Bad debt measures to go into effect

Hanoi (VNS/VNA) – A National Assembly
resolution on non-performing loans will take effect on August 15 with lawmakers
hopeful it will help resolve much of the remaining bad debts held by commercial
banks and real estate projects across the nation.

Resolution 42 allows lenders to process
collateral as they see fit if debtors fail to cooperate with them on resolving
their bad debts.

Article 10 states that debtors’ collateral to
banks is not limited to residential construction projects, as there is no clear
legal restriction on other types of real estate, such as hotels, resorts, even
factories and power plants, to be used in place of pledged assets.

As such, this allows for more flexible use of
collateral, preventing debtors from defaulting for lack of valuable assets.

Resolution Article 7 also acknowledges credit
institutions’ right to commandeer pledged assets from debtors, according to
their debt contract, unless the asset in question is being held by litigation
courts as evidence of a criminal offence on the debtors’ behalf.

This is considered an improvement on the 2015
Civil Code, which does not stipulate recourse for pledged assets.

Article 8 of the Resolution allows more
transparent and simplified legal procedures in dealing with disputes over
nonperforming loans.

Additionally, Resolution 42 now allows for
financial institutions capable of purchasing and selling bad debts to do so,
instead of restricting these activities to Government entities. Bad debts can
now be sold below their book values, meaning they are no longer toxic assets
that have lost nearly all their value for commercial banks.  

Thus, banks can now sell off collateral bad debts
at a lower value than they initially documented in their accounting tables,
without fear of the sale being considered a loss, according to Chairman Nguyen
Tien Dong of the Vietnam Asset Management Company (VAMC) who spoke at a
conference last week on implementation of Resolution 42.

Overall, this can lead to bad debts being traded
more frequently on the merger and acquisition market (M&A) in at least the
next five years, according to a representative of the State Bank of Vietnam

Speaking at last week’s 2017 Vietnam M&A
Forum, Nguyen Huu Quang, deputy head of the NA’s Financial and Budgetary
Committee, said that after three and a-half years, some 42,000 nonperforming
loans held by 50 credit institutions had been purchased through VAMC, retrieving
up to 53.2 trillion VND (2.3 billion USD) in value.

Since the beginning of 2013 till the second
quarter of 2017, up to 616.7 trillion VND (27.4 billion USD) worth of national
uncollectible loans have been dealt with, according to SBV data. Out of this amount,
up to 56.7 percent was solved by lending credit institutions, while 43.3 percent
was sold to other financial entities.

Quang said that initially, the Government was
aiming for commercial banks’ reconstruction, which gradually led to the need
for a separate resolution on bad debts instead of simply tweaking the existing
laws on credit institutions.

The SBV has voiced concern over the need for
commercial banks and other financial institutions to have more elbow room not
only in managing nonperforming loans, but also in issuing common stocks on the
market, which they claim Resolution 42 has yet to address.-VNA

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