Is Resolution 42 a “prerogative” of the banking industry?

Resolution 42 on handling bad debts was issued by the National Assembly in August 2017 and is expected to expire in August 2022. Since its issuance, the Resolution is considered to have a positive impact on the banking system in dealing with bad debts.

According to Mr. Nguyen Quoc Hung, General Secretary of Vietnam Banks Association (VNBA), during the implementation process, authorities at all levels have responded, creating favorable conditions for the banking industry to collect debts, trade assets, conversion, completion of procedures. ..

Customers’ sense of debt repayment has changed positively, customers have actively coordinated with banks to handle debts, and the borrower’s responsibility for bank debts has been raised markedly.

As a result, the bad debt that has been handled in the period 2017 – 2021 is 750 trillion VND, of which according to Resolution 42 it is about 390 trillion VND (accounting for more than 50%). Of the total 750 trillion dong of bad debt that has been handled at this stage, over 600 trillion dong has been handled by credit institutions themselves, the rest is more than 100 trillion dong by VAMC and about 20 trillion dong handled by other debt trading organizations.

Especially, when there was Resolution 42, customers were well aware of their debt repayment responsibilities to the bank, so they had active cooperation. Therefore, the bad debt ratio of the whole banking system as of December 31, 2021 is about 1.49 – 2%.

“If the COVID-19 epidemic does not happen, I am sure the banking system will meet the requirements set out in Resolution 42,” Mr. Hung said.

However, besides the positive aspects, the General Secretary of VNBA said that there are still some problems.

Firstly, since the promulgation of Resolution 42, the court is allowed to try the summary form, but so far, no case has been heard.

Second, asset seizure and transfer are difficult, especially for collaterals that are not projects.

Third, Resolution 42 allows proceeds from the sale of priority assets to be paid first, but in many cases, taxes must be paid first and then bank loans can be paid. There are cases where credit institutions have sold collateral, but have not collected enough principal but still have to pay enough tax to be able to transfer the property’s name.

Fourth, some local governments have not been aggressive in protecting lenders. Especially at the ward and commune levels, sometimes Resolution 42 has not been popularized to all grassroots levels.

Potential bad debt is very high

According to the General Secretary of VNBA, in the process of implementing according to the Civil Law, the Law on Credit Institutions and related laws, there are inappropriate contents, not ensuring the protection of legitimate rights and interests. of the lenders and the borrowers, even to some extent protect the borrowers, making it very difficult for the banking industry to collect debts.

Resolution 42 was born, which has solved many problems for banks in handling bad debts and made people and businesses more responsible for debt repayment.

“The economy in general and the banking industry in particular have also been heavily affected by the COVID-19 pandemic over the past two years. In the context of banks implementing Circular 01/2020/TT-NHNN; Circular No. 03/2021/TT-NHNN; Circular 14/2021/TT-NHNN, leading to subprime loans being restructured so that customers can continue to borrow if there is an effective business plan, making bad debts latent in the short term. The future is also worrisome.

According to data, millions of billions of dong have been affected by the epidemic, but the structural debt is only about 300 trillion dong. These figures do not fully reflect reality. In fact, during the two years of the pandemic, businesses faced many difficulties and the potential for bad debt increased,” said Hung.

Accordingly, in the event that Resolution 42 expired and was not extended, Mr. Hung said that the bank could still handle bad debts, but the results were very limited, not only that, but it also led to customer inactivity. In case of non-payment of debts, customers’ sense and responsibility in debt repayment will return to the way they were before resolution 42 and the possibility of bad debts will be very difficult to handle.

Under such pressure, the State Bank submitted to the Government a proposal to the National Assembly to continue to consider, amend, supplement and prolong Resolution 42.

“In fact, Resolution 42 creates a relatively complete legal framework to help the banking industry deal with bad debts, achieving very positive results and at the same time people are aware of their responsibility in debt repayment, so, Proposing the extension of Resolution 42, I think, is very necessary.

Or it is possible to issue a specialized law on bad debt handling, if it is not possible to issue a law on bad debt handling, in the prolonged period of Resolution 42, I would like the State Bank to coordinate with ministries and branches to review the Law on organizations and individuals. credit institutions and related laws on the basis of lessons learned from the implementation of Resolution 42 to amend and supplement the Law on Credit Institutions with relevant laws such as: Civil Code, Business Law real estate business, Tax Law, Land Law, Housing Law… so that the Government and the National Assembly don’t have to worry about bad debts of credit institutions,” suggested VNBA Secretary General.

“Resolution 42 is not a prerogative”

In order for the “pain” of bad debt as in the past to not repeat, in recent years the State Bank has continuously carried out inspections and handled credit institutions that have violated in credit granting activities or concealed bad debts. The fact is that credit institutions themselves also have to restructure and also have to deal with bad debts. If bad debts have not been handled, they must make provision for risks.

Currently, all credit institutions have made adequate provision for bad debts and potential debts to become bad debts. There are even credit institutions with healthy financial status that have a bad debt coverage ratio much higher than the actual bad debt ratio. Therefore, many credit institutions have raised the issue of increasing charter capital in 2022, thereby improving financial capacity, expanding provision for risks to ensure operational safety. All banks have had innovation and self-defense.

However, the General Secretary of VNBA said that, with the current reality, if only the bank’s efforts are not enough, it is necessary to have a strong enough legal corridor to protect the bank.

“I would like to have a legal corridor so that all society has equality, people must be responsible for repaying loans when borrowing from banks. Not only that, when there is a full legal corridor, ministries, industry, local authorities also need to actively support in handling bad debts of the banking industry,” Mr. Hung expressed.

Resolution 42 was issued, there are opinions that the National Assembly and the Government have granted “many privileges to the banking industry”. However, according to the General Secretary of VNBA, this is not a privilege.

“In fact, before Resolution 42, in many cases, debt collection banks faced many difficulties, failed to sell assets, failed to seize assets, failed to urge debt collection, customers abandoned their assets. for the bank to handle on its own… All of these problems the bank can’t do anything about.The customer’s sense of debt repayment is very weak, leading to debts despite having secured assets but not being developed. trade, bad debt increases, affecting the safety of the system.

However, Resolution 42 issued by the National Assembly has had a very positive effect on supporting the banking industry in debt recovery and settlement of collateral for debts. Therefore, I very much hope that the Resolution will be extended,” Mr. Hung shared.

According to Tran Thuy