Flawed regulations on handling collateral hinders bad debt settlement

The problem was pointed out by National Assembly (NA) deputies at the event held by Dai bieu Nhan dan (People’s Deputies) newspaper.

The State Bank of Vietnam (SBV) reported that the credit institution system handled VND616.7 trillion (US$27.18 billion) of non-performing loans (NPLs) as of January 2017. The sum of handled bad debts has increased each year, from VND74.68 trillion (US$3.29 billion) in 2012 to VND118.49 trillion (US$5.22 billion) in 2016. Bad debts settled in January 2017 alone were valued at VND5.14 trillion (US$226.52 million).

NPLs settled by credit institutions themselves were VND349.7 trillion (US$15.41 billion), accounting for 56.7% of total bad debts. The remaining 43.3% were sold to other organisations and individuals.

About VND53.24 trillion (US$2.35 billion) of debts collected through the Vietnam Asset Management Company (VAMC) from 2013 to March 31, 2017 were solved.

However, only VND17.1 trillion (US$753.6 million) or 2.8% of the handled NPLs was collected through selling collateral, the SBV said.

Legal regulations did not protect the rights of credit institutions and VAMC and hindered the development of a bad debt market which includes sales and purchases of bad debts guaranteed by land use rights and land assets.

Legal regulations on collateral settlement haven’t ensured creditors’ rights to collateral seizure. Meanwhile, it takes up to two years to solve bad debts and collateral via courts, making expenses account for 29% of collected debt value.

At the workshop, participants said that if credit institutions can’t seize collateral will it substantially influence their debt collection capacity.

Nghiem Xuan Thanh, Chairman of Vietcombank’s board of directors, asked courts to streamline procedures for resolving disputes over collateral. He also called for police assistance in dealing with debtors who intentionally dodge debt repayment obligations.

Nguyen Duc Kien, Vice Chairman of the NA’s Committee for Economic Affairs, said the NA Standing Committee and the economic committee agreed on the need to issue a resolution on bad debt settlement, which is expected to be approved at the NA’s ongoing third session.