The settlement of bad debts will face many difficulties this year as there are no legal regulations related to repossessing collateral assets, industry insiders said.

According to Nguyen Quoc Hung, General Secretary of the Vietnam Banking Association, it will be tough for credit institutions to handle and recover bad debts, as Resolution 42/2017/NQ-QH14, which piloted handling of bad debt of credit institutions and allowed the institutions to repossess collateral assets on bad debts, expired at the end of last year.

Hung is concerned as the expiry of the pilot resolution will lead to procrastination in paying debts among borrowers, because there are no legal regulations on recovering and handling bad debts.

“There will again be a situation where borrowers intentionally do not pay their debts, do not voluntarily hand over their collateral assets and create fake disputes that lead to difficulties in debt recovery,” Hung said, noting it will have a huge adverse impact on credit institutions.

Under the amended Law on Credit Institutions recently passed by the National Assembly, credit institutions do not have the right to repossess collateral.

Credit institutions are very worried about the issue because they will have to handle bad debts on their own instead of having support from Government agencies that were previously involved, such as the police and courts. If borrowers intentionally do not pay their debts, credit institutions cannot handle the cases simply have to go to court, which will take a lot of time, even up to 5-7 years, before the debt is recovered.

Under the context, Hung suggested credit institutions consider their duty of debt recovery before lending; they need to be very strict to ensure correct principles, procedures and lending conditions. Value and origin of collateral assets must be appraised, verified, evaluated and closely monitored.

It is necessary to be stricter in determining collateral assets in accordance with the law to ensure there are no loopholes that borrowers can take advantage of, Hung noted, believing that the measures will contribute to improving the efficiency of bad debt handling at credit institutions.

In the long term, experts suggest that a new and more consistent legal framework is needed to resolve bad debts. The Civil Law must be amended to be more suitable, with clear responsibilities for those who have the ability to repay debts but intentionally do not repay the debts./.