Vietnamese banks under threat from $1.25b debt restructuring plan

Loss-absorption buffers will take a hit.

Vietnamese regulators have unveiled a debt restructuring plan for struggling conglomerate Hoang Anh Gia Lai Joint Stock Company (HAGL), whose obligations totaled to $1.25 billion in the first quarter. According to a report by Moody's, a restructuring of HAGL's debt will lead to lower loss-absorption buffers for Vietnames lenders exposed to the shaky agriculture and real estate company.

HAGL's large creditors include Bank for Investment and Development of Vietnam (BIDV), Vietnam Prosperity Commercial Bank (VPB), Saigon-Hanoi Commercial Bank (SHB), Saigon Thuong Tin Commercial Bank (Sacombank) and Military Commercial Bank (MB).

Vietnamese media report that the structuring plan includes a decrease in interest rates, extension of debt maturities and regulatory forbearance allowing banks not to downgrade their HAGL exposures or move the exposures into higher-risk categories.

The latter, if implemented, would allow the banks to avoid having to create additional loan-loss provisions, Moody's said.

"The restructuring plan for HAGL highlights the authorities’ willingness to continue the practice of regulatory forbearance for banks based on loan classifications that do not reflect economic reality. Because of likely regulatory forbearance, additional credit costs associated with HAGL exposure would be minimal. However, lower interest rates on HAGL’s borrowings will further hurt banks’ low profitability,” Moody’s said.