HCM CITY — Resolving bad debts effectively is crucial to unlocking credit flows, stimulating investment and safeguarding national financial stability, and this needs a transparent legal framework that protects the rights of all stakeholders, a conference heard in HCM City on May 27.

Speaking at the “Handling Bad Debts: What Is the Balanced Solution?” conference hosted by Tiền Phong newspaper, its editor-in-chief, Phùng Công Sưởng, said as Việt Nam’s economy strives to grow, the real estate sector, traditionally a key driver, is grappling with unprecedented challenges that go beyond the long-standing legal bottlenecks, planning complications and liquidity constraints.

A far more complex problem lies in the vast volume of collateralised assets that are now stuck in the banking system, he said.

This has become a major burden, weighing on both the credit system and businesses, he said.

As of May 2025, outstanding credit in the real estate sector exceeded VNĐ1.56 quadrillion (US$60.29 billion), up 20 per cent from just the end of 2024, he said.

Behind this figure lies a series of stalled projects, cash-strapped enterprises and growing public concern about mortgaged assets, he said.

“The handling of bad debts in the real estate sector is therefore no longer merely a technical matter for the banking industry alone. It has become a multifaceted issue, closely tied to legal aspects and requiring strong coordination and joint efforts from the government, businesses and the public.”

Lê Trung Phát, director of LêTrung Phát Law Company, said, from a legal standpoint, while seizing collateral might appear straightforward, there are actually numerous legal complexities.

Even when a bank has a legally binding court judgment, auctioning assets can be delayed or disrupted by emerging disputes because the collateral has been leased, cultivated or occupied by third parties.

These situations complicate enforcement and underscore the need for a balanced legal approach that protects all involved parties, he said.

Legal solutions and balancing interests in bad debt settlement

Đỗ Thiên Anh Tuấn, a public policy lecturer at the Fulbright School of Public Policy and Management, said globally there are two prevailing legal approaches to collateral enforcement: the Common Law and Civil Law systems.

In Common Law countries like the US, UK, and Singapore, assets can be seized and sold directly under contract terms without court involvement.

This approach reduces legal costs and improves debt recovery efficiency.

Civil Law systems like those in Germany, Japan and Việt Nam typically require court or enforcement agency participation, even when contractual terms are clear.

While this protects borrower rights and third parties, it also prolongs the process and leaves valuable assets “frozen”, creating broader economic losses.

Between 2017 and 2023, Việt Nam’s Resolution 42/2017/QH14 offered a special mechanism that allowed faster and more efficient handling of secured assets by credit institutions.

However, its expiration at the end of 2023 left a legal vacuum.

There is now an urgent need to complete a post-Resolution 42 legal framework to free up the vast capital locked in collateral, Tuấn said.

Many delegates agreed that the most effective provisions of Resolution 42 should be codified into the revised Law on Credit Institutions.

They also proposed measures to ensure fairness and protection for all stakeholders.

Tuấn said the mortgage contract must include a clear agreement on the lender’s right to dispose of the collateral without court intervention.

This agreement must explicitly outline the notification procedures, valuation methods, waiting period before enforcement, and the remaining rights of the borrower after the asset is sold.

Borrowers must be notified in writing within a reasonable time, allowing them an opportunity to repay the debt, sell the asset for a better price or renegotiate with the lender.

Valuations should reflect fair market value and be overseen by independent third parties to ensure transparency.

If not sold through public auction, all transactions must be handled via transparent platforms with full disclosure to avoid any conflict of interest.

Another key principle is ensuring that borrowers receive any surplus proceeds from the sale after deducting principal, interest and reasonable enforcement costs, a legal right that must be safeguarded, Tuấn said.

He said the enforcement process should respect the rights of third parties such as tenants, co-owners and guarantors, properly notify them and allow them to exercise their legal rights to ensure a fair and humane resolution process.

Lê Hoàng Châu, chairman of the HCM City Real Estate Association, warned that bad debts are becoming increasingly complex in the property sector, threatening the stability of the financial system and the survival of businesses.

Resolving bad debts is not just about debt recovery, but is an opportunity to revive the market, and the Government should consider special mechanisms to address bad debts decisively and in a coordinated manner, he said.

He proposed the establishment of "a central inter-agency task force to review and classify stalled real estate projects.”

“This would allow policymakers to design targeted interventions for different categories of bad debt instead of applying a one-size-fits-all approach," he explained. — VNS