Illustration
Urgent Need to Legislate Resolution 42 on Bad Debt Handling
After 6 years of implementation, Resolution 42 has proven its effectiveness by granting additional rights to creditors (banks, VAMC, etc.) regarding secured asset handling. This has led to a reduction in bad debt processing time and the unlocking of credit capital within the economy.
However, Resolution 42/2017/QH14 (Resolution 42), which expired on December 31, 2023, has severely impacted the debt recovery efforts of banks and debt trading and handling organizations. Since January 1, 2024, amidst economic challenges and legal shortcomings in handling secured assets and bad debts, the bad debt situation in the banking system has shown an upward trend.
According to the State Bank of Vietnam, the ratio of internal bad debts in the industry as of January 2025 stood at 4.3%. Previously, at the end of July 2024, the ratio of internal bad debts (including bad debts of banks under mandatory purchase and banks under special control) was 4.75%, up from 4.55% at the end of 2023 and about 2% at the end of 2022.
Thus, while there has been a slight decrease in internal bad debts compared to the previous year, the ratio remains high, with a concentration in a few weak banks. Therefore, legislating the provisions of Resolution 42 will boost banks’ confidence in credit granting as the “blood clots” of bad debts are unblocked, contributing to lower borrowing costs for citizens and businesses.
Given this practical need, at the 9th session of the XV National Assembly, the Government presented the National Assembly with a draft Law amending and supplementing a number of articles of the Law on Credit Institutions, aiming to legislate important policies from Resolution 42 to enhance bad debt handling efficiency and ensure the safety of the financial banking system.
Delegate Nguyen Thi Thu Ha (Quang Ninh delegation) stated that Resolution 42 has not thoroughly addressed issues related to bad debt handling. With the resolution’s expiration, credit institutions face challenges in debt recovery as they lack the authority to reclaim assets when the asset holder refuses to hand them over. Therefore, legislating Resolution 42 will respect the freedom and voluntary commitment of the parties involved in lending and debt collection, facilitating credit institutions in handling secured assets as soon as possible. She also appreciated the regulation on asset seizure, believing that it resolves the difficulties faced by credit institutions and debt handling organizations, thus harmonizing the interests of creditors and secured asset recipients.
According to Delegate Nguyen Thi Yen (Ba Ria-Vung Tau delegation), the regulation permitting credit institutions and debt handling organizations to seize secured assets if agreed upon in the contract is appropriate. However, Ms. Yen suggested adding the legal responsibility and role of local authorities, especially the People’s Committee and the commune-level police, to support the seizure process.
Regarding the role of local authorities, Delegate Trinh Xuan An (Dong Nai delegation) emphasized the need to clarify the responsibilities of the People’s Committee and the commune-level police, including coordination criteria and how to establish minutes, to prevent difficulties in implementation. Mr. An stated that providing detailed regulations on security assurance would facilitate credit institutions in exercising their right to seize secured assets.
Legislating Resolution 42 will bring significant benefits to the economy
In a recently published analysis report, VNDirect experts argued that the draft Law amending and supplementing a number of articles of the Law on Credit Institutions of 2024, currently under consideration by the XV National Assembly at its May 2025 session, would offer more stability and longevity than the previous resolution due to three factors.
Firstly, the scope of application is broader: The new law applies to all bad debts regardless of their time of occurrence, unlike Resolution 42, which was limited to debts arising before August 15, 2017.
Secondly, enhanced rights for credit institutions: Additional rights to seize and retrieve secured assets (including provisions on receiving secured assets in administrative violations) will expedite debt handling.
Thirdly, priority in legal disputes: If the provisions on seizing, seizing, and returning secured assets are fully legislated, the Law on Credit Institutions will take precedence in civil and administrative disputes unless there is an ongoing criminal proceeding.
Furthermore, VNDirect experts believe that legislating the three clauses of Resolution 42 (the right to seize secured assets, the seizure of assets of the executing party used as secured assets for bad debts, and the return of secured assets as evidence in a case) will reduce the bad debt ratio in the banking industry to below 3%. As of January 2025, the internal bad debt ratio across the industry was 4.3%, concentrated in a few weak and specially controlled banks.
“We expect a significant reduction in the industry’s bad debt ratio in the first year of implementation due to the aggressive handling of debts with secured assets, drawing on the experience from the 2017–2021 period when Resolution 42 was in effect,” VNDirect experts emphasized.
VNDirect experts also stated that legislating the provisions of Resolution 42 would reduce borrowing costs for businesses and citizens, in line with the Government’s directives. Clear and transparent regulations will shorten debt recovery time, lower debt handling costs, and reduce provisioning and risk costs for banks. With reduced bad debt risk costs, banks can lower interest rates, making it easier for customers to access capital.
“As the legislation applies to all credit institutions, it is challenging to determine which bank will benefit the most. However, the right to seize secured assets (point 1) is expected to expedite bad debt handling and reduce associated costs. Therefore, credit institutions focusing on retail lending, handling numerous small debts, and/or those with a strategic focus on auto lending will benefit. Additionally, the legislation will support banks subject to mandatory transfer, such as MB, HDBank, Vietcombank, and VPBank, in restructuring weak banks,” VNDirect experts assessed.
On May 29, the Governor explained to the National Assembly the rationale for legislating the provisions of Resolution 42, stating that incorporating these provisions into the Law would provide a stable and long-term legal basis, enhancing the effectiveness of bad debt handling while protecting the interests of credit institutions, depositors, and borrowers. The funds lent by credit institutions belong to the people, so protecting credit institutions also means protecting depositors.
These provisions are also in line with Resolution 68 of the Politburo on developing the private economy, ensuring property rights, and enforcing contracts. In reality, many international organizations have recommended that Vietnam establish regulations to protect lenders to strengthen the financial system…
“Legislating Resolution 42 will not only enable credit institutions to handle secured assets of bad debts but also unblock previously stalled capital. With bad debts addressed, credit institutions will have additional resources to channel capital to meet the borrowing needs of customers. Moreover, reducing bad debts will ease the pressure on credit institutions to make risk provisions, thereby creating conditions for lowering lending rates, benefiting both enterprises and borrowers,” affirmed the Governor.
The Governor also stated that, to protect the interests of borrowers and prevent abuse, the Law has clearly defined the conditions, processes, procedures, and transparency in seizing secured assets. Credit institutions must establish transparent internal processes and comply with legal regulations when handling secured assets.
Delegate Pham Duc An (Quang Ninh delegation), former Chairman of the Members’ Council of Agribank, agreed with legislating the right to seize secured assets, emphasizing that it is not a privilege for the banking industry but a means to ensure the principle of repayment and protect depositors’ money. He asserted that protecting the legitimate rights of credit institutions also means protecting the interests of depositors and the state. Furthermore, he confirmed that when the law protects the right to seize secured assets, borrowers will be more aware of their repayment obligations, reducing procrastination and minimizing litigation procedures and enforcement time. It will also help credit institutions lower risk provisions, creating conditions for lowering lending rates.
Delegate Nguyen Thi Thu Ha (Quang Ninh delegation) shared a similar perspective, stating that Resolution 42 has not comprehensively addressed bad debt handling issues. With the resolution’s expiration, credit institutions face challenges in debt recovery as they lack the authority to reclaim assets when the asset holder refuses to hand them over. Therefore, legislating Resolution 42 will respect the freedom and voluntary commitment of the parties involved in lending and debt collection while facilitating credit institutions in handling secured assets promptly. She also appreciated the regulation on asset seizure, believing that it strikes a balance between the interests of creditors and secured asset recipients by resolving the difficulties faced by credit institutions and debt handling organizations.
