HÀ NỘI – The State Bank of Việt Nam (SBV) will co-operate with relevant agencies to map out a "special" law to boost bank restructuring and settle bad debts in 2017, according to SBV Governor Lê Minh Hưng.

Hưng said the new law on supporting banking sector restructuring and resolving bad debts would mention all legal regulations related to the activity. Obstacles in the existing legal regulations would also be addressed under the new law to remove hindrance in resolving bad debts.

With a detailed and adequate legal framework, he expected it would be easier for the banking system to implement restructuring.

“The central bank would report to the National Assembly to convert into law regulations related to the seizure of mortgaged assets to guarantee the rights of the lenders,” Hưng said, adding that this is currently the most critical issue while dealing with bad debts.

Besides the recoupment and provision for bad debts, if the regulations were approved by the National Assembly, the settlement of bad debts would be greatly accelerated, he said.

According to experts and credit institutions, non-performing loans (NPLs) with mortgaged assets account for up to 90 per cent of the country’s total NPLs. However, creditors are facing obstacles in settling mortgaged assets due to an incomplete and unsuitable legal framework.

They say efficient collateral settlement requires a legal system, with uniformity, transparency and consistency. It must also be respectful of the legitimate rights of creditors. The law must create a legal framework for the parties involved, especially for the creditors, to be able to enforce their legitimate rights under the agreement.

The institutions said many legal regulations have no detailed instructions on dealing with mortgaged assets. It, therefore, takes a long time to deal with the assets. In addition, they said, the slow judgment process also negatively impacts credit institutions’ business performance and leads to wastage of time and money while recouping toxic debts.

Under the new law, Hưng said, the central bank would also suggest adding regulations on stake ownership of credit institutions to tighten banking ownership, thus avoiding the necessity to deal with cross-ownership and manipulation in the banking system. Individual groups, which would like to buy credit institutions’ stake, must prove their legal income sources and cannot allow the use of lending sources in whatever form.

Recently, many violations in the banking industry have stemmed from individual groups that invested in banks just to serve the interests of their own backyard firms.

Information related to bank managers must be published and violation cases would be prohibited from taking part in managing and executing banks permanently, Hưng said.

Due to the existing incomplete and unsuitable legal framework, a larger number of bad debts are still stuck at the central bank-run Việt Nam Asset Management Company (VAMC), which is entrusted to buy bad debts from credit institutions.

According to the Government’s financial watchdog National Financial Supervisory Commission, VAMC has, so far, recouped just 15 per cent of the NPLs purchased from credit institutions and still has some VNĐ224 trillion (US$9.86 billion) on standby to be sold. - VNS