayment terms for 257,602 customers with outstanding loans of VND 336,663 bn; exempted, reduced and lowered interest rates for 676,690 customers with outstanding loans of VND 1,277,831 bn; and issued new loans at lower interest rates than before the pandemic with sales from 23 January 2020, to date, reaching about VND 3,500,000 bn for 480,839 customers. However, the prolonged pandemic calls for the need for debt restructuring and interest rate reduction, much more increasingly and urgently.
Mr. Nguyen Ngoc Hoa, Vice Chairman of the Ho Chi Minh City Union of Business Associations (HUBA), has proposed to the leaders of Ho Chi Minh City to work with banks to freeze debts, by rescheduling and postponing, and also reviewing the interest rate policy because during the isolation period, businesses have had to pay principal. Due to the implementation of social distancing to prevent the pandemic from spreading, businesses are facing a lot of difficulties.
Mr. Pham Van Viet, Vice Chairman of the Ho Chi Minh City Textile and Garment-Embroidery Association, has suggested that for enterprises that were restructured last year and could not pay by default this year, banks must transfer their overdue debts, and change debt groups. Mr. Viet also shared that in 2020, the banking industry announced a 1% to 1.5% per year reduction in loan interest rates, and currently agreeing to reduce 1% per year, but this is not the actual reality. This reduction is not convincing enough to help businesses overcome difficulties. Therefore, the State Bank of Vietnam needs to have a timely document to help businesses reduce interest rates by 1% per year as announced.
Banks face limitation
It was seen that the banking industry has been involved very early in supporting businesses since the outbreak of the Covid-19 pandemic. Specifically, in 2020, the State Bank of Vietnam issued Circular 01 on the rescheduling of debt repayment, exemption, and reduction of interest and fees, maintaining the same debt group for customers affected by the Covid-19 pandemic, along with implementing many solutions to reduce lending interest rates. However, the banks also encountered some difficulties in implementation.
Mr. Phan Dinh Tue, Deputy General Director of Sacombank, said that when businesses have difficulties, banks also face difficulties. Recently, in response to a Government request, the State Bank of Vietnam took the lead, and the Vietnam Banks Association met with 16 major banks to create a consensus to reduce interest rates. However, the degree of interest rate reduction depends on the capability and financial capacity of each bank. At the same time, in support, banks pay attention to difficult subjects first, because the resources of commercial banks are limited.
Regarding the issue of debt structuring, Circular 03/2021 amends Circular 01/2020 in the context that the pandemic has not been as complicated and affected as it is now. So at this point, there are issues to consider. For enterprises whose debt has been restructured due to the impact of the Covid-19 pandemic, banks will continue to lend if businesses have needs, and loans with short-term credit limits will be paid to banks. However, according to regulations, outstanding loans arising from bank loans before 10 June 2020 will be restructured according to Circular 03/2021. While the current pandemic has affected businesses with outstanding loans at banks after 10 June 2020, this group also needs debt restructuring in the immediate future.
However, in the current pandemic context, surely after 31 December 2021, the debts incurred to pay both principal and interest will also continue to face difficulties. Due to this situation, enterprises still face long-term difficulties, and debt obligations due in early 2022 may also have to be restructured and the restructuring period must be longer. In order to repay current and structural debt, cash flow revenue must be superior, to be able to both pay off the due debt and to be able to pre-pay the structural debt.
Enterprises need support
Under the extremely difficult conditions brought about by the ongoing Covid-19 pandemic, businesses need immense support. Asso. Prof. Dr. Tran Hoang Ngan, Director of the Ho Chi Minh City Development Research Institute, said that support for businesses must be divided into three categories of businesses types, so as to have effective results as not all businesses can be placed for the same solutions. Enterprises that have ceased operations or dissolved via bankruptcy have own specific solutions, and enterprises that are currently suspending operations have other solutions.
On the other hand, operating enterprises must receive more ongoing support till the end. The reason is because these businesses have accepted operating even in loss-making conditions, and we must support their many expenses and sacrifices which they struggle to maintain. Enterprises now need to expand vaccination drives for workers and also pour more money to ensure the production is not disrupted. Financial support resources for businesses must include support packages on tax and fee reduction and capital to operate on a daily basis.
Regarding credit issues, the State Bank of Vietnam must have specific flexible policies to reduce and freeze debts appropriately in order to have money left for businesses to have much more working liquidity. These are necessary measures that need to be proposed to the Government for timely support because the Government is currently drafting documents to issue and implement Resolution No. 30/2021/QH15 dated 28 July 2021, which includes integrating content related to Covid-19 pandemic control and support to businesses.
Another point of view in supporting businesses that has been raised a lot in recent times is the need for a credit support package for the business community. For example, the suggestion by Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, is the proposal of an interest rate support package for the most vulnerable groups of businesses, especially small and medium enterprises.
The size of the support package is about VND 50,000 bn to VND 60,000 bn. The interest rate support term is only one year, and it should be applied with a focus, not on a mass scale, for a number of fields, industries, and localities. Assuming the interest rate for bank loans is about 7% to 8% per year, enterprises only have to pay 3% to 4% per year. Thus, the Government will have to spend about VND 3,000 bn from the budget to support it.
