The State Bank of Vietnam (SBV), the country’s central bank, is drafting a resolution on extending the validity period of resolution No.42 on piloting bad debt management at credit institutions for three more years.

Transaction at a branch of LienVietPostBank in Hanoi. Photo: Cong Hung

Resolution No.42, scheduled to end in August, has been seen as an effective instrument to curb bad debts in the banking sector since it was launched five years ago.

According to the SBV, once resolution No.42 expires, all priority mechanisms to deal with bad debts would be suspended.

Meanwhile, the bad debt ratio in the banking sector has been on the rise due to the severe Covid-19 impacts, estimated at 6.31%.

“There remain high risks of bad debts in credit institutions that may pose severe threats to financial security,” stated the SBV.

The SBV is in the process of drafting a Law on resolving bad debts at credit institutions, but during this gap period, the absence of resolution No.42 may hinder banks’ efforts in addressing bad debts issues.

The central bank, therefore, has proposed the extension of resolution No.42 beyond 2022, which would be subject to approval from the National Assembly. 

A report from the SBV showed total bad debts under resolution No.42 as of November 30, 2021, were estimated at VND420 trillion ($18.4 billion), down 4.65% against late 2020 and 15.74% against August 14, 2017, the date the resolution No.42 became effective.

The total amount of bad debt resolved under resolution No.42 from August 15, 2017, to November 30, 2021, stood at VND5.66 trillion ($249 million) per month, VND2.14 trillion ($94 million) per month higher than the result before the promulgation of Resolution No.42, which was around VND3.52 trillion ($154 million) per month.