Central bank eases credit crunch, boosts growth

Timely action in difficult circumstances

The State Bank of Vietnam (SBV) recently issued two circulars, one (02/2023/TT-NHNN) on the restructuring of loan repayment terms and the other (03/2023/TT-NHNN) on the purchase and sale of corporate bonds by credit institutions and foreign bank branches. The new instructions allow eligible businesses facing difficulties to delay their loan repayment for up to 12 months, through June 2024.

The banking sector has adopted a series of mechanisms, policies to facilitate operations of businesses and customers

Do Bao Ngoc, Deputy General Director of Vietnam Construction Securities Joint Stock Company (CSI) said that these important circulars contribute to supporting the banking system and business sector in handling urgent problems relating to the health of banking operations, the business sector and households. The two circulars will provide additional time for financial restructuring, adjustment of business activities, revenue and profit recovery, and increased financial capacity and debt repayment capability.

The circulars were prompted by economic difficulties which have forced many businesses to reduce operations, which in turn resulted in serious revenue and profit declines, affecting their ability to repay loans.

The second circular is designed to help the corporate bond market by making it easier for local banks and branches of foreign banks to buy back such bonds, thereby spurring growth of the stagnant corporate bond market.

Businesses need self-restructuring

Dr. Can Van Luc, Chief BIDV economist and a member of the National Monetary and Financial Policy Advisory Council said that the two circulars could help reduce the risk of bad debts, increase access to capital for enterprises and other borrowers, support liquidity and ease corporate bond market difficulties. These moves would contribute to easing cash flow and capital flow for businesses and consumers, and maintain production, investment and consumption. “However, as the two circulars only apply for short periods, if enterprises do not foster self-restructuring, the risk of bad debts may increase, and negatively affect borrowers and credit institutions,” Dr. Luc warned.

He also proposed that ministries and localities seriously follow recent directives, resolutions and decrees of the government and the Prime Minister, and monitor, analyze and forecast developments in the international financial and monetary markets to develop appropriate responsive scenarios.

Dr. Luc also recommended actions to stabilize markets, especially the financial and real estate markets in order to strengthen investor and public confidence. Ministries, sectors and localities need to accelerate public investment disbursement, focus on restructuring the economy to attract and allocate resources more effectively, and support outstanding debts of enterprises, contributing to economic recovery and growth.