The State Bank of Viet Nam (SBV) has selected six commercial banks to pioneer the application of the recently-issued Resolution 42 on settling non-performing loans of credit institutions.

The banks are ACB, Sacombank, BIDV and Vietcombank, as well as VietinBank and Agribank.

According to the SBV, the resolution is aimed at eliminating negative experiences and addressing obstacles faced in NPL settlement. The banks will then make effective recommendations to relevant ministries and bodies to streamline legal regulations on the issue.

Resolution 42/2017/QH14 on piloting bad debt settlement of credit institutions, which came into effect on August 15 this year, provides thorough guidance on the procedures for recovery and repossession of collateral.

According to the resolution, credit institutions, foreign bank branches or the Vietnam Asset Management Company (VAMC) may directly repossess an NPL’s collateral held by a borrower or third party defaulter, and foreclosure may be aided by the police and other local authorities.

The new legal framework also provides incentives to encourage NPL trade, as it allows sale at a price lower or higher than the par value. It also sets a framework for a secondary debt trading market, which was high on the wish list of both foreign and domestic investors.

According to Moody’s, the ability to repossess collateral is the next critical step in resolving NPLs, and the rating agency expects the resolution, which removes previous legal impediments, will help improve the rate of collateral repossession by banks and the VAMC. The new regulation also rebalances the bargaining power of banks and the VAMC vis-a-vis borrowers. — VNS