According to the State Bank's report, from August 2017 to the end of January 2023, the entire system of credit institutions has handled VND 416,000 billion of bad debt determined according to Resolution No. 42; an average of about VND 6,300 billion/month, much higher than the average bad debt handling results from 2012 - 2017 before Resolution No. 42 took effect.
Along with the Law on Credit Institutions, on August 15, 2017, the National Assembly issued Resolution No. 42 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).
Although the handling of bad debt according to Resolution 42 of the National Assembly has achieved many positive results, due to the unfavorable developments of the world economic and political situation and the difficulties of the domestic economy, the payment capacity of many enterprises has declined, and the bad debt ratio tends to increase.
According to the State Bank's report, the system-wide bad debt ratio by the end of February 2023 had reached 2.91%, compared to 2% at the end of 2022 and nearly double at the end of 2021.
Difficulty in handling bad debt is a problem specific to banks.
At the workshop "Bad debt settlement in the Draft Law on Credit Institutions (amended)" held on the morning of May 17, experts assessed that Resolution 42 has been very effective and is a breakthrough in bad debt settlement in Vietnam.
However, the application process has also revealed many difficulties, especially in the context of many changes in the economy and the banking system itself.
According to Mr. Nguyen Quoc Hung - General Secretary of the Vietnam Banking Association (VNBA), the current bad debt situation of credit institutions is very worrying, in the context of very difficult businesses and signs of recession in the global economy. Specifically, in the first months of 2023, the domestic economy faced many difficulties due to the impact of the global economy.
Mr. Nguyen Quoc Hung - General Secretary of Vietnam Banks Association (VNBA).
In that context, asset quality is declining, and bad debt control of commercial banks is facing many difficulties. Selling secured assets, especially large debts that need to be sold at market prices, is difficult to do in the context of a frozen real estate market.
In addition, the handling of secured assets and debt collection in practice faces many difficulties; The legal framework for debt handling activities is not yet consistent and unified; Difficulties and obstacles in applying other legal regulations.
Therefore, according to Mr. Hung, before passing the draft laws, the National Assembly should listen to opinions from voters, ministries, socio-political organizations, and businesses, and review related issues to issue amended laws in accordance with reality.
The Supreme People's Court has issued a document guiding lower-level Courts in handling disputes related to the creation of fake disputes by collateral owners to prolong the handling of collateral assets of credit institutions.
The Supreme People's Court shall coordinate with the Supreme People's Procuracy and the Ministry of Public Security to promptly issue detailed guidance on the return of collateral as evidence in criminal cases.
“If bad debt is identified as a problem of the banking industry, it will be very difficult to handle. However, if bad debt is identified as a social problem, a problem that needs attention, then consensus from agencies and organizations is needed to strictly handle and recover debts,” Mr. Hung commented.
In addition, the Government needs to allow state-owned commercial banks to increase their charter capital in the coming years to increase their financial capacity and prevent risks in the context of rising bad debt in the coming time.
The State Bank also needs to carefully study the Banking Laws of countries in the region and around the world so that the provisions of the Law on Credit Institutions (amended) are suitable for the characteristics of Vietnam but must also be close to and consistent with international practices.
At the same time, review a number of draft laws related to banking activities that are currently being revised to avoid overlap and inconsistency with the Law on Credit Institutions (amended).
Raising the flag to handle bad debt through opening the market
According to Mr. Darryl Dong - Senior Country Officer, IFC Vietnam, currently, Vietnamese laws and proposals have not attracted market participants. Currently, the new regulations only allow banks and VAMC to participate in the market, so in essence, debt is just transferred and kicked back and forth between banks without a true market solution.
“This is the time for us to raise the flag of bad debt settlement through market opening. When Vietnam wants to become part of the global financial market, it must have a strong balance sheet, and if it wants to have a source of credit for domestic enterprises, it must open the door to its bad debt trading market,” Mr. Darryl affirmed.
Mr. Darryl Dong - Senior Country Officer, IFC Vietnam.
According to the representative of IFC Vietnam, the best approach at present is to have a separate law for bad debt. This is important to only handle bad debt and focus on and respond quickly to the market.
Mr. Darryl suggested that Vietnam needs foreign investors to come and support bad debt, attracting capital from these investors. We need to let investors participate, the banking industry cannot solve and develop the bad debt trading market alone.
This opening needs to be clarified and clearly regulated in the law. Vietnam needs new regulations that are good enough to attract experts and bad debt investors.
“We should allow non-bank organizations to directly buy and sell bad debts from banks. The parties buying and selling bad debts are very important, the parties buying bad debts need to inherit full responsibility and authority for the bad debts purchased,” said Mr. Darryl.
The expert gave an example that many countries in the region have now opened their markets to handle bad debts. India has a separate law on handling bad debts, so banks do not have to go through complicated litigation processes. The Philippines also has a 3-year cash incentive to support banks in handling bad debts.
In Vietnam, there may not be a need for such a specific tool, but the market needs to be opened. Investors only specialize in investing, so let's open a path for investors to invest in the Vietnamese bad debt market.
"If we allow this, build an effective and fair legal framework, investors will come," Mr. Darryl Dong emphasized .
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