Ho Chi Minh City, 23 September 2025
The settlement of non-performing loans (NPLs) has long been a structural challenge for Vietnam’s banking sector. In 2017, the National Assembly introduced Resolution No. 42/2017/QH14 (“Resolution 42”), a pilot framework that allowed credit institutions, foreign bank branches, and debt trading entities to seize secured assets in order to accelerate bad debt recovery. Over the years, this mechanism helped improve repayment discipline, boosted loan recoveries through sales and auctions, and raised the average monthly NPL settlement from VND 3.52 trillion in the 2012 – 2017 period to VND 5.8 trillion by late 2023. Building on these results, lawmakers have now embedded and strengthened the framework in the Amended Law on Credit Institutions (“Amended CI 2025”), which will take effect on 15 October 2025. This development signals a new phase in Vietnam’s approach to managing and reducing NPLs.
Key Continuities and Enhancements
At its core, the Amended CI 2025 preserves the asset seizure mechanism of Resolution 42 but refines it to address gaps revealed during implementation. The continuties and enhancements are emphasized on the regulation on conditions that credit institutions, foreign bank branches, and debt trading entities must satisfy in order to seize secured assets, including:
- Triggers: Resolution 42 tied the right of seizure to legally recognized enforcement events under the Civil Code (Article 299), such as a debtor’s default or other agreed events. The Amended CI 2025 fully carries this forward, showing no substantive departure.
- Secured Agreement: Both Resolution 42 and the Amended CI 2025 require that the security contract expressly grant the creditor the right of seizure. Here, the Amended CI 2025 simply reaffirms Resolution 42 standard to proper oversight and abuse prevention.
- Third-Party Effectiveness: Resolution 42 restricted enforceability to registered security interests. By contrast, the Amended CI 2025 broadens the condition: seizure may also proceed where the creditor has taken possession or control of the collateral. This is a clear expansion beyond the earlier regime.
- Dispute-Free Condition: Under Resolution 42, collateral could not be seized if subject to disputes, injunctive measures, or enforcement attachment. The Amended CI 2025 retains these exclusions but goes further by adding collateral placed under suspension of disposal in bankruptcy proceedings.
- Additional Conditions: Resolution 42 imposed no further requirements. The Amended CI 2025 introduces a new layer: collateral must also meet conditions to be defined in Government regulations.
- Disclosure Obligations: Resolution 42 mandated public notice before seizure. The Amended CI 2025 keeps this requirement but streamlines notice procedures to avoid delays from outdated or inaccurate addresses, making the process more practical and responsive.
In addition, the Amended CI 2025 maintains the restricted delegation mechanism introduced under Resolution 42, whereby credit institutions may delegate the right of collateral seizure only to their internal asset management companies (AMCs). Moreover, the Amended CI 2025 extends the right of seizure to the acquiring credit institution or its AMC in cases of mandatory transfers.
Implications and Outlook
The new framework is poised to deliver significant benefits for the banking sector and the broader credit market. First, by providing greater legal certainty to asset seizure, it strengthens banks’ ability to recover bad debts and recycle capital. This, in turn, reduces provisioning burdens, improves liquidity, and may enable lower lending rates, an outcome particularly advantageous for SMEs and retail customers with genuine credit needs. Moreover, the reduction in NPL risks is likely to intensify competition among lenders, allowing them to extend more flexible loan terms and expand credit lines. Second, equally notable are the broadened delegation rules, which enhance the toolkit of banks tasked with restructuring weaker institutions through mandatory transfers, such as MB, HDBank, Vietcombank, and VPBank, enabling more effective management of distressed portfolios. Third, beyond the institutional level, debtor behavior is also expected to evolve: with banks armed with clearer legal rights to seize collateral, borrowers may be more motivated to repay on time, cooperate with lenders, and avoid strategic delays, fostering a healthier and more disciplined credit culture overall.
Despite these advances, several challenges remain. First, stronger enforcement powers must be carefully balanced with safeguards for vulnerable borrowers, particularly individuals and SMEs who often lack bargaining power or legal expertise. Without adequate protections, they risk being placed at a disadvantage in disputes or unforeseen circumstances. Second, while the law formally obliges local authorities to assist in asset seizure, practical enforcement may still vary across provinces due to uneven resources and limited guidance. In practice, asset handling becomes particularly difficult due to inconsistent interpretations and implementation by local authorities. For instance, some authorities impose requirements that credit institutions cannot reasonably meet, such as demanding written approval from provincial People’s Committees for the transfer of land use rights, even in cases unrelated to socio-economic development projects, or requiring procedures to convert land use purposes, which are both inapplicable and burdensome. Such inconsistencies could dilute the overall effectiveness of the framework.
Conclusions
The Amended CI 2025 represents a milestone reform in Vietnam’s NPL management framework. It offers banks stronger legal tools, borrowers clearer expectations, and the financial system greater resilience. That said, its success will hinge on effective implementation and balanced protections to ensure that strengthened creditor rights do not come at the expense of fairness or financial inclusion.
As the October 2025 effective date approaches, stakeholders should watch closely for sub-regulations that will shape how the law operates in practice, and ultimately determine whether it delivers on its promise of a cleaner, more dynamic banking system.
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Authors:
Mr. Dang Hoan My – Partner | Co-Head of Corporate and M&A, Projects & Infrastructure
Mr. Ngo Dang Loc – Associate | Deputy Head of Banking & Finance, Capital Markets
Ms. Vu Pham Huyen My – Junior Associate
