Vietnam's banking sector is facing significant challenges, particularly with the recent expiration of Resolution No.42/2017/QH14, which has left banks grappling with non-performing loans and ineffective debt recovery methods. At a recent government meeting, Do Minh Phu, the chairman of TPBank, emphasized the urgency of this issue, pointing out how the lack of formal mechanisms for managing debt collections is hindering banks' ability to recover outstanding debts safely and efficiently.
Phu stated, "The absence of clear regulations puts those involved in debt recovery at risk of unintentionally violating the law, which could potentially lead to criminal charges." This sentiment resonates throughout the banking community, where the need for updated legal frameworks is becoming increasingly urgent. According to Phu, improving regulations will not only hold borrowers accountable but could also help streamline the complicated processes surrounding collateral management.
The bureaucratic nature of current proceedings is another pain point. Phu noted, "Removing these barriers will significantly ease the challenges banks currently face," urging government authorities to prioritize solutions to these growing concerns.
Meanwhile, Pham Hong Hai, CEO of OCB, echoed these sentiments, particularly emphasizing the necessity of regulatory consistency when it came to managing secured real estate assets. He urged the State Bank of Vietnam (SBV) and the government to craft unified legal structures for collateral management, similar to those seen with Resolution No.42, which had provided banks with more efficient avenues for recovering overdue debts.
"The inconsistent enforcement of laws across regions makes it difficult for banks to handle collateral effectively, and the lack of clarity around secured assets has caused complications," Hai explained, pointing out how unresolved policy bottlenecks negatively impact real estate projects and investor confidence. He argued, "Unblocking these hurdles will boost supply in the real estate market, stimulate investor confidence, and, eventually, increase consumer demand." Unfortunately, the stalling of land pricing resolutions has also created challenges for businesses trying to meet tax obligations, which delays the issuance of land use certificates, necessary for operations.
Another industry voice, Dang Khac Vy, chairman of VIB, highlighted the need for stronger legal backing for banks to seize collateral assets. He argued, "Granting banks this legal power was necessary for effective debt recovery. These provisions are pivotal for addressing bad debts and ensuring financial stability." Vy's concern arises from the expiration of Resolution 42, which leaves banks operating without the authority to seize collateral as necessary.
Industry experts across the board agree on the potential for clearer guidelines concerning managing collateral, recovering debts, and reducing the number of non-performing loans. The SBV has set ambitious goals, aiming to keep bad debt levels below 3 percent by 2025. Yet, Deputy Governor Pham Quang Dung reported troubling statistics: by mid-September 2024, the non-performing loan ratio had climbed to 7.26 percent, compared to 5.73 percent at the close of 2023.
The issue of increased non-performing loans is evident; by the end of July 2024, the internal NPL ratio of credit institutions reached 4.75 percent, marking a noticeable rise from 4.55 percent just months prior, and even more dramatically from 2.03 percent at the close of 2022. Particularly concerning is the private joint-stock commercial banks sector, where NPL ratios stood at 7.77 percent at the end of June 2024, signifying a staggering increase of 4.8 percent from just the beginning of the year.
Phu also mentioned TPBank's eagerness for pilot resolutions allowing commercial housing projects to be developed on land classified as non-residential. He remarked, "If this resolution is passed, it will open new opportunities for many real estate businesses whose projects, though not on residential land, align with urban planning and development strategies." This could mitigate some of the current struggles faced by real estate firms.
Adapting to changing land-related laws, which took effect earlier this year, has also introduced significant shifts within the real estate market. Tran Hung Huy, chairman of ACB, highlighted these changes, noting both positive impacts and the continuing need for clearer regulations. He elaborated, "Clearer guidance is still needed for financial institutions, particularly concerning the acceptance of collateral on land leased for business purposes where rental payments are made annually." It's also worth noting the nuances of Article 37 of the 2024 Land Law, which allows for transferring land use rights but restricts collateralization to assets owned and attached to the land.
