Addressing legal gaps for resolving non-performing loans

According to business reports of 29 banks for the first half of the year, published in August, total non-performing loans (NPLs) by the end of Q2 reached $11.31 billion, nearly a 21 per cent increase compared to the beginning of the year.

“The extension of debt restructuring measures in response to the pandemic, which is expected to end in December this year, could further increase the NPL ratio. The anticipated demand for increased provisions and supplementary provisions for loan losses is adding pressure to the banks' profits, which are already being squeezed by the stagnation of net interest income, fees, and commissions,” said Dorsati Madani, senior economist for the World Bank in Vietnam.

Financial institutions have shared difficulties related to the legal gaps affecting the recovery of NPLs, enhancing credit quality, preventing and minimising new NPLs, and the need for a coordinated, timely, and consistent response across the entire political system.

Ho Van Tuan, deputy CEO of Vietcombank, shared with VIR the need for more specific guidelines on the entrusted handling of secured assets in the resolution of NPLs by banks.

“Banks need clear guidance on the entrustment of collateral handling because there are still obstacles in practice regarding the classification of cases for enforcement entrustment, collateral handling, and cases where both are applicable. Additionally, it is necessary to supplement regulations allowing civil judgment enforcement agencies to apply expedited auction procedures as stipulated by the Law on Asset Auction if the parties involved have reached an agreement to speed up the execution process.”

VietinBank is one of the leading banks in terms of NPL ratio, with total NPLs exceeding $1 billion by the end of Q2, an increase of more than 20 per cent compared to the end of Q1.

As of July, VietinBank had 1,200 cases under civil judgment enforcement.

"At the bank, collateral is typically real estate, and the main issues also involve real estate, such as changes in the actual condition, discrepancies, and differences compared to the land use rights certificate, or properties built on two different plots of land that cannot be separated, or real estate without access, with some cases remaining unresolved for nearly 20 years,” said Le Duy Hai, deputy general director of VietinBank.

In addition to the problems related to institutions, legal regulations, objective factors, and from enforcement agencies, VietinBank also faces challenges from the parties involved in enforcement cases, Hai added.

"In many instances, the defendant, stakeholders, or those obligated to enforce the judgment engage in resistance, abuse their rights to raise baseless reasons, create legal hurdles, prolonging litigation and enforcement processes, leading to delays in enforcement,” said Hai.

Nguyen Thanh Long, chairman of Vietnam Banking Legal Club under the Vietnam Banks Association said that although the General Department of Civil Judgment Enforcement and related agencies have been proactive and aggressive in implementing measures to strengthen civil judgment enforcement at all levels, many enforcement cases have been delayed for a long time, with many outstanding cases, affecting the results of NPL recovery by banks.

“From the beginning of the year, there have been 292 cases involving eleven commercial banks in Hanoi, most of which are due to the enforcement agencies being slow to auction or hand over auctioned assets, delays in issuing enforcement decisions, lack of coordination and consensus among competent authorities, discrepancies between the actual condition of secured assets and the case files, and disputes over secured assets during enforcement, accounting for 18 cases,” Long said.

Bank bad debts forecast to remain under great pressure in 2024 Though the asset quality of banks in Vietnam will be temporarily under control until the end of 2023, experts said more attention should be paid to the issue in 2024 as bad debts are rising.

Assessment of non-performing loans so far in 2024 The non-performing loan (NPL) ratio reached nearly 5 per cent at the end of May. Le Hoai An, a banking consultant and trainer at Integrated Financial Solutions, talked with VIR’s Hong Dung the assessment of NPLs in the first half of 2024.

Bad debts remained a challenge for banks in H1 Banks' non-performing loans continued to grow in the first half of this year, with some banks even witnessing double-digit growth, whereas their loan loss reserve ratio trended downwards.