The State Bank of Vietnam (SBV) has just submitted a proposal to develop a law amending and supplementing a number of articles of the Law on Credit Institutions (CIs), in which it proposed to legalize the regulation that banks are given priority to confiscate collateral. This is one of the solutions to remove difficulties in handling bad debts after Resolution 42/2017/QH14 expires.
Banks face difficulties when collateral assets are seized
According to the Asset Management Company of Credit Institutions of Vietnam (VAMC), from December 31, 2023, when Resolution 42/2017/QH14 expires, regulations on the right to confiscate collateral will no longer be effective. This makes it difficult for banks and debt handling organizations to recover mortgaged assets when customers do not cooperate.
Currently, when a person has to serve a sentence and does not have other assets to serve, mortgaged assets at banks can be seized to fulfill other obligations (such as child support, compensation for damages). Previously, Resolution 42 allowed banks to prioritize handling mortgaged assets to recover debts, but now this regulation has not been legalized, causing banks to risk losing the right to collect assets to the enforcement agency.
According to VAMC, when banks lose the right to confiscate collateral, handling bad debts becomes even more difficult, taking a lot of time and litigation costs. This causes the bank's capital flow to stagnate, affecting the ability to provide new loans, thereby causing difficulties for businesses and people in accessing capital.
Proposal to legalize to protect banking rights
From the above reality, the SBV proposes to add regulations on the right to confiscate guaranteed assets to the amended Law on Credit institutions, with the main contents:
Assets guaranteed by bad debts will not be seized to fulfill other obligations, except in cases related to food or compensation for damage to life and health.
Only if the bank agrees in writing can the deposit be deposited.
The collateral assets are still under the bank's handling, helping the bank proactively collect debts instead of relying entirely on the enforcement process.
According to the SBV, this regulation helps banks handle bad debts faster, reduce financial risks and limit prolonged disputes related to collateral assets. At the same time, this also helps the banking system have more opportunities to lower lending interest rates, supporting the development of the economy.
VAMC proposes legalizing the regulation on selling bad debts with seized assets
In addition to the right to confiscate collateral, VAMC also proposed to legalize the regulation allowing banks selling bad debts with collateral that is being seized.
According to Article 13 of Resolution 42, credit institutions (CIs) are allowed to sell bad debts with collateral that is being seized to VAMC or debt trading organizations. However, this regulation is not included in the Law on CIs 2024, leading to banks being unable to sell bad debts with seized assets.
According to VAMC, if the bank is allowed to sell bad debts with seized assets, VAMC will inherit all rights and obligations of the bank's creditors, including the right to continue handling collateral through litigation and enforcement. The legalization of this regulation will help increase flexibility in handling bad debts, while creating conditions for debt trading organizations to have more options in receiving and handling bad debts.
VAMC emphasized that if this regulation is not included in the law, both banks and VAMC will lose an important tool in handling bad debts, making the debt handling process slower, longer and more expensive.
Le legalization to protect the financial system
According to the SBV, legalizing the above regulations will help protect the rights of banks, reduce bad debts and ensure capital flows are circulating more effectively. At the same time, this also helps stabilize the financial system, reduce pressure on the court system and execute judgments.
This proposal is still in the process of collecting opinions, before being considered for inclusion in the law. If approved, this will be an important step forward to help banks handle bad debts faster, limit disputes and create a more transparent and effective credit environment.
