Which bank is most benefiting from Circular 03 on appropriation allocation?

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VNDirect Securities has just released a report on the banking industry, assessing the impact of Circular 03 on listed banks, and stated that this amendment will have many positive effects in the short and long term.

Securities companies believe that restructuring debt portfolios of banks may increase slightly in 2021 due to the conditions to allow restructuring debts to be expanded. However, the level of impact on the yield of banks’ assets is not significant.

Since the end of 2020, many commercial banks have stopped expanding their restructured debt portfolio due to concerns about the timing of the previous Circular 01 (only for the restructuring of debts incurable debt repayment obligations between January 23, 2020 and the date immediately after 3 months when the Prime Minister announces the end of the epidemic). According to data of the State Bank of Vietnam (SBV) by mid-November 2020, credit institutions have restructured the repayment term for over VND 341,800 billion in outstanding debts, not much increased compared to the vnd 321,000 billion that was listed in mid-September.


Secondly, VNDirect believes that the addition of regulations on allocation of bad debt provisions gradually over 3 years will reduce the cost of provisions for banks, especially in 2021. The new Circular 01 stipulates that credit institutions will have to categorise and set up provisions according to the restructured time limit, meaning credit institutions will have to make the usual set-up when the restructured debts expire. This creates a great cost-of-provision pressure for commercial banks with large restructured debt balances (BIDV, VPBank) at the time when the debts are expired to be extended to pay interest debts (specifically in 2021 according to the roadmap).

By reducing the roadmap for setting up reserves, ctck expects the reserve costs of banks will not increase too sharply in 2021, thereby helping commercial banks have room for retained income to support capital safety, and promote lending for production business.

VNDirect believes that BIDV, VPBank, HDBank are the banks that benefit most from Circular 03. Followed by a number of units such as VietinBank, ACB, MB, Techcombank.

On the business side, the addition of additional conditions to allow the restructuring of debts will support production loans, when loans are classified as structured will be extended in terms of repayment time, alleering financial cost pressures during the production recovery period after the Covid-19 epidemic.

Previously, the State Bank of Vietnam issued Circular 03 on debt structure, debt rescheduling, and regulations on setting up provisions for restructuring debts of credit institutions. Circular takes effect from May 17.

In the new circular, the State Bank of Vietnam added more conditions to allow credit institutions and foreign bank branches to restructure their remaining due debts. This agency allows credit institutions to reschedule their repayment term with debts incurred from January 23, 2020, to the end of 2021.


Previously, Circular 01/2020 only allowed restructuring with debts incurable obligations from 23/01/2020 to 3 months from the date the Prime Minister announced the end of the epidemic. This makes it difficult for credit institutions to identify debts eligible for restructuring, as well as monitoring and accounting in accounting when the date of sampling may not coincide with the bank’s accounting period.

In addition, the State Bank still maintains the regulation that the time to restructure the repayment term does not exceed 12 months from the date the credit institution implements the restructuring. The debt payment rescheduling will be implemented until December 31, 2021.

For the classification of debts, Circular 03 stipulates that the restructured debt balance will be retained in the group of classified debts, not the principle of classification into the group of debts with a higher level of risk as prescribed.

To avoid a “profit” shock occurring at the end of the restructuring period, banks will have to initiate provisioning based on the nature of the liabilities. According to the revised content, the amount of specific provisions to be additionally made is the difference between the specific provision to be set up for the entire customer loan balance if there is no restructuring and the amount set aside on the outstanding balance. The client’s structure is affected by the Covid-19 pandemic. This rate of provisioning will have to reach at least 30% of the specific provision to be additionally made, by December 31, 2021, and increase to at least 60% and 100% at the end of 2022 and 2023, respectively.

VNDirect believes that the issuance of Circular 03 will help businesses more favorable in business recovery as well as reduce the setting pressure of commercial banks.

Source: ndh.vn – Translated by fintel.vn