Article No 301 of the 2015 Civil Code means that the government’s Decree No 163 on secured transactions will no longer be valid. As such, credit institutions will not be able to seize collateral used to mortgage loans in case borrowers cannot pay debts on schedule.

“We still don’t know what we need to do to collect debts from 2017, which is the most powerful instrument that helps us recover debts, and now it no longer exists,” said Thieu Anh Duong, CEO of Techcombank’s asset management company.

Bankers said Decree 163 helps them collect debts. They reportedly have settled 55 percent of bad debts, but there is still a big amount of existing bad debt that needs to be recovered.

According to Nguyen Kim Anh, Deputy Governor of the State Bank, there are many barriers that hinder the banks’ process of debt collection.

Commercial banks said the 2015 Civil Code, to take effect on January 1, 2017, stipulates that if asset holders refuse to hand over their assets, which act as collateral for loans, banks will only have the right to sue for assets.

About 45 percent of bad debts have been sold to the Vietnam Asset Management Company (VAMC), a 100 percent state owned company, to the Debt & Asset Trading Company (DATC) put under the management of the Ministry of Finance. It has been transferred to banks’ asset management companies. Most of the debts are unsettled at the companies.

A report of the central bank showed that commercial banks’ non-performing loan (NPL) ratio has decreased to below 3 percent as expected. 

Meanwhile, Vu Dinh Anh, a respected economist, commented that though the goal is attainable, the bad debts have just been ‘transferred’ to other bodies. The key to the bad debt settlement lies in the treatment of mortgaged assets.

VAMC has bought hundreds of trillions of dong worth of bad debt in the last three years while it did not have to pay any dong in cash, but in special bonds issued by the company. Commercial banks, which sell bad debts to VAMC, still have to make provisions for the debts sold.

According to Colonel Nguyen Trong Long from C46 Agency, in many cases, commercial banks cannot collect debts because the borrowers are uncooperative. The creditors deliberately refuse to pay debts, even though they have closed unprofitable businesses and set up new ones. 

Under the new law, banks won’t be able to seize the assets mortgaged for loans to collect debts, but will have to bring the cases to court. This is expected to be a long and complicated process which takes time and money.

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M.Ha