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Vietnam Banks Face New Debt Law with 2026 Benefits Hinted

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Photo courtesy of Vietnam News

 

Vietnam’s banking sector is adjusting to recent changes as Resolution No 42/2017/QH14 becomes part of the amended Law on Credit Institutions. This move aims to address the country's non-performing loans (NPLs), but experts predict that significant benefits will only emerge by mid-2026. Resolution 42, originally introduced in 2017, enabled credit institutions to manage bad debts more efficiently by allowing the seizure and liquidation of collateral assets.

 

The resolution expired last year after improving NPL recovery rates for State-owned commercial banks (SOCBs) from 14% to 39% and for top private banks (Top 4 JSCBs) from 8% to 45% between 2016 and 2022. With its inclusion into law effective this month, analysts view this as a crucial step in completing Vietnam’s NPL resolution strategy. Larger banks have already seen substantial benefits, while smaller banks face pressure to enhance their risk management capabilities.

 

A FinRatings analyst noted that the codification’s impact varies across bank groups, benefiting SOCBs and the Top 4 JSCBs the most. Smaller joint-stock commercial banks are expected to gain less, compelling them to invest further in risk management to remain competitive. Despite these measures, a transition period is anticipated before the changes significantly affect banking operations.

 

Experts foresee a stronger impact on larger institutions as they adjust their NPL recovery processes to align with the new legal framework. Full benefits are expected by the latter half of 2026, once the framework operates stably. Although the codification doesn’t directly modify lending practices, it provides a legal support mechanism for NPL resolution, potentially easing risk management indirectly.

 

This comprehensive legal framework aims to enhance recovery effectiveness, allowing larger banks to optimize NPL resolution and lowering recovery costs. Smaller banks may utilize this opportunity to strengthen their risk management and NPL handling capabilities. Nonetheless, existing challenges remain, including legal hurdles and the need for policies to reinforce capital buffers, essential for sustaining the banking system's resilience amid rapid credit expansion.

 

Key Takeaways

  • Codification of Resolution 42 into law is expected to benefit larger banks significantly.
  • The full impact of this legal change is anticipated by mid-2026.
  • Smaller banks must improve risk management to stay competitive.

 

Click here for more Vietnam stories

 

image.png  Adapted by ASEAN Now from Vietnam News 2025-11-07

 

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