Pháp luật về mua bán nợ xấu từ hoạt động cho vay của các tổ chức tín dụng ở việt nam tt tiếng anh

MINISTRY OF EDUCATION AND TRAINING
MINISTRY OF JUSTICE
HANOI LAW UNIVERSITY

HOANG VAN THANH

REGULATIONS ON THE TRADING IN BAD DEBTS
RESULTING FROM CREDIT INSTITUTIONS LENDING
ACTIVITIES IN VIETNAM

SUMMARY OF THE DOCTORAL THESIS IN LAW

HA NOI, 2019


The work was completed in:
HANOI LAW UNIVERSITY

Scientific supervisors

1: Ass.Prof.Dr. Nguyen Thi Anh Van
2: Dr. Le Dinh Vinh

Reviewer 1:
Reviewer 2:
Reviewer 3:

The thesis was defened at the Council of thesis assessment of Hanoi Law Univeristy at ....
on ...../..../......

The thesis can be further referred at the:

1. National Library
2. Library of Hanoi Law University


INTRODUCTION
1. The rationale of the topic
In the operation of credit institutions, bad debts arising from lending activities to
customers tend to increase in recent years although credit institutions have tightened
lending conditions and applied different risk prevention measures. In response to this
negative trend, credit institutions have been forced to promote solutions to handle bad
debts, in which, selling bad debts to organizations and individuals who are interested in
is considered as the most feasible solution.
Although asset management companies under credit institutions (abbreviated as
AMC) have been established and operated early, the writing off of NPLs were
ineffective and insystematic. Therefore, on May 18, 2013, the Government issued
Decree No. 53/2013/ND-CP on establishing Vietnam Asset Management Company for
credit institutions (abbreviated as VAMC). Since its establishment in October 2013 to
December 31, 2017, VAMC purchased VND 277,755 billion of 26,221 bad debts from
16,269 customers at credit institutions with the total principals of VND 307,932 billion,
thereby bringing the NPL ratio of the banking sector down from 3.61% in 2013 to
2.18% at the end of 20171.
Along with VAMC and AMCs, Vietnam Debt and Asset Trading Corporation
(DATC) is also a special entity participating in the trading of bad debts. However, the
NPL trading capacity of DATC is not significant. As reported by DATC, the company
purchased and resolved more than VND 7,132 billion of bad debt and nearly VND
7,000 billion in 20172. Those figures were remarkable; however compared to the huge
scale of bad debts in the whole system which was about VND 600,000 in 2016 and
VND 566,000 in 2017, the role of DATC is still very small 3.
The trading of bad debts in the market is not really effective and hasn’t resolved
the root of the problem which mainly stems from current law provisions. There have

been so many different Vietnamese laws regulations on the bad debt trading between
credit institutions as sellers and VAMC and other entities as buyers that it has lead to
uncertainties and controversy. Even for many provisions it’s difficult to apply in
practice, such as Decree 34/2015/ND-CP on bonds and special bonds which include
many limitations for credit institutions to hold. Also there still lacks of a guarantee
mechanism of the Government or SBV. Another is Resolution No. 42/2017/QH14
allowing VAMC to buy bad debt at market value and pay in cash, however there still
lacks of effective plans to mobilize capital for VAMC.
Along with that, a number of legal documents have been issued by competent
state agencies to diversify entities participating in buying and selling bad debts in the
market, in addition to professional debt trading companies, credit institutions are
allowed to buy and sell bad debts of other credit institutions, domestic and foreign
organizations and individuals. Especially a legal mechanism for the establishment of a
business model specialized in trading bad debts has been introduced, however,
regulations on legal capital and conditions for managers and executives when
1

Report on 5 year operation of VAMC
Fianancial statements in 2016, 2017 of DATC
3
National Financial Supervisory Commission: Financial Supervison Reports in 2016, 2017
2

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establishing a debt trading service enterprise in Decree 69/2016/ND-CP are not suitable
in reality.
Those regulations are generally barriers to bad debt trading activities, puttiting
pressure on credit institutions to choose a suitable plan to sell bad debts to VAMC or

other entities. Therefore, in order to promote the role and effectiveness of VAMC and
other debt buyers in practice, it is necessary to develop a legal system to regulate the
relationship of bad debt buying and selling synchronously and completely, thereby
improving the enforcement effectiveness of those regulations.
Based on the above reasons, selecting the topic “Regulations of trading in bad
debts resulting from credit institutions lending activities in Vietnam” as a doctoral
thesis is necessary and meaningful in both theorical and practical aspects.
2. Research purposes and tasks
2.1. Research purpose
The research purposes are to clarify fundamental theoretical issues about bad
debt trading and regulations on the trading of bad debts from lending activities of credit
institutions which therefore serves as a basis for assessing the appropriateness as well as
limitations of existing legal provisions on the trading of bad debts from lending
activities of credit institutions in Vietnam; pointing out causes of such limitations of
effective laws, thereby proposing solutions or measures to improve legal regulations
taking into account the conformity between the law and practical requirements of
trading bad debts from lending activities of credit institutions in Vietnam.
2.2. Research tasks
- Analyzing and clarifying criteria for classification of bad debts, the role of
entities involved in buying and selling bad debts, prices, trading methods and payment
instruments in NPL transactions.
- Assessing the legal status of the trading of bad debts from lending activities of
credit institutions in Vietnam and practical application of legal provisions of trading bad
debts from lending activities of credit institutions over time.
- Proposing solutions or measures to improve the law and improve the
effectiveness of law enforcement on the trading of bad debts from lending activities of
credit institutions in Vietnam in the coming time.
3. Object and scope of the research
3.1. Object of the research
- Legal scientific views on trading bad debts from lending activities of credit

institutions;
- Current Vietnamese laws on trading bad debts from lending activities of credit
institutions;
- Practical implementation of the provisions of Vietnamese law on trading bad
debts from lending activities of credit institutions;
- Experiences in developing legal regulations and practical implementation of
such regulations on trading bad debts in order to resolve increasing NPL ratio in the
banking system in some Southeast Asia and East Asia countries with conditions and
circumstances similar to Vietnam.
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3.2. Scope of the research
- Content: The thesis studies fundamental theoretical issues about trading bad
debts from lending activities of credit institutions and current legal provisions of
Vietnamese laws on trading bad debts from lending activities of credit institutions.
Specifically, the thesis defines:
Firstly, to focus on studying bad debts arising from lending activities of credit
institutions to customers.
Secondly, to focus on studying trading transactions of bad debts between credit
institutions (as sellers) with organizations and individuals purchasing bad debts (as
buyers), which is the relationship of trading bad debts in the primary market.
- Time: The thesis focuses on studying the current legal provisions on trading
bad debts from lending activities of credit institutions.
- Place: The thesis studies the laws and regulations on trading bad debts from
lending activities of credit institutions in Vietnam. Additionally, during the research
process, when needed, corresponding legal provisions and law enforcement experiences
of some countries with conditions similar to Vietnam such as Thailand, Korea, China ...
will be referred to in order to clarify some remaining problems related provision in
Vietnamese law.

4. Research methods
In order to clarify the research purposes and tasks, the thesis is based on the
methodology of Marxism - Leninism and Ho Chi Minh thought to study fundamental
theoretical issues of the trading of bad debts, transcation subjects, prices, trading
methodsand payment instruments in the relationship of trading bad debts.
Additonally, during the research process, the thesis uses some of the following
specific research methods:
- Method of analysis.
- Statistical method.
- Expert consultancy method
- Comparative law method.
5. Contributions of the thesis
Firstly, the dissertation fully and comprehensively addresses some fundamental
theoretical issues on bad-debts trading and the regulations of trading in bad debts
resulting from credit institutions’ lending activities (hereinafter, bad debts).
Secondly, the dissertation clearly identifies the conceptual differences between
bad debts and nonperforming loans, and also points out that quantitative and qualitative
criteria for defining bad debts under the Vietnamese laws almost reach international
standards of bad debts as recognized by the IMF and Basel.
Thirdly, the dissertation points out the role, strength and weaknesses of entities,
including professional-debt-trading companies such as VAMC and DATC, enterprises
providing debt trading services, and domestic and foreign institutional and individual
investors, who engage in the business of bad-debts-trading in the primary market.

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Fourthly, the dissertation clarifies the need to develop a plan of trading in bad
debts at their market value at the time of purchase, thereby defines the nature of trading
relation in market economy in order to reduce risks for debt buyers, especially for

VAMC, who uses fund from the state budget to buy bad debts.
Fifthly, the dissertation proves the leading role of the negotiation method in the
formation of bad-debt-trading contracts and in accelerating the VAMC process of
"collecting" bad debts from credit institutions.
Finally, the dissertation point out the limitations and shortcomings of payment
tools such as bond and special bond used in bad-debts-trading as well maintains that
such payment tools should be replaced by cash if those transactions entered into by
credit institutions and VAMC.
6. Theoretical and practical significance of the thesis
- The thesis is a systematic and comprehensive scientific research work
addressing fundamental theoretical issues about trading bad debts and regulations on
trading bad debts from lending activities of credit institutions.
- The thesis is a useful resource for competent state agencies in assessing the
effectiveness of legal provisions on trading bad debts from lending activities of credit
institutions, as a basis to improve related regulations in the coming time.
- The thesis is also a valuable source of materials for scientific research, teaching
and learning on trading bad debts and regulations on trading bad debts from lending
activities of credit institutions.
7. Structure of the thesis
For defined research purposes and tasks, in addtition to the introduction,
conclusion, list of published works related to the thesis, references, abbreviations,
appendices, the thesis is structured into four chapters as follows:
- Chapter 1: Overview of research on regulations on trading bad debts from
lending activities of credit institutions
- Chapter 2: Fundamental theoretical issues about trading bad debts and
regulations on trading bad debts from lending activities of credit institutions
- Chapter 3: Current situation of regulations on trading bad debts from lending
activities of credit institutions in Vietnam
- Chapter 4: Solutions to improve the law on trading bad debts from lending
activities of credit institutions in Vietnam

CHAPTER 1: OVERVIEW OF RESEARCH ON REGULATIONS ON TRADING
BAD DEBTS FROM LENDING ACTIVITIES OF CREDIT INSTITUTIONS
1.1. Overview of domestic and foreign research
1.1.1. Domestic research
Most researchers have demonstrated the similarity of Vietnamese law with
international standards for classification of bad debts, as well as the need to establish a
debt trading company with working capital funded by the State budget. Also, when
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assessing valuation methods for bad debts and payment instruments, researchers all said
that trading bad debts at book value by issuing special bonds would help to accelerate
the writing off of bad debts as this measure ensures full benefits of credit institutions
when selling bad debts to the state debt trading company.
However, published research still has many limitations and shortcomings as
many authors have been confused between “bad debt” and “doubtful debt”. In addition,
researchers have not yet demonstrated the role of such factor in forming a market for
future bad debt trading. And there haven’t been any insight into the importance of
private debt trading companies.
1.1.2. Foreign research
Research works by foreign authors have initially pointed out the 90-day overdue
mark as a basis to place a debt on the group of bad debts, and those works also
emphasized the role of establishing an asset management company with working capital
funded capital from the state budget and support of the Government.
When studying trading prices, published works have shown that there are two
methods selected by countries: one is trading at book value, the other is trading at
market value. Accordingly, depending on the target of dealing with bad debts by each
country, a trading method by book value or market value will be chosen.
Research on payment instruments in trading bad debts, it is believed that in order
to reduce pressure on the state budget, it is necessary to issue bonds as payment

instruments in the trading of bad debt between stated funed debt trading companies with
banks, instead of paying directly in cash like normal asset trading.
1.2 Overview of research activities related to the basic contents of the thesis
First, published research works related to the objects of the bad debt trading
relationship
Most research works share the same view in classifying bad debts. Accordingly,
a bad debt basically is determined based on two factors: a debt overdue more than 90
days and suspicious ability to repay the debt.
Secondly, published research works related to the subjects involved in trading
bad debts
Current researches expose conflicting views on the subjects participating in bad
debt trading as to what subjects can participate, the role of each entity in the debt
trading market; debt trading companies set up by the state should be in form of a jointstock company or a one-member limited liability company; where are operation
fundings for those companies.
Thirdly, published research works related to methods to determine a purchase
price of bad debts
It is agreed in published research works of different authors that there are two
methods to determine a purchase price of bad debts, including bad debt trading at
market value and at book value. Each method plays its own role.
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Fourthly, published research works related to trading methods of bad debts
Published research works of domestic and foreign authors have shown two basic
methods that parties can choose including negotiation and auctions. The selection of
trading method is greatly influenced by chosen valuation methods of bad debts along
with capital used for payment in the transaction.
Fifthly, published research works related to payment instruments
Most domestic and foreign published research works share the same view which
is instead of directly paying in cash to banks selling bad debts, debt trading companies

shall issue special bonds for payment to banks.
1.3. Research questions and hypothesis
1.3.1. Research questions
Research was done to find the answer to question: " Do legal provisions on
trading bad - debt from lending activities of credit institutions in Vietnam have
limitations that need to be overcome to ensure that this law really promotes the
resolution of bad - debt thoroughly and effectively in the system of credit institutions in
Vietnam?” To find answers to this question, the thesis will be researched to find
answers to some of the following small questions:
- Bad - debt is formed directly from lending activities of credit institutions to
customers, however, are all principal and interest that customers cannot fully pay
become bad - debt when they are due? Need to base on criteria for overdue repayment
period or based on credit institution's assessment of customer's ability to repay to
determine it as a bad - debt?
- When deciding to sell bad - debt to recover capital and bring bad - debt to a
minimum level of safety; can credit institutions choose to sell bad - debt to any entity
that has appropriate or suitable financial needs and must bad - debt be sold to stateowned asset Management Company?
- In order to protect the interests of parties in bad - debt trading, the price of
trading bad - debt in all transactions needs to be determined according to market value
or case by case, the parties can choose a flexible way method of determining prices
according to book value or market value?
- In order to establish the relationship of trading bad - debt, is choice of
negotiation or auction method decided by the parties or according to the direction of the
State?
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- In order to ensure that bad - debt trading and purchasing relationship is
completely and thoroughly resolved, bad - debt of credit institutions is completely
settled, should payment documents (money or valuable documents) be used flexibly in

bad - debt trading transactions or have to use money payment tool in any case?
1.3.2. Research hypothesis
Based on study of the State Bank Law, the Law on Credit Institutions, the Civil
Code and the Commercial Law and documents guiding the implementation of these
laws, the thesis sets up two research settlements to cover all possibility may occur as
follows:
(1) In order to effectively resolve the situation of bad – debt in lending activities
of credit institutions, it is necessary to have appropriate legal regulations to adjust this
activity, accordingly: overdue bad - debt of more than 90 days and debts owed by credit
institutions assessments are unable to fully recover principal and interest should be
considered bad - debt; all organizations and individuals with needs and financial
capacity are allowed to participate in trading bad - debt; book value or market value of
bad - debt can be flexibly used as purchase price of bad - debt in each case; the parties
have the right to choose the method of agreement or auction to establish the relationship
of trading bad - debt; Payment instruments (money or valuable papers) are flexibly used
in transactions of trading bad – debt.
(2) In order to effectively resolve the situation of bad - debt in lending activities
of credit institutions, it is necessary to have appropriate legal regulations to adjust this
activity, whereby all overdue debts that debtors cannot pay both principal and interest
should be considered as bad - debt; in addition to state-owned debt trading companies,
other individuals and organizations are not allowed to purchase bad - debt of credit
institutions; methods of determining market value trading must be considered in all bad
- debt transactions; the state intervenes in all bad - debt transactions, forcing the
participants in the transaction to use the auction method to establish bad - debt trading
relations; and valuable papers are the only payment instrument allowed to use in the
purchase and sale of bad - debt.
CONCLUSION OF CHAPTER 1
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CHAPTER 2: FUNDAMENTAL THEORETICAL ISSUES ABOUT TRADING
BAD DEBTS AND REGULATIONS ON TRADING BAD DEBTS FROM
LENDING ACTIVITIES OF CREDIT INSTITUTIONS
2.1. Fundamental theoretical issues about trading bad debts and regulations on
trading bad debts from lending activities of credit institutions
2.1.1. Definition of bad debts from lending activities of credit institutions
Bad – debt from lending activities of credit institutions is a type of property right
formed when repayment obligations of customers to credit institutions are not
implemented or implemented insufficiently after a certain period of time or are
determined by credit institutions that customers are no longer have the ability to fulfill
their repayment obligations.
2.1.2. Definition of trading bad debts from lending activities of credit
institutions
Trading bad debts from lending activities of credit institutions is transfer of bad
debts arising from customer lending activities of credit institutions (as seller) to
individuals and organizations wishing to purchase debts (as buyer) at prices and in
payment methods agreed upon by the parties in accordance with legal provisions.
2.1.3. Characteristics of trading bad debts from lending activities of credit
institutions
Firstly, in essence, trading bad debts is a separate activity of the market economy.
Secondly, the object of trading bad debts from lending activities of institutions is
always bad debts arising from customer lending activities of credit institutions.
Thirdly, subjects participating in transactions of bad debts from lending
activities of credit institutions always include credit institutions owning bad debts (as
seller) and organizations and individuals in need of buying bad debts (as buyer).
Fourthly, trading bad debts from lending activities of credit is a high-risk activity
Fifthly, trading bad debts from lending activities of credit institutions follow
market principles with intervention of the State.
Sixthly, participants all aim to generate profits and lower the bad debt ratio of
the banking system.

Seventhly, the legal form of the relationship of trading bad debts from lending
activities of credit institutions is a bad debt purchase contract.
2.1.4. The role of trading bad debts from lending activities of credit institutions
a. For the subjects of trading bad debts
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Firstly, for sellers: (1) Credit institutions can reduce pressure from bad debts,
clean their balance sheets; (2) Credit institutions have an opportunity to improve their
credit ratings; (3) Writing off bad debts helps to accelerate available capital turnover of
credit institutions, increasing capital use efficienc and liquidity of the whole banking
system.
Secondly, for buyers: Although bad debts present potential high risks, it is likely
that they can also bring big profits for buyers, and it is a solution to quickly resolve bad
debts of the system.
b. For the economy
From a macroeconomic perspective, buying and selling bad debts of credit
institutions plays an important role in removing bottlenecks for the economy,
facilitating capital flows and promoting business entities to develop.
2.2. Fundamental theoretical issues about regulations on trading bad debts from
lending activities of credit institutions
2.2.1. Legal concept of trading bad debts from lending activities of credit
institutions
Regulations on trading bad debts from lending activities of credit institutions is a
system of legal regulations issued by the State to regulate the relationship of buying and
selling bad debts among credit institutions (acting as sellers) with professional debt
trading companies, organizations and individuals buying bad debts (acting as buyers)
in order to resolve the rising bad debt trend in the banking system, directing bad debt
trading activities to objectives set by the State.
From the above definition, it can be seen that regulations on trading bad debts

from lending activities of credit institutions are featured by following basic
characteristics:
Firstly, regulations on trading bad debts from lending activities of credit
institutions is a part of regulations on general asset trading in civil relations.
Secondly, regulations on trading bad debts from lending activities of credit
institutions contributes to creating a level playing field for parties to buy and sell bad
debts, thereby protecting legitimate interests of the parties and ensuring their obligations
to be fulfilled.
Thirdly, regulations on trading bad debts from lending activities of credit
institutions ensures that debt trading companies focus on properly and transparently
using allocated state capital.
Fourthly, regulations on trading bad debts from lending activities of credit
institutions naturally help to clean up and reorganize the debt trading market.
2.2.2. Factors affecting regulations on trading bad debts from lending activities of
credit institutions
Firstly, impacts by economic factors
Secondly, impacts by political factors
Thirdly, impacts by benefit factors
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Fourthlly, impacts by ingreation trend
2.2.3. Main contents of regulations on trading bad debts from lending activities of
credit institutions
Firstly, regulations on the transaction object
The object of bad debt transaction is bad debts, a kind of property rights. Bad
debts are subprime debts, overdue payment of principal and interests and are in doubt of
repayment and recovery ability. In particular, to understand this concept or determine
bad debts, it can be based on qualitative and quantitative methods through criteria of
overdue repayment term and debt recovery ability, including: (1) overdue repayment of

principal and interests; (2) customer loans are assessed by credit institutions as
incapable of repayment.
Secondly, regulations on the transaction subjects
Firstly, sellers: To become a debt seller, an entity must satisfy the following two
conditions: (1) the debt seller must be a credit institution; (2) owning bad debts arising
from lending to customers.
Secondly, buyers: Depending on how the current bad debt trading market is
developing and how bad debts are growing in the banking system, the buyer includes
the following subjects:
-

Professional debt trading companies
Debt trading companies established by the State
Individuals and organization interested in purchasing bad debts

Thirdly, debtors, brokers, auction organizations: In addition to the sellers and the
buyers, debtors, brokers and auction organizations also participate and have certain
contributions to the trading process, such as making contact, establishing and
implementing the trading relationship between the seller and buyer.
Thirdly, regulations on transaction prices
Trading prices are normally defined by two following methods:
Firstly, the method of valuation at market value of bad debts
Accordingly, buying and selling prices are determined according to the actual
value of bad debts at the time of trading, taking into account the ability to recover
principals in order to limit risks of buyers.
Secondly, the method of valuation at book value of bad debts
This method is mainly applied to transaction with participation of state debt
trading compaies which are established to implement state political objectives and
monetary policies. Accordingly, bad debts are sold at their book value, regardless
potential risks or the ability to recover principals.

Fouthfly, regulations on trading methods
Normally, in order to conduct the purchase and sale of bad debts, the parties may
agree to choose one of the following methods:
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Firstly, the method of buying and selling bad debts through a negotiation
mechanism
Accordingly, the parties shall negotiate and come to an agreement on
establishing a purchase contract.
Secondly, the method of buying and selling bad debts through auctions
Accordingly, credit institutions will conduct auctions of bad debts by themselves
or through a professional auction organization tovalue bad debts which shall be act a
basis for transferring bad debts from sellers to buyers.
Fifthly, regulations on payment instruments
Firstly, payment by bonds, special bonds issued by the buyers
The nature of the payment by issuing bonds and special bonds is that credit
institutions are not allowed to pay directly in cash when selling bad debts but only
receive special bonds and bonds issued by debt trading companies.
Secondly, payment in cash
This payment instrument is mainly applied in transactions between credit
institutions and debt-buying organizations and individuals. However, in some special
cases, when bad debts are assessed with high recovery ability and meeting other special
conditions, centralized debt trading companies can buy debts and pay in cash to credit
institutions rather than bonds and special bonds.
CONCLUSION OF CHAPTER 2
CHAPTER 3: CURRENT SITUATION OF REGULATIONS ON TRADING BAD
DEBTS FROM LENDING ACTIVITIES OF CREDIT INSTITUTIONS IN
VIETNAM
3.1. Regulations on the transaction object

3.1.1. Definition of bad debt
According to the Circular No. 02/2013/TT-NHNN amended by Circular No.
09/2014/TT-NHNN, there are two basic criteria for identifying bad debts, which are
debts overdue 91 days or more; or debts assessed by credit institutions as incapable of
recovering principal and interests when due 4. From current provisions on bad debts,
some issues can be drawn as follows:
Firstly, there is a fundamental difference between the concept of bad debts and
Nonperforming loans (NPLs).
Secondly, there are similarities in the criteria for identifying bad debts in
Vietnam with standards recognized by international financial institutions.

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Article 10, 11 Circular 02/2013/TT-NHNN

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3.1.2. Conditions of a bad debt
Firstly, records, invoices and related documents of the purchased debt, a
guarantee contract (if any) provided by the seller must fully and accurately reflect the
current status of the debt in accordance with the law.
Secondly, there is no written agreement on not buying or selling the debt.
Thirdly, the debt cannot be used to secure a civil performance obligation at the
time of debt purchase or sale, unless the secured party agrees in writing on the sale of
debt.
3.1.3. Transfer of rights and obligations related to bad debts
When selling bad debts, credit institutions simultaneously transfer rights and
obligations related to bad debts, but this provision is in conflict with the Land Law
2013. According to Articles 174, 175 and 176 of the Law Land 2013, land use

organizations can only use land use rights and assets attached to the land to apply for for
mortage loans at credit institutions licensed to operate in Vietnam. This provision
unexpectedly caused difficulties for collecting collateral assets by debt buyers because
the buying party in this relationship varies from credit institutions to non-credit
institutions such as VAMC, DATC, debt trading companies and organizations and
individuals who aren’t functioning at debt trading.
3.2. Regulations on the transaction subjects
3.2.1. Debt sellers
According to Article 3 of Circular 09/2015/TT-NHNN, a debt seller is a credit
institution that owns bad debt arising from lending activities. Only credit institutions are
entitled to participate in the primary debt trading market as debt sellers.
Selling bad debts is the right of credit institutions who own bad debts. This
power of the debt seller is expressed in terms of: (1) the right to choose which bad debt
to be sold to buyers and (2) the right to choose suitable buyers. However, this right is
restricted by law under certain circumstances.
Firstly, credit institutions are not allowed to sell debts to their own subsidiaries,
except for selling debts to their asset management company under an approved
restructuring plan.
Secondly, in certain cases, credit institutions are forced to sell bad debts to a
buyer specified by the law to ensure the safety of such credit institutions in particular
and the whole system in general. Specifically, Clause 1 of Article 21 of Circular
19/2013/TT-NHNN stipulates: “Credit institutions with the bad debt ratio to total
outstanding debts of 3% or over, shall sell debts to Vietnam Asset Management
Company (VAMC)”.
3.2.2. Debt buyers
a. Credit institutions and foreign bank branches are allowed by the State
Bank to implement purchase activities of bad debts
12

Credit institutions who satisfy the following conditions: (1) allowed by the SBV
to carry out debt purchase activities in their business registration certificate and (2)
having bad debt ratio below 3% can participate in buying bad debts of other credit
institutions.
b. Vietnam Asset Management Company (VAMC)
Firstly, regarding the owner of VAMC: VAMC is a special state-owned
enterprise, so a limitation of VAMC is that its operation is under the government’s
control and intervention.
Secondly, regarding the legal form of VAMC: VAMC is a special enterprise
operating in the form of a one member limited liability company, thus with limited
capital scale.
Thirdly, regarding the operation of VAMC:
(1): VAMC only buys bad debts classified in group 3, 4 and 5.
(2): VAMC only buys bad debts incurred in the operation of domestic credit
institutions and isnt’ allowed to buy bad debts of foreign credit institutions and of other
non-credit institutions in the country.
Fourthly, regarding the operation purpose of VAMC: VAMC is a special tool of
the government contributing to quickly resolve bad debts aiming to the national
financial health.
c. Vietnam Debt and Asset Trading Corporation (DATC)
Although buying bad debts of credit institutions is one function of DATC, the
agency’s capacity to buy bad debts is indeed very limited because of lack of legal basis
for DATC to participate in the market of buying and selling bad debts of credit
institutions.
d. Asset management companies under credit institutions (called AMC)
Activities of AMCs are very fuzzy, mainly resolving bad debts of mother banks
and it’s difficult for them to access debts of other credit institutions.
e. Enterprises dealing in debt trading services
It’s too strict when it comes to conditions for the establishment of a debt trading
service enterprise as stipulated by the law, which has hindered related goals set by the

Government and the State Bank. For example, there is a requirement of charter capital,
investment capital which is VND 10 billion at least or there are qualification
requirements for managers of debt trading service enterprises, which are “having
university or higher education degrees in one of following fields: economics, business
administration, laws or other expertises to undertake”.
f. Other individuals and organizations
It’s limited for domestic and foreign organizations and individuals to participate
in the purchase and sale of bad debts due to a lack of incentives from the State and lack
of interest of credit institutions themselves.

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3.3. Regulations on methods to determine a purchase price of bad debts
3.3.1. Valuation at book value
According to a report on operation and development investment from 2013 to
December 31, 2017, VAMC has bought VND 307,932 billion of principals at a cost of
VND 277,755 billion. With those results achieved, VAMC has made an important
contribution to resolving bad debts of credit institutions. However, how this method
works in practice depends very much on the payment instrument that VAMC uses to
pay credit institutions when buying bad debts.
3.3.2. Valuation at market value
Firstly, in the relationship of bad debt trading between credit institutions
(sellers) and VAMC (buyers)
Clause 2, Article 14 of Decree 53/2013/ND-CP stipulates: “Vietnam Asset
Management Company shall purchase a non-performing loan from a credit institution
at the market value on the basis of agreement and revaluation of such loan”. When
trading bad debts at market value, VAMC and credit institutions agree to select an
independent valuation agency. On that basis, the selling price is the price valued by the
independent advisor. The participation of the independent in determining the selling

price ensure bad debt is assessed independently and objectively, close to market value in
order to avoid self-interest or brackets between VAMC and credit institutions selling
bad debts .
Secondly, in the relationship of bad debt trading between credit institutions
(sellers) and other buyers.
Clause 1, Article 12 Circular 09/2015/TT-NHNN stipulates that the debt
purchase and sale price shall be determined based on the book value of the debt and
interest that the debtor shall pay in future, classification of debt group, recoverability of
the debt and value of collateral assets.
3.4. Regulations on trading methods
3.4.1. Negotiation method
In order to conduct purchases in this method, the seller and the buyer will
directly meet, contact and negotiate basic contents of the contract such as: specific debt
to be traded, purchase and sale price, payment method, ... or through a broker to bridge
the seller and buyer.
In the relationship of buying and selling bad debts between credit institutions and
VAMC, the negotiation method is attached to the method of valuation at book value as
specified in Article 7 of Decree No. 53/2013/ND-CP.
3.4.2. Auction method
The auction method shall be conducted by the debt seller who shall hire a
professional auction organization according to legal provisions on asset auction or
organize the auction by itself. Then through auction activities by the professional
agency, the value of collateral assets will be assessed objectively and close to market
value.
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3.5. Regulations on payment instruments
3.5.1. Payment through the issuance of bonds and special bonds
Firstly, VAMC issues special bonds to swap bad debts

In Vietnam, the initial capital allocated to VAMC was VND 500 billion, then
was raised to VND 2,000 billion, however, the amount was still too small compared to
the scale of bad debts in the whole system, and therefore buying bad debts by issuing
special bonds is the most feasible solution. However, this tool has some limitations such
as (1) the term of special bonds is maximum 5 years, so after 5 years, if VAMC cannot
write off bought bad debts, VAMC will return them credit institutions; (2) credit
institutions must make annual provisions against special bonds which are booked as
operating expenses at a rate not lower than 20% of the bond value during the bond term;
(3) Special bonds are locked for transfer.
Secondly, VAMC issues bonds to swap bad debts
Compared to special bonds, bond issurance brings outstanding advantages for
credit institutions as follows: (1) Bonds are transferred between SBV and credit
institutions and among credit institutions; (2) Credit institutions owning bonds do not
have to make provisions against bonds; (3) The risk factor of bonds is 0% when
calculating the minimum capital adequacy ratio (CAR) of credit institutions; (4) Bonds
and special bonds are used to refinance at SBV in accordance with SBV's regulations;
bonds can be traded in open market operations.
Although as stipulated in the law, some certain right have been extended for
credit institutions owning bonds, however, the liquidity of this instrument is still
limited. Compared to cash payment, bond issuance is clearly not enough to attract credit
institutions to sell bad debts to VAMC.
3.5.2. Payment in cash
This method is recognized as an effective solution to accelerate the bad debt
settlement process at credit institutions, but there are still some barriers such as:
Firstly, capital sources for VAMC to pay in cash to credit institutions is very
limited, while the ability to access cooperative capital sources with international
financial organizations is not simple.
Secondly, it’s not easy for credit institutions to satisfy requirements by VAMC to
get payment in cash.
CONCLUSION OF CHAPTER 3

CHAPTER 4: SOLUTIONS TO IMPROVE THE LAW ON TRADING BAD
DEBTS FROM LENDING ACTIVITIES OF CREDIT INSTITUTIONS IN
VIETNAM
4.1. Basic requirements of completing the law on trading bad debts from lending
activities of credit institutions in Vietnam in the current period

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4.1.1. Ensure compliance with legal provisions on the purchase and sale of bad
debts from lending activities of credit institutions and government socio-economic
development policies
4.1.2. Improve the law on trading bad debts closely based on and oriented to
developing a debt trading market
4.1.3. Completing the law on trading bad debts is required not to put pressure on
the state budget
4.1.4. Improving the law shall be on the basis of ensuring independence in the
administration of the national monetary policy of SBV
4.1.5. Satisfy requirements and Vietnam’s commitments in international
integration the banking sector
4.2. Some solutions to improve the law on trading bad debts from lending activities of
credit institutions in Vietnam in the current period

Firstly, amending provisions on the definition of bad debts stipulated in
Circular 02/2013/TT-NHNN, amending and supplementing Circular 09/2014/TTNHNN
Clause 8 Article 3 Circular 02/2014/TT-NHNN explains: “Bad debts are debts of
groups 3, 4 and 5”. However, the abbreviation of NPL has caused confusion between
the definition of bad debts and non-performing loans or NPLs.
Secondly, amending provisions of Articles 174, 175 and 176 of theLand Law
2013 on the right to seize collateral assets which are land use rights and assets

attached to land
Accordingly, it is necessary to consider amendments to provisions of Articles
174, 175 and 176 of the Land Law 2013 in a way that allows debt buyers of credit
institutions to exercise the rights of credit institutions in seizing collateral assets which
are land use rights and assets attached to land.
Thirdly, supplementing conditions on capital sources of credit institutions used
to purchase bad debts of other credit institutions as stipulated in Clause 3, Article 5 of
Circular 09/2015/TT-NHNN
Based on the principle stipulated in Clause 1, Article 103 and Clause 1, Article
110 of the Law on Credit Institutions 2010, it is necessary to regulate that credit
institutions shall only use their own internal capital including charter capital and
reserves and undistributed profits to buy bad debts of other credit institutions.
Fourthly, amending regulations on legal forms to increase capital mobilization
capacity of VAMC in Clause 2, Article 3 of Decree 53/2013/ND-CP
In this case, attracting capital from international financial institutions or domestic
and foreign investors through the equitization of VAMC can be a revolutionary
solution. However, in order to ensure the state regulating role, the equitization of
VAMC should follow stages with different amounts of offering shares but remain the
controlling share of the government in VAMC.
Fifthly, removing regulations on legal capital and standards and conditions for
managers of debt trading enterprises in Decree No. 69/2016/ND-CP
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In order to facilitate the establishment of debt trading service enterprises, it’s
necessary to remove the charter capital and investment capital requirement of minimum
VND 100 billion in Clause 2, Article 5 and Clause 2, Article 7 of Decree 69/2016/NDCP. At the same time, it’s recommended to remove debt trading services out of the List
of conditional business lines stipulated in Item 36, Appendix 4 issued with the Law No.
03/2016/QH14 amending, supplementing Article 6 and Appendix 4 on the List of
conditional business lines of the Law on Investment. In addition, it is necessary to

consider to remove Point b, c, Clause 3, Article 5 of Decree No. 69/2016/ND-CP on
standards and conditions of managers of debt trading service enterprises.
Sixthly, removing the provision that allows VAMC to buy bad debts of credit
institutions at book value in Decree No. 53/2013/ND-CP
After the early phase ends, the bad debt purchase and sale relationship should
actually reflect the nature of the market, selling prices must be determined at market
value. Therefore, a focused measure needs to be quickly implemented by the
Government and SBV in the current period is to remove the method of valuing bad
debts at book value as stipulated in Decree 53/2013/ND-CP, accordingly force VAMC
to buy bad debt at market value.
Seventhly, amending provisions exposing limitation of special bonds specified
in Article 21 of Decree 34/2015/ND-CP and Clause 9 Article 1 of Circular
14/2015/TT-NHNN
Therefore, in order to increase the attractiveness of this instrument, it is required
that the SBV should consider giving credit institutions the right to hold such instrument,
such as: (i) being entitled to transfer special bonds with the SBV or with credit
institutions; (ii) not having to book provisions against those bonds during the time
holding them; (iii) special bonds can be used in open market operations.
Eightthly, supplementing provisions on the Government or SBV's guarantee
for bonds and special bonds issued by VAMC
When bonds and special bonds are guaranteed by the Government or SBV,
benefits of credit institutions will be ensured. In case VAMC fails to recover capital
from purchased bad debts or recovery value is less than the cost, credit institutions
instead of receiving bad debts back will be entitled to request for payment from the
Government or SBV using bonds and special bonds.
Ninthly, supplementing cases allowing VAMC to pay in cash when buying bad
debts of credit institutions
However, this provision can only be put into practice when the relationship of
trading bad debts ensures the following requirements:
Firstly, the cash payment by VAMC to debt-selling credit institutions must be

associated with the method of valuing bad debts prices at market value.
Secondly, the cash payment by VAMC to debt-selling credit institutions is only
applied when VAMC has accumulated large capital raised froom international financial
institutions and domestic and foreign investors, especially the capital collected from
activities of writing off bad debts bought from credit institutions.
CONCLUSION OF CHAPTER 4
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GENERAL CONCLUSIONS
Through the research process on the topic “Regulations of trading in bad debts
resulting from credit institutions lending activities in Vietnam” following conclusions
can be drawn:
Firstly, buying and selling bad debts from lending activities of credit institutions
is a part of asset trading in economics. However, unlike normal asset trading, the object
of transfer in bad debt trading is bad debts arising from lending activities of credit
institutions.
Secondly, it is necessary to study and evaluate impacts of factors such as the
economy, politics, benefits and integration which shall act as a basis for considering the
perfection of the current law and its appropriateness when applied in practice.
Thirdly, through the study on current Vietnamese legal provisions on the
purchase and sale of bad debts from credit institutions, it can be seen that these
regulations have inherited experience of other countries in the world and partly met
practical needs. However current regulations still reveal quite significant obstacles
leading to uneffective application in practice.
Fourthly, to improve the effectiveness of the law on buying and selling bad debts
from lending activities of credit institutions in Vietnam in the current period, it is
necessary to focus on the following measures: (1) amending provisions on the definition
of bad debts stipulated in Circular 02/2013/TT-NHNN, amending and supplementing
Circular 09/2014/TT-NHNN; (2) amending provisions of Articles 174, 175 and 176 of

theLand Law 2013 on the right to seize collateral assets which are land use rights and
assets attached to land; (3) supplementing conditions on capital sources of credit
institutions used to purchase bad debts of other credit institutions as stipulated in Clause
3, Article 5 of Circular 09/2015/TT-NHNN; (4) amending regulations on legal forms to
increase capital mobilization capacity of VAMC in Clause 2, Article 3 of Decree
53/2013/ND-CP; (5) removing regulations on legal capital and standards and conditions
for managers of debt trading enterprises in Decree No. 69/2016/ND-CP; (6) developing
a mechanism to encourage credit institutions to sell bad debts to VAMC; (7) removing
the provision that allows VAMC to buy bad debts of credit institutions at book value in
Decree No. 53/2013/ND-CP; (8) amending provisions exposing limitation of special
bonds specified in Article 21 of Decree 34/2015/ND-CP and Clause 9 Article 1 of
Circular 14/2015/TT-NHNN; (9) supplementing provisions on the Government or
SBV's guarantee for bonds and special bonds issued by VAMC; (10) supplementing
cases allowing VAMC to pay in cash when buying bad debts of credit institutions.

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PUBLISHED RESEARCH WORKS OF THE AUTHOR
RELATED TO THE THESIS

1. Hoang Van Thanh (2013), “Some legal issues about debt trading contracts in
banking activities”, Banking Science and Training Review, Vol. 139, p.22-27.
2. Hoang Van Thanh (2017), “Enhancing the role of bad debt buyers towards
building a primary debt trading market in Vietnam”, Banking Science and
Training Review, Vol. 186, p.44-52.
3. Hoang Van Thanh (2017), “Some issues on the mechanism of buying and selling
bad debts of Vietnam Asset Management Company (VAMC)”, Journal of Social
Sciences Human Resources, Vol. 53, p.66-72.
4. Hoang Van Thanh, Nguyen Minh Hang (2018), “Legislation on issuing bonds

and special bonds of Vietnam Asset Management Company to buy bad debts of
credit institutions”, Journal of Democracy and Law, Vol. April (313), p.30-33.
5. Hoang Van Thanh, Nguyen Hai Yen (2018), “Current regulations on resolving
bad debts of credit institutions in Vietnam and measures to improve”, Journal of
Law, Vol. 7/2018, p.62-71.
6. Hoang Van Thanh, Nguyen Minh Hang (2019), “Which solution for restructuring
the banking system associated with handling bad debts and meeting the standards of
Basel II to 2020”, Journal of Legal Profession, Vol. 5/2018, p.38-43.

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