Bad debt settlement: Security asset plays important role

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Hanoi (VNA) - Up to now, the National Assembly's Resolution 42/2017/QH14 on bad debt has come more than 1/3 of the way. Although the results are quite clear, according to experts and those who directly handle debts, there are still a number of obstacles that need to be removed to make the Resolution more effective.

Becoming more practical

Resolution 42 of the National Assembly on bad debt handling was issued and came into effect on August 15, 2017, marking an important step in the legal framework for handling bad debts. The resolution has removed many obstacles in dealing with bad debts of credit institutions, which is the affirmation of the right to seize guaranteed assets of credit institutions and Vietnam Asset Management Company (VAMC); allowing the trading of bad debts and collaterals at market prices; allowing the court to apply procedures to settle disputes related to security assets.

According to finance and banking expert Can Van Luc, bad debt management, monitoring, and evaluation have made clear steps to motivate bad debt handling in a more proactive and substantive way. Accordingly, in Project 1058 on "Restructuring the system of credit institutions associated with dealing with bad debts for the 2016-2020 period", the goal to bring the ratio of gross bad debts (including non-performing, on-balance sheet debts, debts selling to VAMC having not been dealt with and the potential bad debts) to 3% by 2020 is set forth, replacing the current one.

According to Luc, setting the target of bad debt ratio has helped the supervision of bad debts at management agencies as well as credit institutions become more practical, creating motivation and pressure to the credit institution system in their active and proactive handling of bad debts.

At the first-quarter performance announcement ceremony, Nguyen Thi Hong, Deputy Governor of the State Bank, said that by the end of January, the credit institutions was estimated to have handled 204,400 billion VND, estimated at over 40.1 percent of the total bad debt as determined under Resolution 42.

Ms. Hong said that the results of handling such bad debts are very positive. The NPL ratio maintains below 2 percent.

Solutions to deal with bad debts were implemented synchronously, along with measures to control and prevent newly arising bad debts, which contributed to improving credit quality and reducing bad debt ratio of the credit institutions system.

Problems still persist

According to Ms. Hong, following the Resolution 42, problems and difficulties in dealing with bad debts have been partially overcome. However, Ms. Hong also acknowledged the fact that "there are still difficulties and obstacles in dealing with bad debts under Resolution 42, which mainly matters related to the handling of guaranteed assets."

Chairman of VAMC Board of Directors Nguyen Tien Dong said that at present, VAMC as well as credit organizations are facing some obstacles in the implementation of Resolution 42.

For example, the settlement of disputes following simplified procedures is very limited; the priority order of handling in the case of many assets is understood and applied differently. Transfer of real estate project also encountered problems. The support from local authorities is still insufficient due to different interpretations.

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Mr. Dong emphasized that in order to resolve these big issues, the participation of the whole system is needed to promptly amend the regulations such as the specific provisions on tax obligations of Ministry of Finance or problem regarding the transfer of real estate projects by the Ministry of Natural Resources and Environment ...

According to Resolution 42, the right to seize security assets comes with the condition that the mortgage documents must have an agreement on the terms of collateral security, while by the time of implementing Resolution 42, many mortgage contracts do not have this term. Therefore, credit institutions need to negotiate with the borrowers to adjust the contract.

In addition, even with loans that meet these conditions, the right to seize collateral of credit institutions still requires the support of law enforcement at all levels. However, up to now, the Ministry of Public Security has not had a guiding document on mechanisms and how to enforce the cases where the guarantor opposes and become uncooperative. Therefore, whether asset confiscation is successful or not depends on the goodwill of the borrowers (the guarantors)./.