Enforcement of Security Interests: The Key to Solving Bad Debts in Banks

1. Overview of the Enforcement of Security Interests

Enforcement of security interests is the process of implementing legal measures to recover debts through the enforcement of assets used as collateral for loans. This is one of the important tools that help banks recover debts and minimize credit risks.

According to the Securities News website, the situation of bad debts in banks has seen a significant increase, particularly non-performing loans. Some banks, such as Techcombank, MB, and Saigonban, recorded a rise in bad debts in Q1 2025, with a marked increase in substandard and doubtful debts. Bad debts are increasing rapidly, but the speed of debt resolution is only about 15,000 billion VND, which affects the bank’s business results and liquidity, as most credit institutions only make provisions for risks without being able to resolve them quickly. The handling of collateral becomes an important factor in restoring cash flow and liquidity for banks.

2. Legal Basis for Enforcement of Security Interests

• Civil Code 2015

• Decree 21/2021/ND-CP on collateral transactions

• Circular 03/2024/TT-NHNN amending Circular 19/2013/TT-NHNN on buying, selling, and handling bad debts

• Other related legal documents
   

3. Procedure for Enforcement of Security Interests

3.1 Notification of Collateral Enforce

• The secured party (e.g., the bank) notifies the mortgagor of the enforcement of collateral (Article 300 of the Civil Code and Article 51 of Decree 21/2021/ND-CP).

• This notification should be registered at the branch of the Land Registration Office. 

• The notification must include:

• The reason for Enforce;

• The value of the secured obligation.

• The type of asset to be enforced.

• The deadline and location for the mortgagor to hand over the asset.

3.2 Seizing Collateral (Article 7 of Resolution 42/2017/QH14)

If the asset is being held by the mortgagor or a third party, the party handling the collateral must notify the requestor of the asset to be returned. If the deadline is not met, then:

• The handling party has the right to seize the asset.

• Or request the court to intervene.

During the seizure:

• The asset holder (mortgagor or third party) must cooperate and bear reasonable costs related to the seizure.

• If intentionally refusing or obstructing the seizure, causing damage, compensation must be provided.

• If there are signs of disruption or disorder, the handling party has the right to request local authorities and police to assist in ensuring the seizure is conducted lawfully.

3.3 Establishing a Record of Collateral Enforceability

The handling party and the mortgagor must create a record stating:

• The handover and receipt of assets.

• The method of enforcement.

• The rights and obligations of the parties;

• The agreement on the enforceable price.

If the price cannot be agreed upon, the handling party will:

• Hire a professional appraisal organization to determine the price: The asset valuation must be conducted publicly, transparently, and with the participation of the concerned parties or professional appraisal organizations.

• Or apply the government-set price if available.

3.4 Enforce Methods (Article 303 of the Civil Code 2015)

• Auctioning the asset;

• The secured party selling the asset themselves;

• The secured party takes the asset as a substitute for the mortgagor’s obligation;

• Other methods.

4. Challenges in the Enforcement of Security Interests

4.1 Legal and regulatory obstacles:

• The Law on Credit Institutions 2024 does not specify the seizure of collateral in the process of handling bad debts of credit institutions.

• Resolution 42/2017/QH14 on handling bad debts expired on December 31, 2023, leading to a legal gap in handling and recovering debts by credit institutions and debt trading and resolution organizations.

• Decree 21/2021/ND-CP: does not clarify the role of the Civil Code; Enforcement of security interests when the mortgagor dies conflicts with inheritance law; lacks specific regulations on collateral for assets formed in the future, debt claims, and alternative security; inconsistent regulations on the collateral duration.

4.2 Obstacles in handling collateral

• For movable assets like cars:

  • The asset has high mobility, making it difficult to identify its actual location;

  • In cases where the owner leases the car, the bank has no right to request the lessee to return the collateral;

  • Even if the car’s location is identified (e.g., parked in front of the bank’s headquarters), it cannot be seized.

• For real estate, there are also many challenges when recovering bad debts, specifically:

  • The actual condition does not match the legal documents (land use rights certificates);

  • The property is located on multiple land plots but cannot be separated.

  • The property has no legal access.

  • In some cases, it has lasted for nearly 20 years, but still cannot be resolved.

4.3 Obstacles in judgment enforcement:

• In 2024, only 15% of enforceable cases were resolved;

• The value of successfully enforced cases is much lower than the total amount stated in the judgments.

5. Solutions to Improve the Effectiveness of the Enforcement of security interests

• Expanding the debt-buying and selling scope: Allowing the State Bank to license companies specializing in debt buying and selling with financial and professional capabilities to strengthen the ability to recover collateral.

• Updating the mechanism for the enforcement of security interests as mineral exploitation rights: Revising and adding provisions in the Mineral Law to Enforce security interests as mining rights in case of disputes or uncooperative assets.

• Ensuring no interruptions in the event of bankruptcy: Establishing regulations to ensure that collateral handling and bad debt resolution are not interrupted when the borrower files for bankruptcy.

• Applying expedited procedures in resolving collateral disputes: Applying expedited procedures to disputes involving secured agreements that have been notarized, registered, and effective against third parties to reduce costs and time.

• Improving consistency among legal documents: Adding synchronized provisions between relevant laws such as the Law on Credit Institutions and the Real Estate Business Law to support more effective collateral handling.

6. Conclusion

Enforcement of security interests is a critical tool in solving bad debts in banks. Effective execution of this task not only helps banks improve the quality of assets but also contributes to ensuring the sustainable development of Vietnam's banking system.

To improve the effectiveness of collateral handling, coordinated efforts from various parties, including state management agencies, credit institutions, and other stakeholders, are necessary.