[HO CHI MINH CITY] Vietnam’s National Assembly on Friday (Jun 27) voted to approve amendments to the 2024 Law on Credit Institutions, enabling key tools deemed critical to resolving banks’ swelling bad debt burden and supporting ailing lenders. This includes Saigon Joint Stock Commercial Bank (SCB), which is tied to the fallout from imprisoned tycoon Truong My Lan.
The amended law, effective from Oct 15 this year, grants the country’s central bank the authority to extend zero-interest special loans to distressed banks experiencing runs or requiring capital for recovery or mandatory transfer, facilitating early intervention and maintaining overall financial system stability.
It also reinstates banks’ legal authority to seize collateral from delinquent borrowers, even in certain cases involving criminal proceedings. This practice had lapsed following the expiration of a policy document in 2017, locally known as Resolution 42 on the pilot programme for bad debt settlement at credit institutions, which took effect until the end of 2023.
Analysts said the legalisation of those policies into the revised Law on Credit Institutions could revive asset recovery momentum that has flagged over the past one and a half years.
“We expect this legal reform will support bank profitability through improved debt recovery and lower operational costs, aided by a rebound in real estate transactions in 2025,” said Phan Duy Hung, senior analyst for financial institutions at VIS Rating.
Data compiled by the Hanoi-based credit rating and risk assessment firm showed that the implementation of Resolution 42 from 2017 to 2023 increased average monthly bad debt recovery by 65 per cent and lifted voluntary repayments to 36 per cent of total bad debts, up from 23 per cent during the previous five-year period.
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Meanwhile, in the first half of 2024, following the expiration of the rules, borrowers’ willingness to repay declined, and nearly half of the banks’ non-performing loans (NPLs) were addressed through increased risk provisioning.
Weak banks dragging performance
The revised law comes amid mounting stress in the banking sector, particularly among smaller and structurally weaker lenders.
Based on a report by Viet Dragon Securities Corporation (VDSC) earlier this month, citing data provided by the Vietnam Banks Association and the State Bank of Vietnam, systemwide on-balance-sheet bad debt rose to 833 trillion dong (S$40.7 billion) as at the end-February this year, accounting for 5.3 per cent of total outstanding loans. This was up from less than 5 per cent as at end-2024.
The majority of NPLs (65 per cent) were recorded at the five ailing banks that are under the special supervision of the authorities. They included SCB, which is at the heart of Vietnam’s biggest bank fraud in history. The lender’s bad debt ratio stood at a staggering 98.5 per cent as at end-February 2025, up from 20.9 per cent recorded in mid-2017.
In the first three months of 2025, total NPLs of the 27 listed banks rose to 265 trillion dong, surging 16 per cent from that at the end of last year.
“The risk of NPLs continuing to rise sharply in the next quarter remains high,” VDSC wrote. “Potential NPLs, along with outstanding loans to customers likely to be affected by US reciprocal tariff policies, will also contribute to the ongoing upward trend in bad debts.”
VIS Rating’s Hung added that banks with significant exposures to foreign-invested companies, such as Vietcombank and the Bank for Investment and Development of Vietnam, and those having large mass-market consumer finance portfolios, such as VPBank, HDBank and MBBank, are particularly vulnerable to deteriorating asset quality amid any economic disruptions caused by the trade turmoil.
However, he expects the sector’s NPL formation rate to decline in 2025, driven by an improving real estate market that reduces retail mortgage delinquencies, along with government policies that support economic growth and gradually enhance corporate borrowers’ debt servicing capacity.
Vietnam aims to expand its economy by at least 8 per cent this year, from 7.1 per cent in 2024. This goal is supported by the central bank’s accommodative monetary measures, with credit growth targeted at 16 per cent in 2025, up from 15 per cent last year.
Credit in the first five months of this year grew at a record-high rate of 6.5 per cent from the end of 2024, compared to last year’s 2.4 per cent during the same period.
Critical ongoing concerns
Speaking in front of the National Assembly on Jun 19, State Bank governor Nguyen Thi Hong warned that with the 2024 credit-to-gross domestic product ratio reaching 134 per cent, continued overreliance on bank funding could pose risks to the financial system and cause adverse effects on the economy. This makes it difficult to achieve both high and sustainable economic growth.
VIS Rating’s Hung pointed out that rapid credit expansion into higher-risk sectors, such as real estate and construction, as well as governance risks tied to cross-ownership between banks and corporate groups, remain key concerns for Vietnamese banks’ asset quality.
“These close linkages create significant operational risks for banks and amplify their vulnerability to large corporate failures, shifts in market sentiment, and runs on their customer deposits,” he noted.
SCB faced a bank run in October 2022, right after the arrest of its de facto owner Truong My Lan, who also chaired the real estate conglomerate Van Thinh Phat Group. The central bank has since reportedly extended multibillion-dollar bailouts to stabilise the lender.
Several plans have been proposed by related parties to restructure the troubled bank and handle assets linked to the fraud case, but none have received official approval from the authorities so far.
