Hanoi (VNS/VNA) - Banks will have to set aside money for potentiallyunrecoverable COVID-19 affected loans from this year, according to anamended circular drafted by the State Bank of Vietnam (SBV).

Last year, thecentral bank issued Circular 01/2020/TT-NHNN, allowing banks to avoid makingthe provisions in 2020 to support banks and borrowers affected by the pandemic.

According toSBV Deputy Governor Dao Minh Tu, the amended circular, which is expectedto be issued this month, will support businesses and people with loans,creating conditions for businesses to recover quickly.

However, Tusaid, the circular would also regulate provisions on COVID-19 loans to ensurethe safety of credit institutions and the national financial system. Theprovision ratio will fit the financial strength of credit institutions.

The ratio ofthe provisions is drafted to gradually increase, from 30 percent of COVID-19affected loans by the end of 2021 to 60 percent by the end of 2022 and 100 percentby the end of 2023.

According to CanVan Luc, the profit growth of banks this year might be only about 10 percentagainst 20-25 percent in recent years mainly due to the requirement to makeprovisions for COVID-19 affected loans.

Banksrestructured loans worth about 350 trillion VND (15.2 billion USD) for COVID-19affected borrowers by the end of 2020, Luc said, adding if half of the loansbecame bad loans, the bad debt ratio of the banking system would increase tomore than 3 percent by the end of 2021.

To control therisk of bad loans, banking expert Nguyen Tri Hieu recommended besidesactively recovering bad loans, banks must set aside provisions for bad loansand risky loans.

Some bankshave already increased provisions for their risky loans.

According toNghiem Xuan Thanh, Chairman of the State-owned Vietcombank’s Board ofDirectors, Vietcombank’s bad debt ratio is at 0.61 percent of total outstandingloans, the lowest level among credit institutions and also the lowest in thehistory of the bank.

The bad debtratio of State-owned VietinBank had also declined from 1.2 percent in 2019 tobelow 1 percent in 2020, Tran Minh Binh, General Director of VietinBank,said.

Thanks to thebad debt decrease, the bank increased its provisions from 120 percent to 130 percentof loans. In 2021, VietinBank aimed to keep the bad debt ratio below 2 percentwhile credit was set to grow at 8-11 percent and profit at 10-20 percent, Bìnhsaid.

Leaders ofprivate commercial banks also said the bad debt situation was being improved. NguyenDinh Tung, General Director of OCB, said bad debt tended to decrease comparedto the mid-2020 period. Enterprises were recovering quite quickly with thepandemic controlled.

It waspositive as enterprises were recovering earlier than expected thanks to thecentral bank’s supporting policies for debt restructuring, helping themovercome the crisis./.