Credit View: The Non-extension of Circular 02 and Its Impact on Vietnam's Banking Sector

FiinRatings assesses that the expiration of Circular 02 by the end of 2024 will have a modest impact on the overall credit quality of the banking sector due to supportive policies and a low ratio of restructured loans turning into NPLs.

FiinRatings assesses that the expiration of Circular 02 by the end of 2024 will have a modest impact on the overall credit quality of the banking sector due to supportive policies and a low ratio of restructured loans turning into NPLs.

There are some Key Takeaways from the Commentary: 

• Impact of Circular 02 Expiration assessed as Low: FiinRatings assess that the expiration of Circular 02/2023/TT-NHNN (Circular 02) on December 31, 2024, will have a modest impact on the overall credit quality of the banking sector. The ratio of restructured loans turning into nonperforming loans (NPLs) after Circular 02 expires is expected to remain low, due to:

            (i) the small size of restructured loans under this circular relative to the total credit

            outstanding in the economy;

            (ii) reduced pressure on the formation of new NPLs, and

            (iii) new government debt rescheduling policies aimed at supporting economic

            recovery.

• But Pressure on Credit Costs and Provisioning Buffers: The expiration of Circular 02 will increase credit costs and reduce provisioning buffers at banks. This is due to the requirement to fully provision (100%) for restructured loans, which will take effect on December 31, 2024.
• Ongoing Pressure on Asset Quality: Despite these factors, the sector’s asset quality remains under pressure. NPL growth is expected to continue outpacing credit growth into 2025, with the impact of Circular 02's expiration varying across banks. The significant impact is expected on small-to-medium banks and large private banks with high NPL and restructured loan ratios.

At FiinRatings, we’re closely analyzing how these dynamics affect banking resilience and the broader economy. Dive deeper into our insights in: THIS LINK 

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About FiinRatings 
FiinRatings, a member of FiinGroup and technical partner of S&P Global Ratings, is a licensed credit rating agency under Vietnam’s Ministry of Finance. Our services include credit ratings, green bond verification, and independent evaluations (Second Party Opinion - SPO), catering to issuers, lenders, and investors across diverse sectors in Vietnam. 

FiinRatings’ SPO services provide independent evaluations of financial instruments, policy frameworks, or transactions aligned with principles set by global institutions like the International Capital Market Association (ICMA) and the Climate Bonds Initiative (CBI). Notably, FiinRatings is the first approved verifier for CBI Climate Bond Standards in Vietnam. 

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