Credit law changes may ease handling of bad debts

Credit law changes may ease handling of bad debts

According to SBV’s data, bad debts of commercial banks as of December 31, 2024 were more than VNĐ733.9 trillion, an increase of 3.4 per cent compared to the end of 2023

The Resolution No. 42/2017/QH14 created conditions for credit institutions to effectively manage bad debts, including the collateral assets of real estate projects. Photo baochinhphu.vn

The State Bank of Việt Nam (SBV) is proposing to supplement a number of provisions of Resolution No 42/2017/QH14 into the draft amended Law on Credit Institutions with an aim to ease the settlement of bad debts.

According to the SBV, Resolution No 42/2017/QH14, which piloted a programme on handling bad debt of credit institutions, which was issued in 2017 and expired at the end of 2024, created conditions for credit institutions to effectively manage bad debts, including the collateral assets of real estate projects.

Therefore, the SBV believes that the pilot programme needs to continue and be included in the law to create a synchronous legal framework for bad debt handling and remove obstacles that are preventing credit institutions and debt trading organisations from handling bad debts and collateral of bad debts. A better settlement will help improve the ability to rotate capital as well as access credit at reasonable costs for people and businesses.

The SBV said the development of the policy must ensure a balance between the legal rights of credit institutions, debt trading and handling organisations, avoiding creating an unfairness between the lender and the borrower.

According to the SBV, provisions related to the handling of collateral of bad debts in the Resolution will be supplemented in the draft amended law.

The Government has recently directed the SBV to urgently prepare documents to legalise Resolution No 42/2017/QH14 and submit it to the National Assembly’s meeting in May 2025.

According to banks, they are facing difficulties in handling bad debts due to the expiry of the Resolution. They expect that the legal corridor for handling bad debt will be completed as currently, the handling of bad debts’ collateral faces difficulties and obstacles as Resolution No 42 has not been legalised, causing great risks for the banking industry.

Banks believe when the legal rights of creditors are guaranteed, the banking industry will increase the ability to have access to bank credit for businesses and people.

“Credit institutions are facing potential bad debt risks because Resolution No 42/2017/QH14 has expired. A lack of a complete legal framework related to restructuring credit institutions and handling bad debts will challenge credit institutions in settling bad debts,” Deputy Chairman of the Vietnam Banks Association Nguyễn Quốc Hùng, said.

The recovery of bad debts is difficult since many borrowers haven’t cooperated with credit institutions to repay their debts. Some even intentionally did not service their debts, which has affected the process of restructuring and handling bad debts, according to Hùng.

According to SBV’s data, bad debts of commercial banks as of December 31, 2024 were more than VNĐ733.9 trillion, an increase of 3.4 per cent compared to the end of 2023.   

Bizhub