The Government has approved a proposal from the State Bank of Vietnam (SBV), on the extension of the validity period of Resolution No.42, which consists of pilot measures on bad debt settlement.

Customers at a branch of HDBank in Hanoi. Photo: Viet Linh

Under the new decision, the SBV is tasked with drafting a new resolution to extend Resolution 42’s validity until August 15, 2025, and submit it to the National Assembly for approval.

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. Since then, the SBV noted there has been significant progress in this regard.

As of November 30, 2021, total bad debts according to criteria set out in resolution No.42 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 before the promulgation of Resolution No.42, which was around VND3.52 trillion ($154 million) per month.

The emergence of the Covid-19 pandemic has caused negative impacts on credit quality at banking institutions. The ratio of bad debts in banks has been on the rise since 2020 and stood at over 2% since late November 2021. This, in combination with high-risk loans that could become bad debts, would take the ratio to 7.42%.

Should the pandemic continues to persist for a longer period and bad debts get out of control, the rate could rise above 7.5% and further impact the economy, stated the SBV, noting the presence of the Resolution No.42 would remain key to addressing this issue.