Experts are concerned about bad debt and bad debt handling

February 3, 2024, Vietnam Economic Magazine/VnEconomy Organize online discussions with topics “Amended Law on Credit Institutions: Effective allocation of resources”.

The Law on Credit Institutions (amended) was passed by the National Assembly on January 18, 2024, effective from July 1, 2024. The new regulations will have a direct and profound impact on activities. business and management of credit institutions. Thereby, resource allocation activities from savings to investment will move towards greater transparency and fairness among economic subjects/sectors.

THE ABSENCE OF REGULATIONS ON THE RIGHT TO SEIZE SECURED ASSETS

With a structure of 15 chapters and 210 articles, the Law on Credit Institutions (amended) 2024 supplements regulations on 4 major groups of issues, which are: (1) providing a roadmap to tighten ownership ratios shares for 1 shareholder and related person at a credit institution; (2) reduce credit limit for 1 customer and a group of customers; (3) risk prevention, early intervention in credit institutions, handling of credit institutions with problems; (4) handling bad debts and collateral for bad debts in accordance with the legalization of Resolution 42/2017/QH14.

Among them, there are two major groups of issues attracting the market’s attention.

One, tightening share ownership ratio for shareholders; Controlling credit granting to related parties of major shareholders in the context of cross-ownership and domination of credit institutions has become one of the prominent issues recently.

Two, handle bad debt. Resolution 42/2017/QH14 on piloting bad debt handling of credit institutions (Resolution 42) officially expires on December 31, 2023. Contrary to the expectations of credit institutions, the key point on the right to seize secured assets in Resolution 42 is no longer maintained as in the spirit of Resolution 42/2017/QH14 dated June 21, 2017 on pilot bad debt handling of credit institutions (Resolution 42).

Paying much attention to the legalization of Resolution 42 in the context of current high economic risks, Lawyer Truong Thanh Duc, Director of ANVI Law Firm, expressed his regret that the Law on Organizations Credit (amended) only included a few articles related to Resolution 42 at the last moment. If these regulations are not included in the new law, there will probably be a complete deadlock with the banking industry.

According to Mr. Duc, the most important point of Resolution 42 is to promote the effectiveness of the past years in handling bad debts in the banking industry.

“However, the most important provision in Resolution 42, which is the right to seize secured assets, which has a huge impact, is very meaningful, and practical, is not accepted in the new law,” Mr. Duc stated.

Because according to Mr. Duc, the law allows accepting a real estate project or any project as collateral which is legal and valid, but the project is not eligible for transfer, making it very difficult to resolve.

Furthermore, this person believes that it is necessary to change the thinking approach that bad debt is not just the banking industry’s problem, it needs to be resolved for the benefit of the bank, but is the bad debt of the whole economy, because the bank believes that Loans serve the economy, ensuring growth goals. For consequences caused by businesses, individuals, and borrowers, the bank will be responsible when it becomes the focal point. If we approach the problem of handling bad debt in the direction of “bad debt belongs to the economy” instead of “bad debt belongs to the banking industry”, certainly the solution mentioned in the law will be different.

Also according to the leader of ANVI Law Firm, although the law is not yet in effect, banks must take into account that in the future it will be very difficult to collect debt, especially when the economy becomes more difficult during the pandemic years. Covid has caused many debts to be postponed, postponed, kept in the same debt group, and have not yet been transferred to debt groups and classified properly.

Lawyer Truong Thanh Duc, Director of ANVI Law Firm - Photo: Viet Dung.
Lawyer Truong Thanh Duc, Director of ANVI Law Firm – Photo: Viet Dung.

“In the near future, the banking industry will face a big challenge and must also take into account the problem that currently the bad debt ratio is still low, but maybe in a year from now, bad debt will be at risk of reaching ten percent. Certainly, the country The meeting must discuss a new law, not excluding amending the Civil Code or promulgating a law on handling bad debts for the economy, in which the main focus is on handling bad debts in the banking industry.”

Sharing this opinion, Dr. Nguyen Quoc Hung believes that when the laws are amended, of course the Civil Code must also be amended, it cannot accept borrowers who have the ability to repay debt but deliberately do not repay the debt, have assets but do not hand them over to the bank. The goods are handled without anyone being able to do anything. Therefore, it must be handled by some means, even criminally.

According to the leader of the Banking Association, there is currently a Law to Protect Consumer Rights, so there must also be a law to protect product suppliers, which in this case are banks. At that time, people and businesses that commit violations and intentionally do not pay their debts will definitely need to have strong handling measures.

WORRY FOR GOOD BUSINESSES

Expressing many thoughts at the discussion, Dr. Nguyen Quoc Hung, Vice President and General Secretary of the Vietnam Banks Association, analyzed that potential bad debt is currently very high, so the possibility of recovery in the near future will be very difficult if there is no more effective solution and If people turn their backs and hesitate to pay their debts, it will be very difficult for credit institutions to collect their debts.

“At that time, credit institutions will have to reconsider and introduce stricter regulatory conditions, making it more difficult for people and businesses to access them,” predicted the leader of the Vietnam Banking Association.

Because banks are required to comply with the law, must do it very strictly, appraise the collateral to ensure it is done thoroughly, it can even take months for the loan to be disbursed instead of a few days like before. . From there, avoid falling into a situation where the borrower intentionally avoids debt and has to file a lawsuit, let the court handle it, seize all types of collateral assets, and the dispute lasts 5-7 years to recover the capital.

When conditions are tightened, good businesses themselves are also affected and suffer the same effects. It should have been easier for businesses and people to access capital, but now banks are stricter because of “worms spoiling the pot”.

Therefore, Mr. Hung believes that it is necessary to name those who deliberately do not pay their debts. If the law cannot be handled, society must condemn them.

Sharing from the perspective of a large institution, Mr. Vu Viet Hung, Deputy Head of the Legal Department, Vietnam Bank for Agriculture and Rural Development (Agribank), said that after more than 6 years of implementing Resolution 42, the bank Customers encounter a number of difficulties and obstacles, but it cannot be denied that Resolution 42 has great significance for the bad debt handling of credit institutions.

Therefore, according to Mr. Hung, handling bad debts and handling collateral depends on many factors. That is, (i) bad debt handling is related to the State’s policies and legal mechanisms; (ii) what is important is the health of the economy and the market in absorbing assets when the bank takes them for disposal; (iii) related to the support of credit institutions with borrowers and guarantors and (iv) the most important factor related to the borrower’s and guarantor’s sense of repayment .

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