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Legalization of Resolution 42 on bad debt resolution – A Crucial Factor in Ambitious Growth Targets

• Resolution 42/2017/QH14 (NQ 42), which provided a pilot mechanism for bad debt resolution, including creditor rights to seize collateral with the support of law enforcement and local authorities, expired on December 31, 2023. The resolution was designed to expedite the resolution process, reduce collateral disposal costs, and reinforce creditor rights.
• According to the State Bank of Vietnam (SBV), NQ 42 had a positive impact by encouraging voluntary debt repayment, expediting the sale and liquidation of collateral, and facilitating debt recovery. However, its implementation faced challenges, including a lack of collateral asset data, difficulties in executing simplified legal procedures, inconsistencies with the Land Law, and the absence of clear guidance on collateral restitution in criminal cases.
• Proposal for Legalizing Resolution 42: The institutionalization of NQ 42 into law would eliminate legal uncertainties, improve banking system liquidity through more effective collateral asset disposal, and reduce bad debt resolution costs. Non-performing loans currently account for approximately 4.6% of total credit in the economy, negatively affecting overall liquidity and growth potential.
• Key Legalization Policies and Solutions: 1/Legalizing the right to seize collateral – Enhancing banks' ability to recover debts more efficiently and reduce resolution costs. 2/Legalizing collateral asset attachment – Preventing collateral from being seized for unrelated obligations, thereby protecting financial institutions' claims. 3/Legalizing collateral restitution in criminal and administrative violation cases – Ensuring effective collateral asset handling while mitigating losses