Việt Nam’s banks are bracing for a new wave of debt recovery as Resolution No 42/2017/QH14 is codified into the amended Law on Credit Institutions, with analysts warning that the full benefits will only be visible from the second half of 2026.

 

Resolution 42, enacted in 2017 to pilot bad debt settlement for credit institutions, was introduced in response to a sharp rise in non-performing loans (NPLs). It empowered credit institutions to seize and liquidate collateral assets, expediting debt recovery. After more than six years of implementation, the resolution delivered certain results but expired last year.

 

Analysts at FiinRatings said that incorporating Resolution 42 into law, effective from mid this month, is a key milestone in completing Việt Nam’s NPL resolution process.

 

“We believe that the impact of codifying Resolution 42 into law will be highly differentiated across bank groups. The positive effects are expected to concentrate mainly on leading private banks (Top 4 JSCBs) and State-owned commercial banks (SOCBs), while the remaining joint-stock commercial banks (Other JSCBs) are likely to experience only limited impacts,” said a FinRatings analyst.

 

For larger banks — SOCBs and Top 4 JSCBs — the benefits during the pilot phase have already been substantial, with the NPL recovery rate improving from 14 per cent to 39 per cent for SOCBs and from 8 per cent to 45 per cent for the Top 4 JSCBs over the 2016-22 period.

 

For smaller banks, direct benefits from Resolution 42 remain modest, but competitive pressure will require them to invest further in risk management capabilities and debt-restructuring units to avoid falling behind.

 

Looking ahead, FiinRatings expects the codification to continue having a significant impact on SOCBs and Top 4 JSCBs, while other JSCBs are likely to see only limited effects, reinforcing the sector’s segmentation trend.

 

Based on observations during the effective period of Resolution 42, analysts say the positive impact of codification will need a transition period before it is fully reflected in banking operations.

 

“Accordingly, we expect that the benefits will only be fully recognisable from the second half of 2026, once the new legal framework will have been operating stably and credit institutions will have had sufficient time to adjust their NPL recovery processes in line with the regulations,” said a FinRatings analyst.

 

FiinRatings also noted that the codification primarily serves as a legal mechanism to support NPL resolution and does not directly affect banks’ lending processes or risk appetite, though risk appetite may be indirectly eased. Each bank continues to maintain its own risk management framework in line with SBV regulations and international standards, so business operations are expected to be little affected.

 

With a clearer legal framework, recovery effectiveness is expected to gradually improve as more borrowers repay voluntarily and recovery costs fall, allowing larger banks to optimise NPL resolution further. For smaller banks, while direct benefits are limited, codification could provide an opportunity to strengthen risk management and NPL handling, improving the sector’s overall risk position.

 

According to FiinRatings, although codifying Resolution 42 is a step in the right direction and contributes to improving the legal framework for NPL resolution, it has yet to deliver comprehensive impact as many challenges remain, including legal obstacles in implementation. The banking system also requires additional policies and mechanisms to strengthen capital buffers, enhancing resilience amid rapid credit growth aimed at meeting the economy’s financing needs. — BIZHUB/VNS