Measures applied to prevent COVID-19 from harming banks, businesses

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Hanoi (VNA) – Due to the spreading COVID-19 pandemic, banks have been severely affected. Being aware of its responsibility to the economy, right from the beginning of the pandemic, the State Bank of Vietnam (SBV) has rolled out various measures to respond to the situation, including directing the prevention and control of COVID-19 in the sector, issuing a document guiding credit institutions to evaluate difficulties of businesses.

On March 13, the SBV released Circular 01/2020/TT-NHNN regarding regulations for credit institutions and branches of foreign banks to restructure repayment periods, waive and reduce interest rates and fees, maintain debt classifications.

As part of efforts to assist companies, on March 16, the SBV reduced key interest rates by 0.5-1 percent, which was the sharpest reduction ever.

Removing customers’ concerns of debt classification change

Nguyen Trong Du, Deputy Chief Inspector Banking Supervision Agency, said that customers enjoying debt restructuring must satisfy a number of conditions, including their debts arisen from lending activities, financial leasing; arising obligation on principal and/or loan interest payment between January 23, 2020 and the following day after three months from the date the Prime Minister announces the end of the COVID-19 pandemic; and those who are unable to pay debts and/or interest rates in due time due to declines in revenues and incomes caused by COVID-19 impacts.

According to leaders of the SBV, the bank choose the date of January 23 as the beginning time for principal and/or interest payment as this is the time when businesses and people start to be influenced by COVID-19 on the basis of the time when the first COVID-19 case was discovered.

Meanwhile, the 90 days is designed to ensure customers have recovered after the pandemic.

Regarding the maintenance of debt classification, Du said that the SBV has guided credit institutions to keep debt classification unchanged for debts subjected for the restructuring of payment periods and interest reduction and exemption.

This is a real good news for the customers as if their debt classification is changed, the debt may become bad debt which affects both customers and banks.

Deputy Governor of the SBV Dao Minh Tu said that the issuance of the circular will help ease the difficulties that banks and businesses have to face due to COVID-19 pandemic.

He underlined that the most important thing in the current time is supporting enterprises to access banking credit to combine with their capital for production recovery.

Highly appreciating the SBV’s move, Nghiem Xuan Thanh, Chairman of the Vietcombank said that this is a timely decision to support businesses and people who are affected by COVID-19.

Thanks to the policy businesses will enjoy interest reduction or exemption depending on the financial conditions of credit institutions. On the other hand, for banks, this is a legal corridor for banks to restructure payment period without changing the debt classification, which means no bad debts are arisen, he added.

“The circular also serves as the foundation for banks to continue offering new loans to affected businesses with the capacity to pay their debt in line with the new due date and new borrowing policy,” said Thanh.

To ease difficulties with customers, on March 16, the SBV decided to cut down the refinance rate from 6.0 percent to 5.0 percent per year; while the rediscounting rate was reduced from 4.0 percent to 3.5 percent per year, and the overnight rate in the inter-bank electronic payments and the rate of loans to finance short balances in the clearing transactions between the SBV and the commercial banks is lowered from 7.0 percent to 6.0 percent per annum.

This was the first time in many years that the SBV decided a sharp reduction.

“Pumping” capital

Le Duc Tho, Chairman of the VietinBank said that the conditions of each businesses are different, thus the bank will offer different solutions to help them. However, the data on affected customers may continue to change, therefore, VietinBank will continue to recognise and evaluate the impacts for suitable measures.

Meanwhile, the Bank for Investment and Development of Vietnam (BIDV) has also launched a 20-trillion-VND credit package and nearly 100 million USD for businesses with loans serving their production. At the same time, the banks also reduce lending interest at the minimum rate of 1 percent per year for loans in Vietnamese dong and 0.5 percent per year for USD loans. The scheme will be run until June 30 or when the package is ended.

Production in a business

The Military Bank (MB) has offered a 10-trillion-VND support package for small and medium-sized enterprises with preferential interest rate from 6.5 percent per year for short-term loans and from 8.0 percent per year for middle and long-term ones.

The Tien Phong Bank (TPBank) has also given soft loans with total value of nearly 3 trillion VND.

The capacity of “absorbing”

The credit package valuing at nearly 300 trillion VND given by banks is crucial in the context of difficulties in the market, but many financial experts held that the “absorption” of the capital is not easy.

The reasons include the demand for capital for business expansion is low, excepting for businesses in service sector such as stock and real estate. Production sectors are dependent on foreign materials, import-export activities, tourism, transport have little demand for new loans.

Therefore, Prime Minister Nguyen Xuan Phuc and ministries and sectors have convened many meetings with businesses to seek solutions to the problems. Particularly, the PM met major private firms to listen to their recommendations amidst COVID-19 situation.

The firms have concurred to pursue the double target of preventing the pandemic and developing production at the same time.

The PM has pledged to make stronger reform, creating better investment and business environment with the application of online public services at levels 3 and 4 to promote growth. The Government will also design scenarios to cope with the new situation.

The Ministry of Industry and Trade has also convened an urgent meeting to discuss measures to remove difficulties for businesses, while the SBV has asked credit institutions to balance the capital sources and continue rolling out solutions to expand credit for businesses, especially for pandemic-affected sectors.

Banks have been requested to keep a close eye on the operation of their businesses for timely supporting measures, while credit institutions have been urged to promote administrative reform and shorten the time to approve applications for capital borrowing to enhance the capital access capacity of customers./.