Legal clarity called for to stem tide of bad debts

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According to economist Le Xuan Nghia, banks have become the victim of defaulters, as the current legal regulations on bad debts mean that banks have no right to seize the collateral assets of defaulters, which they are actually entitled to, according to the loan contract.

Sharing this poisoned chalice with the banks, the Vietnam Asset Management Company (VAMC), has some VND160 trillion ($74.42 billion) worth of bad debts, and so far has only managed to recover and sell VND8.6 trillion ($400 million) in assets.

VAMC chairman Nguyen Quoc Hung cited the case of a bank client in Ho Chi Minh City, who borrowed almost VND1 trillion ($46.51 million) against their house, and deliberately refused to repay the loan, despite the fact that same client had been making billions of dong in rental profit. Neither the VAMC nor the bank, however, could do anything to legally tackle this client. “If we sue such clients, it could take over 50 years to recover the debts, and even that isn’t guaranteed,” Hung said.

At present, 70 per cent of bad debts are related to real estate and are guaranteed by the properties themselves. In order to handle such collateral, banks ought to be able to seize these assets, however, when defaulters do not co-operate banks have no recourse. Although in some cases, the court has ordered the defaulters to transfer the rights to banks, however this process is time-consuming and costly, and often leaves the banks empty-handed.

According to Hung, the dead end situation relating to the handling of bad debts stems not from a lack of financial resources or the bad debts trading platform, but from a lack of legal rights to tackle and resolve bad debts.

If VAMC are not equipped with a suitable legal framework, the authority will likely become inundated by the rising tide of bad debts.

Hung stressed that certain rights, such as the seizure of collateral, court-order enforcements, prosecutions against defaulters, as well as the right to carry out the sale of assets by court order, should be bestowed upon the VAMC. These rights, however, currently run contrary to the Civil Code.

“The legislation currently in place is there to protect victims. However, in Vietnam, if borrowers can’t repay their debts, they can get away scot-free,” said Basico Law Co., Ltd. lawyer Truong Thanh Duc.

In response to this untenable situation, experts have urged the National Assembly to draft a law to handle bad debts appropriately. Such a law will hopefully free up the bottleneck of the debt recovery and asset sale, and them the flow of rising bad debts, which, left unattended, would otherwise saddle the Vietnamese economy with a crippling burden.