Vietnam passes law to tackle bank crisis, resolving bad debts

The Star

4 hours ago

A woman rides a motorbike past the State Bank of Vietnam in Hanoi on February 25, 2025. Under the legislation, which takes effect from Oct. 15, the State Bank of Vietnam is authorised to provide special unsecured loans with zero lending rates to troubled banks - a power previously held by the Prime Minister. - AFP
HANOI: Vietnam's parliament passed a revised law on credit institutions, bolstering the central bank's authority to ensure the safety of the banking system while offering long-awaited legal clarity for commercial lenders to resolve non-performing loans.
Under the legislation, which was approved by the National Assembly Friday (June 27) and takes effect from Oct. 15, the State Bank of Vietnam is authorised to provide special unsecured loans with zero lending rates to troubled banks - a power previously held by the Prime Minister.
The move "is quite essential in order to deal with bad banks, as it will enable a faster and stronger response in crisis cases that could lead to systemic damage,' said Nguyen Anh Duc, head of institutional brokerage and investment advisory at SBB Securities. The central bank "could quickly support critical weak banks out of illiquid turmoil and maintain the financial system,' he added.
The new regulation also enables commercial banks to seize collateral assets of bad debts with prior agreement from borrowers.
This is a "long-awaited decision' as it eliminates the need for prolonged legal procedures when banks deal with bad debts, according to Duc. Banks are now empowered to proactively liquidate collateral assets to recover outstanding loans in the event of borrower default which will enhance bad debt recovery efficiency, especially for real estate and other secured assets, Duc said.
Vietnam's banking system has remained broadly stable in recent years, but authorities have repeatedly emphasised the need for stronger risk management frameworks. These concerns came to the fore after a brief 2022 bank run at Saigon Commercial Bank, which was linked to an investigation into the real estate conglomerate Van Thinh Phat Group, led by imprisoned tycoon Truong My Lan.
Non-performing loans at 27 listed banks increased by over 37 trillion dong (US$1.4 billion) in the first quarter, representing a 16 per cent quarter-by-quarter increase, Tung Do, an analyst at RongViet Securities, wrote in a June 9 note. They're expected to continue rising in the upcoming quarter, he added.
The new changes will also "enable banks to unlock frozen capital tied to bad debt collateral to support credit growth,' said Quan Vu, banking analyst at Vietcap Securities.
From May, the Vietnamese government also allowed 49 per cent foreign ownership of a handful of banks - up from 30 per cent - that have taken over struggling financial institutions in a move to quicken the central bank's restructuring of troubled lenders.
Some bank stocks rose after the news. Vietnam Prosperity JSC Bank increased as much as 2.2 per cent, the most since June 16, while Orient Commercial JSB rose as much as 2.1 per cent. - Bloomberg