On April 2, 2021, the State Bank of Vietnam (“SBV”) issued Circular 03/2021/TT-NHNN amending and supplementing Circular 01/2020/TT-NHNN on credit institutions (“CIs”) and foreign bank branches (“FBBs”) carrying out debt rescheduling, giving exemption from or reduction of loan interest and fee, and maintaining classified loan groups in order to help their clients affected by the COVID-19 pandemic (“Circular 03”). Supported groups of borrowers are individuals, businesses, cooperatives, etc. operating in 21 economic sectors. Circular 03 took effect from May 17, 2021.

1. RESTRUCTURE THE REMAINING DUE DEBTS
According to Circular 03, CIs are allowed to restructure the repayment terms for debts that have incurred repayment obligations in the period between January 23, 2020 and the end of 2021. CIs will also be allowed to restructure the repayment terms for the outstanding balance of the debt when fully meeting the conditions specified in Article 4 of this Circular.

2. EXEMPTION AND REDUCTION OF INTEREST AND FEES
CIs and FBBs shall decide on the exemption or reduction of interest and fees according to their internal regulations for:
(i) outstanding balances of debts arising before June 10, 2020 from credit extension activities (except for buying and investing in corporate bonds) for which the obligations to repay the principal and/or interest have been due within the period between January 23, 2020 and December 31, 2021; and
(ii) borrowers who fail to make payment on time for the principal loan and/or respective interest according to the contract or agreement due to the decrease in revenue and income because of the impact inserted by the COVID-19 pandemic.
The implementation of exemption and reduction of interest and fees for borrowers according to the provisions of Circular 03 shall be implemented until December 31, 2021.

3. REMAINING DEBT GROUP AND DEBT CLASSIFICATION
CIs may keep the group of debts classified according to the SBV’s regulations on debt classification before January 23, 2020 at the latest for the outstanding balance of the debt incurred before January 23, 2020 subject to restructuring the repayment term, exemption and reduction of fee and interest.
Such the outstanding balance of the debt shall include the outstanding balance in which the interest has been rescheduled, exempted, reduced and adjusted for the debt group according to regulations of the SBV within the period between January 23, 2020 and March 29, 2020.
CIs are also allowed to remain the classification of debt groups as stipulated by the SBV on debt classification for the loans with restructured repayment terms, exemption and reduction of fees and interest of debts arising in the period between January 23, 2020 and before June 10, 2020.
From January 1, 2024, based on the SBV’s regulations on debt classification in operations, CIs shall classify all outstanding loans and off-balance sheet commitments of borrowers, including the due debts which are rescheduled for repayment, exemption and reduction of fee and interest and remained in the debt group as prescribed in Circular 03.

4. OFFICIAL PROVISION FOR THE SCHEDULE OF 3 YEARS
Besides the above-mentioned points, Circular 03 stipulates the provision on debt balance structuring within 3 years. Specifically, in the first year, CIs shall deduct the provision of at least 30%, 60% in the following year and 100% in the remaining year. The provision of deducting provision for bad debts gradually in 3 years, especially in 2021, would reduce the allowance of banks. Thereby, helping banks have room for retained revenue to support capital adequacy, and promote lending for business. However, at the end of the period of restructuring, the bank might be required to pay for a large amount of risk provision, whereby profits will be significantly reduced.

Relevant article: INTERVIEW BY VIR ON THE WITHDRAWAL OF FOREIGN BANKS FROM VIETNAM