Rescuing banks’ "dead capital"

State-owned banks have also reported increasing bad debts from corporate clients in the construction materials sector. In addition, asset risks stemming from foreign direct investment (FDI) clients have further contributed to the surge in bad debts.

Huge pressure to handle bad debt for banks

The increase in bad debt has been predicted since the beginning of 2025, when the global economy faced many difficulties, production and business conditions were narrowed, causing many businesses to face financial difficulties.

Earlier, a report by SSI Research on the banking sector pointed out that although the government has set an 8% GDP growth target for 2025 and banks have accelerated credit disbursement since the beginning of the year, the increase in credit has led to an increase in the ratio of bad debt to total outstanding loans, especially in the Q1 of this year and may peak in the first half of 2025.

At the National Assembly session on May 20, Nguyen Thi Hong, Governor of the State Bank of Viet Nam (SBV), also admitted that bad debt is remaining at a high level and has an increasing trend, creating great pressure on credit institutions.

Similarly, Nguyen Quoc Hung, Secretary-General of the Viet Nam Banks Association, revealed that the total scale of bad debts in the economy has now surpassed 1 quadrillion VND. These “dead” loans not only waste valuable resources but are also main factor in increasing loan interest rates, making it difficult for businesses and people to access capital.

Moreover, the collateral assets related to the loans is being "buried" due to legal problems, making it impossible for banks to exploit and use them, exacerbating the lack of capital in the economy.

Sharing the same view, lawyer Le Trung Phat, Director of Le Trung Phat Law Firm, said that although the form of lending with real estate as collateral is often considered safe, it is in fact not simple. Banks are currently facing many challenges when having to recover debts from these loans.

One of the major difficulties that banks face is that customers do not cooperate when they cannot repay their debts, leading to complicated and time-consuming asset recovery. Although there are judgments and decisions to enforce the judgment, when the mortgaged assets have third-party rights (such as leasing or using for other purposes), the auction and recovery of assets can become complicated and prolonged.

In practice, banks have struggled to find buyers for collateral assets. For example, the Bank for Investment and Development of Viet Nam (BIDV) has issued its fifth notice in search of a buyer for assets tied to the debt of Hang Ha Joint Stock Company, with total outstanding debt exceeding 730 billion VND. Previously, BIDV also encountered difficulties in handling debts worth trillions of dong from Tai Nguyen Company.

Bad debt settlement is not just a technical problem

In the financial system of banks, bad debts serve as an indicator of underlying risk and economic health. Handling bad debts is not merely an accounting issue, it is a policy challenge, requiring a comprehensive, flexible, and long-term approach.

The government has recently submitted a draft law to the National Assembly on amending and supplementing a number of articles of the Law on Credit Institutions, focusing on codifying regulations on bad debt settlement and decentralising authority for special loans. Three policy groups of Resolution 42/2017/QH14 are proposed for legalisation: allowing the seizure of secured assets with an agreement, limiting the seizure of assets in civil judgment enforcement cases, and returning assets as evidence after verification. All are aimed at creating a more favourable legal corridor for credit institutions in debt collection.

Expressing his views on the legalisation of Resolution No. 42, Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, said that bad debt settlement is not only about asset recovery but also providing an "opportunity to restore the market". The effectiveness of bad debt handle depends largely on removing two structural bottlenecks: legal problems and market risks.

According to Chau, about 70% of the difficulties of the real estate market (a sector with a large proportion of credit) come from legal barriers. Stagnant projects cannot be foreclosed or transferred, causing blocked cash flow. Meanwhile, macro shocks such as epidemics and geopolitical conflicts continue to erode purchasing power and freeze cash flow. In such conditions, it is inevitable that businesses will fall into a state of inability to repay debts.

Previously, Decree No. 08/2023 was issued as a timely intervention step allowing corporate bond debt to be extended for up to two years, but the high pressure when about 200 trillion VND of bonds are due in August 2025 alone. Without strong and appropriate support solution, chain risks can spread.

On the contrary, there needs to be a comprehensive review of the debt classification system. The assumption that group 4’s debt is necessarily worse than group 3’s debt or milder than group 5’s debt lacks a clear basis. Group 5’s debt (uncollectible) should be the core focus. The remaining groups, if still recoverable, should be supported to avoid increasing risk.

Another concern arises from the structure of the relationship between banks and borrowing businesses. In fact, businesses are in a clearly asymmetrical position: banks hold almost total control, from asset appraisal and contract drafting to disbursement and collateral asset handling. Authorisation clauses in particular are often “attached” from the beginning of the contract, causing borrowers to lose control if bad debts arise.

During the pilot phase of Resolution No. 42, although banks were given the right to seize assets, the bad debt ratio still increased, mainly due to objective factors such as the pandemic. The question is: why do objective risks only fall on businesses, which are the weaker parties in the credit chain? Experts also warned that giving banks too much power could create moral hazard when banks are more lenient in appraisal, because they can still repossess assets in the end. This could potentially increase the bad debt ratio.

In conclusion, bad debt settlement is not a purely technical problem but a matter of redesigning the credit market operating mechanism in a fair, transparent, and reasonable manner. Legalising Resolution No. 42 is only meaningful when accompanied by a mechanism to protect the weak party and enhance the responsibility of both sides: banks and enterprises. No one can stand outside the market risk vortex, but policies can and must create a "fair playground" for all parties to coexist and develop.

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