Vietnam Delays Debt Classification Rules

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May 29 – In order to give banks across Vietnam a greater period of time with which to handle their debts, a major issue in the Vietnamese economy at the moment, Vietnam’s central bank has announced that it will delay rules on the classification of bad debt and the requirements for provisions to deal with that debt.

In January, the State Bank of Vietnam (SBV) ordered lenders to apply a new set of rules that are in line with international standards of bad debt classification, scheduling the official change for June 1, 2013. According to economists, these rules could increase the official level of nonperforming loans, currently reported at 6 percent, to a number somewhere between 10 percent and 20 percent. The new rules, officially listed in the bank’s Circular 2 document, also require the lenders to set aside more money to cushion the risk from credit grants.

Banks and other business entities have called for a delay in the implementation of these rules, pointing out that six months is too short a time to allow local businesses and the banks themselves to adequately prepare themselves for the regulations. They have also raised the current state of the Vietnamese economy as an issue, citing concerns that the new theoretical increase in the nonperforming loan ratio could dampen investor confidence and tighten loans even further, slowing growth. Businesses have already had difficulty accessing new loans in light of their current debt levels – these new regulations may result in even more difficulty for companies looking to borrow.

In response to the situation, the SBV has announced a year-long delay in the rules from June 1, 2013, to June 1, 2014. This effort aims to allow businesses to access loans prior to the implementation of the regulations, help credit growth, lower interest rates, and most importantly, give banks a reasonable amount of time with which to prepare for the changes.

Other moves from the Vietnamese government to address the debt issue include the establishment of a new state-owned asset management company, to be overseen by the SBV and which will work to solve the nonperforming loan problem.

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