Brian Jeffrey
Vietnamese Banks Seek Solutions for Bad Debt Management
On September 21, a meeting took place with key government figures where representatives from Vietnam’s top commercial banks raised concerns regarding legal obstacles that are impeding quick resolutions of bad debts.
The conference aimed to devise strategies for enhancing economic growth and featured discussions on improving the financial industry’s capacity to manage non-performing loans.
Dang Khac Vy, Chairman of VIB Bank, highlighted that banks struggle with not having sufficient legal powers to seize collateral in bad debt situations. He noted that while Resolution 42 previously enabled such actions, the new Law on Credit Institutions lacks similar measures.
Vy stated, “Even with formal agreements in place for collateral seizure, and adhering to previously established laws, banks still face protracted legal processes that prevent timely action.”
This dependency on legal avenues and asset auctions results in significant delays for banks in addressing bad debts. During these periods, lenders must set aside provisions for risks and halt interest collections, all while managing the costs tied to capital acquisition.
This issue is especially pressing for retail banks, which have a broad portfolio of smaller loans spread across diverse locations. The high costs associated with reclaiming debts make it even more challenging for these institutions to expand lending while managing their non-performing loans.
Vy requested that the government introduce regulations that would permit banks to seize collateral when contracts allow, emphasizing the need for clear processes to guide asset recovery.
Tran Hung Huy, Chairman of ACB Bank, also called for more definite regulations regarding the valuation of leased real estate as collateral. He mentioned that current laws allow only mortgaging land if the lessee holds ownership, leaving a gap regarding mortgaging leased land itself.
Huy proposed that this legal shortcoming limits banks from fully evaluating the collateral potential of leased lands, particularly in industrial contexts. By allowing companies to mortgage their leasehold rights, banks could provide additional financial capital more effectively.
Vy also underlined the necessity of aiding the real estate market’s recovery, highlighting its pivotal role in the economy and in sustaining the health of banks’ loan portfolios, given that property is a predominant form of collateral.
During the meeting, Deputy Governor of the State Bank of Vietnam, Pham Quang Dung, reported that as of September 16, 2024, the banking sector’s credit growth had increased to 7.26%, up from 5.73% in 2023.
Private banks were leading the growth with an 8.48% increase, making up 45% of the market share.
However, there was a rise in problematic debts, with the internal ratio for non-performing loans across financial institutions reaching 4.75% as of July 2024, a slight rise from 4.55% at the end of the previous year.
Particularly concerning was the bad debt ratio for private commercial banks, which hit 7.77% by June 2024, totaling VND 633 trillion in bad loans.
The increase in non-performing loans has led to calls for stricter regulations and effective solutions to maintain the financial sector’s stability.
As challenges mount for the banking industry, leaders urged the government to craft policies that strike a balance between extending credit and ensuring financial stability. Vy warned against lax lending practices, as they could lead to higher bad debts and diminishing profits for banks.
The conference wrapped up with a commitment to refining regulatory frameworks to support banks in better managing bad debts and enhancing their contribution to economic growth.
