On May 24, 2022, in the third Session of the 15th National Assembly (NA), Governor Nguyen Thi Hong of the State Bank of Vietnam (SBV), under the authorization of the Prime Minister, presented a Review Report on the implementation of Resolution No. 42/2017/QH14 dated June 21, 2017 on the pilot resolution of non-performing loans (NPLs) of the credit institutions, and a Proposal for extending the effectiveness of all regulations as stipulated in Resolution No. 42/2017/QH14 dated June 21, 2017.
Governor Nguyen Thi Hong reports to the NA on May 25
Resolution 42 was an appropriate and timely policy of the Party, the National Assembly and the Government to resolve NPLs more effectively. Therefore, it is necessary to maintain the mechanisms and policies stipulated in Resolution 42, and to continue to improve the legal framework for NPL resolution.
Creating legal framework for NPL resolution
The SBV Governor shared that after five years of implementation, the objectives and expectations of Resolution 42 have basically been achieved. Resolution 42 together with the guiding documents have helped to create an appropriate legal framework for resolving NPLs, helping to remove the difficulties and obstacles, supporting the credit institutions in handling NPLs and maintaining the ratios of NPLs on the balance sheets at below 2%; ensuring the rights of lenders in the process of NPL resolution; impacting positively the restructuring and development of the credit institution system; thereby, allowing the credit institutions to reduce their lending interest rates to support the enterprises and people, especially in the wake of the COVID-19 pandemic.
During the time between August 15, 2017 to December 31, 2021, the system of credit institutions resolved in total VND 380.2 trillion of NPLs in line with Resolution 42, accounting for 47.9% of the total NPLs as identified by Resolution 42 as of August 15, 2017 as well as the newly arising NPLs in line with Resolution 42 during the validity of Resolution 42. Of the VND 380.2 trillion of NPLs that had been resolved, VND 148 trillion was collected through voluntary payments of the borrowers (accounting for 38.93%), higher than average level of 22.8% of the 2012-2017 period. Moreover, the value of collaterals which were resolved to recover debts by the credit institutions and VAMS also reached VND 77.2 trillion, accounting for 20.3%.
On a monthly average, the NPLs that were resolved is estimated at VND 5.67 trillion, higher than the average level of VND 3.25 trillion per month in the period before Resolution 42 took effect (from 2012 to 2017). .
Many difficulties and obstacles need to be further handled
Apart from the achieved results, Governor Nguyen Thi Hong emphasized that there were still many difficulties and obstacles in the implementation process.
Specifically, about the implementation, the guiding methods mentioned in Vietnam’s Valuation Standard System are generally applied to the valuation of assets, without specific regulations on the valuation of debts. Therefore, when valuing bad debts, valuation agencies may come up with different prices, making it difficult for the parties to choose a reference price as the basis for determining the starting price in debt trading.
About the implementation of the right to collect collaterals, in case customers do not cooperate in handing over the collaterals while the coordination of the competent authorities in some cases has not been provided in a timely manner, resulting in unsuccessful collateral collection; there are not yet any specific instructions on how to handle the cases of a collected asset having other assets on it or in it, or when the guarantor or the third party does not accept dislocation voluntarily, leading to many difficulties for the credit institutions and often resulting in additional expenses for handling.
About the application of the simplified procedures in handling disputes related to the obligation to hand over the collaterals, or the rights of resolving the collaterals, the SBV Governor mentioned that, in fact, the clearing of the procedures required by the Court to apply the simplified procedures faced many difficulties because when a bad debt happened, most customers would try to avoid meeting and not to cooperate with the credit institution to resolve it, so it is very difficult to follow.
In addition, according to the current regulations, during the preparation stage for the trial on the application of the simplified procedures, if a new circumstance emerges and the involved parties do not agree with each other, making the case no longer eligible for settlement according to the simplified procedures, the Court must issue a decision to refer the case to be handled according to normal procedures.
In addition, there have been a number of obstacles related to the sequence of priorities for payment when resolving the collaterals; the return of a collateral used as evidence in a criminal case; the constraints in the regulations prescribed for in Resolution 42 on the agreement on collateral collection in the mortgage contract; the scope of application of the simplified procedures in handling with disputes related to the obligation to hand over the collaterals or the right to resolve the collaterals, etc.
Extending the application of Resolution 42 is extremely necessary
After having analyzed all objective and subjective causes and the lessons learnt, Governor Nguyen Thi Hong shared that the world economy in the 2021-2025 period is forecast to experience unpredictable developments, together with the expected inflation hikes, the Russo–Ukraine conflict, the COVID-19 impacts on the world economy and Vietnam. Many domestic enterprises have faced difficulties and cannot pay back their bank loans, so bad debts would tend to increase in the coming time.
As of December 31, 2021, in a cautious assessment, the ratio of NPLs on the balance sheets, debts sold to VAMC and potentially risky debts was at a high level of 6.31%. Unresolved bad debts as prescribed for in Resolution 42 as of December 31, 2021 was still high, estimated at VND 412.7 trillion.
By end of August 15, 2022, all of the current mechanisms for NPL resolution as required by Resolution 42 will expire, and the NPL resolution of the credit institutions will have comply with the applicable laws. This will extend the NPL resolution process; discourage domestic and foreign investors to participate in bad debt handling and restructuring of the credit institutions.
“Resolution 42 was an appropriate and timely policy of the Party, the National Assembly and the Government to resolve NPLs more effectively. Therefore, it is necessary to maintain the mechanisms and policies stipulated in Resolution 42 and to continue to improve the legal framework for NPL resolution”, the SBV Governor said.
Governor Nguyen Thi Hong also emphasized that in the coming time, the Government would continue to direct the SBV and other relevant ministries, agencies and local authorities to coordinate to resolve the difficulties and obstacles in the implementation of and the provision of guidance for Resolution 42, assigning clear responsibilities to each entity; enhancing the inspection and supervision over the credit institutions. Moreover, the Government has proposed that the National Assembly request the Supreme People’s Court to direct the people’s courts at different levels, in coordination with the Supreme People’s Procuracy, the Ministry of Public Security and other enforcement agencies to continue to accompany and support the banking sector in resolving NPLs as required for by Resolution 42, as well as in the restructuring of the credit institutions in association with NPL resolution.
Le Hang