Bad debt resolution faces significant obstacles

Experts at a roundtable on April 15 said that while Vietnam’s bad debt resolution could free up a large pool of capital to support recovery and growth, the process is being slowed by legal bottlenecks, delays in collateral asset handling, and limited development of the debt market.

Bottlenecks in bad debt resolution

Speaking at the roundtable “System-wide bad debt control in the new context,” Mr. Nguyen Quoc Hung, Vice Chairman and General Secretary of the Vietnam Banks Association, said the current scale of bad debt is very large when measured across on-balance-sheet loans, debts that have undergone risk treatment but have not been recovered, and latent debts.

Hung said preliminary estimates indicate a significant amount of capital is “frozen” in the system. If processed effectively and returned to circulation, he said, it could help reduce costs for the banking system and make it easier for enterprises to access capital.

However, Hung noted that handling bad debt remains difficult, particularly due to prolonged legal procedures. After the pilot mechanism under Resolution 42 expired, seizing and processing collateral assets became more challenging, even though the new law has granted credit institutions more rights.

He highlighted a bottleneck in the collateral asset processing chain—from seizure and auction to title transfer—where timelines can be long and disputes may arise. Some disputes, he said, are protracted and hinder debt collection.

Hung also pointed to a lack of synchronization among agencies involved in enforcement, local authorities and banks, which can prolong resolution progress.

In parallel, he said the banking system faces increasing pressure as capital needs rise. Credit growth in Q1 reached over 3%, while mobilization of funds had not reached 1%, indicating a mismatch of funds. “If bad debts are not resolved timely, capital will be blocked, increasing costs and limiting the ability to reduce interest rates for enterprises,” Hung said.

VAMC: bad debt is a direct factor for stability and growth

From the perspective of the debt resolution agency, Mr. Dang Dinh Thich, Acting General Director of the Asset Management Company (VAMC), said bad debt is no longer only a technical issue but directly affects financial stability and economic growth.

Thich said that amid global economic uncertainties, interest rates remain high and aggregate demand has declined, contributing to a renewed rise in bad debt. He added that latent bad debt and restructured loans remain large, while debts requiring attention are also increasing—an early warning signal for the banking system.

He said risk concentration is currently seen in sectors including real estate, construction and exports, which are heavily affected by economic fluctuations.

Thich said VAMC remains an important state tool for handling bad debt. He noted that in recent years, VAMC has shifted from a technically driven disposal model to a more market-based approach, participating more deeply in debt restructuring and collateral asset handling.

Still, he said obstacles persist due to an underdeveloped legal framework, especially in handling real estate assets and lengthy procedural litigation. Under guidance from Resolution 79, Thich said VAMC will elevate its role—not only handling debt but also helping unlock financial resources for the economy.

“If handled effectively, bad debt can become a resource for development rather than a burden,” Thich emphasized.

Debt market development remains a missing piece

Mr. Can Van Luc, Chief Economist of BIDV, said bad debt resolution is a major bottleneck for Vietnam’s financial system. He cited total outstanding credit of around 19 million billion dong. With a bad debt rate of 2%, he said this would correspond to about 380 trillion dong. Including latent bad debt, the figure is even larger.

Luc said Vietnam’s debt market remains slow to develop. He pointed to a lack of synchronized legal frameworks, missing valuation standards, and limited transparency regarding collateral asset information. Debt trading activity, he said, currently occurs mainly through direct negotiation or auctions, but results have been limited.

He also highlighted that the market has a small number of investors, mainly banks, asset management companies and some state organizations. The absence of private investors, he said, makes the market sluggish and prevents it from mobilizing broader social resources.

From international experience, Luc argued for allowing debt purchases at market prices, including prices below book value, to promote trading and improve capital turnover. He also suggested developing instruments such as debt securitization and a dedicated trading floor.

Luc added that improving institutions, expanding rights for participants, increasing transparency and developing the secondary market are key factors. “Without strong reforms, the pressure from bad debt will continue to rise and affect the safety of the financial system,” he warned.