Good news for banks with bad debts that cannot be handled

Speaking at a recent conference, Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu said that the Prime Minister has agreed with the SBV's proposal to draft a law amending and supplementing a number of articles of the Law on Credit Institutions in 2024.

In which, legalizing some contents of Resolution No. 42/2014/QH14 (Resolution 42) dated June 21, 2017 of the National Assembly on piloting bad debt settlement of credit institutions.

Resolution 42, which was extended until December 31, 2023, has now expired. One of the important points of the resolution is that it allows credit institutions to seize collateral to handle bad debts.

Resolution 42 "version 2.0" was upgraded to a higher level after being legalized by amending and supplementing the Law on Credit Institutions 2024 in the direction of empowering banks to seize, handle, and auction secured assets,... creating conditions for banks to handle secured assets that have been resolved in court and are under execution.

“The Government is expected to submit the matter to the National Assembly for consideration at the National Assembly’s regular session in May. If it is not in time, it will submit it to the National Assembly at the session in September. This is good news for commercial banks that have bad debts that cannot be resolved,” said Deputy Governor Dao Minh Tu.

As the drafting agency, the State Bank submitted the draft to the Government in early March.

According to this agency, continuing to legalize the provisions in Resolution 42 aims to create a synchronous legal framework for bad debt handling, ensuring compliance with reality, and handling obstacles and difficulties that have been preventing credit institutions, debt trading and handling organizations from exercising their legal rights in handling bad debt and collateral assets of bad debt, indirectly affecting the ability to rotate capital as well as access credit at reasonable costs for people and businesses.

The current problem in handling secured assets is that the person holding the assets does not hand over the assets, the organization buying and selling, handling the debt, and the credit institution must file a lawsuit and wait for the enforcement of the court's judgment or decision according to Article 301 of the 2015 Civil Code.

Along with that, the current law only recognizes the right to request the court to resolve the case where the person holding the property does not hand over the property for the secured party to handle the secured property, without directly regulating the secured party's right to seize the secured property.

"The lack of this regulation has caused great difficulties for the right to handle secured assets of debt trading and handling organizations and credit institutions because debt trading and handling organizations as well as credit institutions cannot carry out the seizure if the asset owners do not agree, deliberately oppose, or even create other disputes related to the secured assets to prolong the time to handle the secured assets," the State Bank analyzed.

Furthermore, credit institutions and debt trading and settlement organizations continue to face difficulties because secured assets can be seized to enforce judgments, including to fulfill obligations that are not subject to enforcement of judgments or decisions on alimony or compensation for damage to life or health; this greatly affects the creditors' rights of credit institutions and debt trading and settlement organizations.

The draft proposes that after completing the procedure for determining evidence and finding that it does not affect the handling of the case, the prosecuting agency is responsible for returning the evidence in the criminal case which is the collateral of the bad debt at the request of the secured party, which is a credit institution or an organization that buys, sells, and handles bad debt.

By the end of 2024, the bad debt ratio of listed banks will decrease by 1% compared to the same period in 2023, reaching 1.92%, down 0.31% compared to the third quarter of 2024.

However, bad debt of 27 listed banks is still about 0.42% higher than before 2020.