Resolution of Non-Performing Loans

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For the past several years, the issue of non-performing loans and the resolution of this issue has weighed heavily on the Vietnamese banking sector.

According to Vietnam Asset Management Company (VAMC), if all non-perming loans and those loans that have been restructured are taken into account, then total non-performing loans would be in excess of 10%, including over 5% which have been sold by commercial banks to VAMC.

One of the biggest obstacles to reducing non-performing loans has been the legal obstacles which prevented lenders from exercising their collateral without the borrowers agreement. However effective August 15, 2017, the resolution of the National Assembly (NA) on tackling bad debts will take effect. The NA resolution calls for efforts to reduce bad debts to less than 3% of all outstanding loans by 2020.

From August 2107, credit institutions will have the legal right to confiscate assets and to sell collateralized assets held in respect of any loan granted prior to August 15th 2017. The Prime Minister has also assigned the Ministry of Justice to direct the enforcement agencies to rapidly settle lawsuits related to bad debts held by credit institutions and VAMC. The Prime Minister has also ordered the Ministry of Natural Resources and Environment to direct the ownership registration agencies to carry out procedures related to the transfer of property and land use rights to purchasers and assignees of bad debts.

This will no doubt regenerate interest previously shown by major players in the secondary debt markets, but only if secured lenders are prepared to dispose of loans at fair market value, discounted for a distressed sale, which to date they have been reluctant or unable to do.

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