416 trillion VND of bad debt resolved in nearly 6 years
In recent years, the National Assembly has passed many Laws on Credit Institutions (CIs) to create a stable legal environment for the operation of the banking system.
In particular, in August 2017, the National Assembly issued Resolution No. 42/2017/QH14 on piloting the handling of bad debts of credit institutions, creating the necessary legal framework for the handling of bad debts of credit institutions and the Vietnam Asset Management Company (VAMC).
The implementation of Resolution No. 42 has brought about positive changes in bad debt handling and contributed significantly to the results of restructuring the system of credit institutions associated with bad debt handling in the 2016-2020 period.
Accumulated from the time the Resolution took effect (August 15, 2017) to the end of January 2023, the entire system has handled 416 trillion VND of bad debt determined according to Resolution 42. Of which, handling of on-balance sheet bad debt determined according to Resolution 42 reached 211.9 trillion VND (accounting for 50.9% of total bad debt handled).
416 trillion VND of bad debt resolved in nearly 6 years. (Photo: DM)
In addition, the settlement of debts recorded off the balance sheet was VND 122.1 trillion (accounting for 29.3% of the total bad debts settled). The settlement of bad debts sold to VAMC and paid by special bonds was VND 82.1 trillion (accounting for 19.7%).
However, in addition to the achievements, after more than 12 years of implementation with one amendment and supplement in 2017, some provisions in the Law on Credit Institutions are no longer suitable to changes in practice. Resolution 42, after more than 6 years of piloting in practice, also has many difficulties and problems that need to be reviewed for further improvement.
In a recent report sent to the National Assembly, the State Bank of Vietnam (SBV) said that the bad debt ratio of the entire system by the end of February 2023 had reached 2.91%, a sharp increase compared to the 2% level at the end of 2022 and nearly double that at the end of 2021.
The State Bank of Vietnam determined that the total on-balance sheet bad debt, debt sold to VAMC that has not been processed, and debt potentially becoming bad debt of the credit institution system by the end of February 2023 is estimated to account for 5% of total outstanding debt - nearly equivalent to the bad debt ratio the economy must face when Resolution 42 comes into effect.
Mr. Nguyen Quoc Hung, Chairman of the Vietnam Banks Association (VNBA), assessed that the asset quality of commercial banks is declining, and the problem of bad debt control is facing many difficulties.
"Although the on-balance sheet bad debt ratio is controlled at less than 3%. However, the most potential risk is that some debts have in principle become bad debts, but due to debt restructuring, the debt group remains the same, investing in corporate bonds for the purpose of debt restructuring, then bad receivables, accrued interest must be withdrawn...", Mr. Hung said.
Mr. Hoang Hai Vuong, Director of the Northern Region, Eximbank, said one of the biggest difficulties in handling bad debt is the process of seizing collateral.
According to Resolution 42, the right to seize secured assets must be accompanied by the condition that the mortgage file between the customer and the credit institution must have an agreement on the terms of seizure of secured assets, but in reality, up to the time Resolution 42 took effect, most mortgage contracts did not have this provision.
"To do this, credit institutions must negotiate with borrowers to sign an addendum to the adjusted contract. However, for bad debts that have already arisen, convincing customers to repay the loan is difficult, convincing customers to sign an addendum to the contract is even more difficult," Mr. Vuong shared.
Concerns about some new proposals
Faced with this reality, the State Bank has drafted the Law on Credit Institutions (amended) to submit to the National Assembly for comments. Accordingly, an additional chapter has been added to regulate the handling of bad debts and collateral. This proposal has received support from banks and the business community at home and abroad, but there are still some controversial opinions.
In fact, in the system, many banks announced their business results for 2022 and the first quarter of 2023, showing that bad debt increased sharply compared to before, many banks had a bad debt ratio increase of over 2%, some banks had a sudden increase of 4%.
Many banks and businesses expressed concerns about the fact that some contents of Resolution 42 were not included in the draft Law on Credit Institutions, such as: Handling of secured assets being real estate projects, selling bad debts with secured assets being seized, allocating accrued interest, regulations on applying simplified trial procedures, etc.
Representing the World Finance Corporation (IFC), Mr. Darryl Dong, Senior Country Officer, recommended that the amended Law on Credit Institutions should expand the right to seize collateral for bad debt buyers by allowing them to subrogate the rights and obligations of the bad debt seller. Or at least allow the bad debt buyer to authorize the bad debt seller (i.e. credit institution, foreign bank branch or VAMC) to manage the bad debt, collect the debt, and if necessary, seize the collateral or auction it on behalf of the bad debt buyer.
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