April 24, 2023
By Nguyen Tuan Minh
#Vietnamlaw #capitalmarkets #bondmarkets #bankinglaw
On the same Sunday, April 23, 2023, the State Bank of Vietnam (“NHNN”) issued two consecutive Circulars No. 02/2023/TT-NHNN and 03/2023/TT-NHNN and both of these Circulars took effect on April 24, 2023 showing us how hot and urgent the object matters are.
• This Circular creates a legal framework for credit institutions (“Credit institutions”) to be allowed to restructure the repayment term for the outstanding balance of principal and/or interest of the debt and to keep the debt classes unchanged for those debts of customers who have difficulties in production and business. It is very fortunate that, based on our lawyer’s recommendation, the Government made a timely resolution on April 23, 2023 and the State Bank of Vietnam then included in this Circular the additional scope of (compared to the last draft) application of this Circular to debts of customers who have difficulty repaying loans for living and consumption needs.
• According to Circular 02/2023, balance of loans or finance lease debts arise before April 24, 2023 and becoming due (either or both principal and interest) during the period from April 24, 2023 until the end of June 30, 2024 will be allowed to be rescheduled and kept the same debt class if such restructuring is made prior to the due date or otherwise not later than 10 days from the due date prescribed under the loan or financial leasing contract. The term of debt rescheduling (or debt extension) is based on the credit institution’s assessment of the customer’s difficulty level and does not exceed 12 months from the original due date of the restructured outstanding balance and in any case will end at the end of June 30, 2024.
• For debts that are restructured and remain in class 1, credit institutions are not allowed to record accrued interest income from the date of restructuring and only record income when it is collected.
• Besides, credit institutions that restructure debts for customers according to Circular 02/2023 still have to make specific provisions for the entire amounts of restructured debt balances according to current debt classification (while such debt class is kept unchanged) in compliance with the current regulations on debt rescheduling. The Credit institutions also have to determine the specific provisions for the entire amounts of restructured debt balances in compliance with the current regulations on debt scheduling on the basis as if the class should have been changed. The difference between these two specific provisionamountss, if positive, the credit institution must then make provisions 50% of that amount before December 31, 2023 and the remaining 50% before December 31, 2024 (instead of as in the initial draft, the credit institution must fully make provisions 100% of this provision difference). This is a more favourable option for credit institutions to help credit institutions not have to accrue interest on the balance of loans that are restructured and kept in class 1 and then have to written it off when customers cannot actually pay debts to continue jumping into debt of worst classes in 3 month after that and at the same time help credit institutions defer booking the expenses of making provisions for problem debts so that they can save such resources for businesses.
• For customers with difficulties, Circular 02/2023 really allows their pressure of debt repayment relieved for some time and the situation of cross defaults in other credit institutions if the customers may have other debts with them due to changes to worsening credit classes published through CIC avoided. This also helps the other credit institutions a lot.
• TT03/2023 essentially allows until December 31, 2023 credit institutions to buy back unlisted corporate bonds or those are not registered to be traded on Upcom that credit institutions earlier sold (Circular 16/2022 banned this and now Circular 03/2022 defers enforcing this ban)
• The SBV hopes this will help increase liquidity in the corporate bond markets because credit institutions are usually the biggest market makers/investors in this market.
• Although Circular 03/2023 has finally removed all other strict conditions and only 3 main conditions remain for a credit institution to buy back corporate bonds it earlier sold, including: (i) meeting the conditions equivalent to such applicable to its purchase of these bonds provided by the Circular, (ii) the enterprise can resell the bonds to the credit institution if it has fully paid for those bonds it earlier purchased and (iii) the transaction bond issuer must currently hold highest credit rating by the credit institution which rating is made in accordance with the internal rating regulations of the credit institution.
In fact, the solution of Circular 03/2023 may not be effective for the bond market rescue purpose because of the third condition. In the current market conditions, the bonds that have been rated by credit institutions with the highest grade, usually investors who hold them will not resell, the type of bonds they want to resell is usually the type that investors themselves feel are at risk. In this risky markets, the lower grade bonds offered for sale by businesses may be difficult to find big buyers, not mentioning they do not meet the conditions for sale to big buyers like credit institutions.
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