Legalizing bad debt: Laying the legal foundation for credit confidence

Necessary to amend the Law on Credit Institutions

According to the State Bank, the increasing trend of bad debt ratio is putting pressure on the banking sector, especially in the current context when 2025 is identified as the year of acceleration and breakthrough to reach the finish line of the 2021 - 2025 term and the Government has set a target of achieving a growth rate of at least 8%, creating momentum, creating force, creating momentum for our country to grow by double digits in the following years.

The main reasons for the increase in bad debt, as given by the operator, are: The global economy still faces many risks and challenges; the domestic economy still faces many difficulties, is affected by the unpredictable impact of the world situation and the complicated developments of natural disasters.

In addition, the recovery of the stock market, bond market, and real estate market is still slow; the debt trading market has not developed as expected; some contents of Resolution No. 42/2017/QH14 on piloting bad debt settlement of credit institutions have expired and have not been legalized, affecting the debt settlement and recovery of some credit institutions and debt trading and settlement organizations.

“In addition, the management capacity of some credit institutions is still inadequate compared to their scale, growth rate and risk level,” the State Bank stated the reason; at the same time, it affirmed that amending and supplementing a number of articles of the Law on Credit Institutions is really necessary.

Bad debt is on the rise, legal obstacles need to be resolved. Illustrative photo

The purpose of promulgating the Law amending and supplementing a number of articles of the Law on Credit Institutions is clearly stated by the operator:

Firstly, continuing to legalize the provisions in Resolution No. 42/2017/QH14 aims to create a synchronous legal framework on bad debt handling, ensuring compliance with reality to handle the obstacles and difficulties that have been preventing credit institutions, foreign bank branches, debt trading and handling organizations from exercising their legal rights in handling bad debt and collateral of bad debt, indirectly affecting the ability to rotate capital as well as access credit at reasonable costs for people and businesses.

At the same time, policy development must ensure a balance between the legitimate rights of credit institutions, debt trading and settlement organizations and the legitimate rights of the party securing the assets, avoiding creating an asymmetry between the lender and the borrower.

Second, amending and supplementing the authority to decide on special loans of the State Bank in the direction of transferring the decision-making authority from the Prime Minister (for cases of special loans with an interest rate of 0%/year, special loans without collateral) to the State Bank in order to thoroughly decentralize and delegate authority to the State Bank in deciding on special loans; strengthen the role and enhance the responsibility of Government members. This is to implement and meet the requirements of Resolution No. 27-NQ/TW dated November 9, 2022 of the Party Central Committee on continuing to build and perfect the socialist rule-of-law state of Vietnam in the new period. At the same time, this regulation helps reduce intermediaries in the implementation process; thereby, contributing to shortening the processing time to ensure timely implementation, security and safety of the credit institution system.

3 policies are legalized

The viewpoint of drafting the law aims to institutionalize the viewpoints, policies, and guidelines of the Party and the laws of the State on bad debt handling. Ensuring constitutionality, legality, and consistency with relevant legal documents.

Continuing to legalize the provisions of Resolution No. 42/2017/QH14, which have been effective since Resolution No. 42/2017/QH14 took effect, including: Legalizing the provisions on the right to seize secured assets; legalizing the provisions on the seizure of secured assets of the party subject to enforcement; legalizing the provisions on the return of secured assets as evidence in criminal cases and supplementing the provisions on the return of secured assets as exhibits and means of administrative violations. The legalization of these provisions is carried out in the form of the Law amending and supplementing a number of articles of the Law on Credit Institutions.

“The three legalized policies must have clearly defined content and specific impact assessment; at the same time, ensure consistency and uniformity among legal provisions,” the State Bank emphasized.

Notably, the amendment and supplementation of regulations on the authority to decide on special loans with an interest rate of 0%/year and without collateral ensures timely, strict, effective, feasible, secure and safe implementation of the credit institution system, preventing negativity, loss, waste and violations of the law.

Along with that, ensure compliance with international treaties to which Vietnam is a member and Vietnam's agreements and commitments; ensure international integration goals, in line with development trends.

Statistics from the financial report of the first quarter of 2025 show that bad debt at the group of listed banks continues to increase, with a total value exceeding VND 265 trillion, an increase of 18.5% over the same period and more than 16% compared to the end of 2024, equivalent to an increase of about VND 37 trillion. Of which, up to 22/27 banks recorded an increase in bad debt scale compared to the same period last year; meanwhile, up to 14 banks reduced the bad debt coverage ratio.

Thuy Linh

Source: https://congthuong.vn/luat-hoa-no-xau-dat-nen-mong-phap-ly-cho-niem-tin-tin-dung-387693.html