On 7 September 2021, State Bank approved the Circular 14/2021/TT-NHNN (“Circular 14”) which adjust the Circular No. 01/2020/TT-NHNN dated March 13, 2020 of the Governor of the State Bank of Vietnam stipulating that credit institutions and foreign bank branches restructure the repayment term, exempt or reduce interest and fees, maintaining the debt group to support customers affected by the Covid-19 pandemic.
According to Article 4 of this Circular, the credit institutions, branches of foreign banks can reschedule time to pay off debt and its interest in borrowers when meeting the conditions as below:
- The debt is a loan or finance lease that is granted before 1 August 2021
- The principal and/or interest occur during the period from 23 January 2020 to 30 June 2022;
- The outstanding debt may be rescheduled in one of the following cases:
- The outstanding debt is undue or has been overdue for not more than 10 days according to the concluded agreement;
- The outstanding debt belongs to a debt that occurs before 23 January 2020 and becomes overdue during the period from 23 January 2020 to 29 March 2020;
- The outstanding debt belongs to a debt that occurs during the period from 23 January 2020 to before 10 June 2020 and becomes overdue before 17 May 2021;
- The outstanding debt belongs to a debt that occurs during the period from 10 June 2020 to before 1 August 2021 and becomes overdue during the period from 17 July 2021 to before 7 September 2021.
The credit institutions can give decisions in accordance with its internal policies about exempting, reducing interest and fee of the outstanding debts of the debt that arise before 01/8/2021 from providing credit whose principal and/or interest are due during the period from 23 January 2020 to 30 June 2022 but the borrowers are not capable of fully paying the principal and/or interest by the deadline specified in the original agreement due to decrease in revenue or income caused by Covid-19.
The reason behind the extension of the debt restructuring period for another 6 months is basing on the Government’s vaccination plan and disease control plan.
Although the State Bank did not require the credit institutions and foreign bank branches to decrease the loan interest in general, it permits enterprises to delay making a payment for loan under agreed loan contracts. These leads to remove immediately difficulties for borrowers whose cash flow is frozen and have no revenue to repay loans to credit institutions. Companies are not only released from the pressure paying debt, but also having more resources and time to resume the business activities after lockdown.
Furthermore, the regulations reduce temporarily the stress on overdue debt, risk provisioning costs, and ensuring system safety on the credit institutions’ shoulder. Besides, the credit institutions and branches of foreign banks should increase the bad debt coverage ratio from now on to prepare for the scenario when this Circular 14 terminates on 30 June 2022.
