Legalizing Resolution 42: One corridor, many opportunities

The National Assembly passed the Law amending and supplementing a number of articles of the Law on Credit Institutions.

From “special resolutions” to the need to establish a sustainable framework

Last weekend, the National Assembly passed the Law amending and supplementing a number of articles of the Law on Credit Institutions. In particular, three important pillars of Resolution 42/2017 / QH14 on piloting the handling of bad debts of credit institutions were inherited, including the right to seize secured assets, the right to seize assets in the execution of judgments and the regulation on the return of assets as evidence in criminal cases.

Resolution 42, issued by the National Assembly in 2017, grants the right to seize secured assets according to contractual agreements, shortens processing times and significantly reduces legal costs. Since taking effect until the end of 2023, this resolution has helped handle nearly VND444,000 billion in bad debt, an impressive figure that clearly reflects practical effectiveness.

Resolution 42 not only facilitates debt settlement, but also plays a role in reshaping market behavior. The rate of customers proactively paying off their debts has increased, and their awareness of cooperation with banks has improved. These reforms help to unblock capital flows, creating conditions for credit growth, especially in the small and medium-sized enterprise sector.

However, as a limited-term pilot legal instrument, Resolution 42 will expire on January 1, 2024. At that time, the revised Law on Credit Institutions 2024 will only inherit part of its content.

The right to seize collateral is no longer valid, forcing banks to return to costly and slow litigation mechanisms, disrupting the process of handling bad debts. Credit institutions face the risk of losing the ability to proactively handle assets, while borrowers begin to show signs of procrastination and avoid debt repayment obligations.

The on-balance sheet bad debt ratio - which has reached 4.3% as of January 2025 - is higher than the safety threshold of 3% set by the banking system, causing the cost of provisioning to increase, directly affecting profits and the ability to reduce lending rates. From a broader perspective, it creates a "bottleneck" effect for the economy when new credit is blocked due to old debts that have not been recovered.

"The Vietnamese government targets at least 8% growth in 2025, in which the banking sector is expected to be an important lever to boost the economy. In the context of Resolution 42 expiring and the bad debt ratio of the whole industry remaining high (4.3% as of January 2025), building an official legal framework to handle bad debt becomes urgent," commented the analysis team from VNDirect Securities.

Opportunities for the willing and capable

Lenders focused on retail lending that handle a lot of small loans or a strategy that focuses more on auto lending will benefit.

The legislation does not give banks more privileges, but creates a fair playing field where those with implementation capacity, strong internal processes and clear credit strategies will have the advantage.

"We believe that legalizing the above regulations of Resolution 42 is an important step in removing difficulties related to the bad debt handling process of the banking industry," SSI Research stated its opinion in its assessment report on the banking industry.

Once the legal framework is established, bad debts will no longer be “backlogged” for a long time, creating an irresponsible borrowing mentality. On the contrary, borrowers will be forced to consider carefully, while banks will have more tools to enforce contracts publicly, with supervision, ensuring fairness and compliance with the law.

According to the analysis team from VNDirect, credit institutions focusing on retail lending, such as VPBank, ACB, TPB, VIB, which have to deal with many small debts or have a strategy of focusing more on the auto lending segment, will benefit. In addition, the law will also support credit institutions receiving compulsory transfers such as VPBank, MB, Vietcombank or HDBank in restructuring weak banks thanks to the ability to proactively recover collateral.

For banks, an important advantage is the preparation steps in the previous stage. During the time Resolution 42 took effect, the retail banking group, especially the top banks in the market such as VPBank, developed centralized debt processing centers and integrated digital technology into collateral management. As a result, when the legal corridor was restored and upgraded through legalization, the units were ready in terms of both people and processes.

Right before Resolution 42 was legalized, in 2024, VPBank established the Debt Collection and Settlement Division (DCD) to meet the increasing demand for risk management. As a result, in the first quarter of 2025, VPBank's collection from risk-resolved debt reached VND856 billion, more than double the same period, contributing significantly to net income from other activities. According to Vietcap Securities, when Resolution 42 is legalized, VPBank's debt collection efficiency in 2025 will be significantly improved, thereby reducing pressure from mobilization costs and interest rate competition.

In short, the legalization will create a stable and long-term effective legal corridor, helping to strengthen the confidence of domestic and foreign investors in the macro management capacity and transparency of Vietnam's financial market. In the context of global integration and competition, this is a big plus for Vietnam on the map of attracting long-term investment capital.

Source: https://baodautu.vn/luat-hoa-nghi-quyet-42-mot-hanh-lang-nhieu-co-hoi-d318569.html