Handling of collateral assets: Law has not respected creditors

The right to dispose of collateral assets is still facing many problems (Illustration).

Legislation is not enough

Regarding this issue, according to Mr. Pham Manh Thang, Deputy General Director of the Vietnam Foreign Trade Joint Stock Commercial Bank (Vietcombank), the key to handling collateral assets is to determine the value and responsibility of handling. There are some cases where banks approv for customers to borrow with collateral assets of about 60-70% value of the loan, but when requesting repayment, the legislation still considers the collateral asset belong to the borrower, the banks do not have responsibility in handling, while it is clear that the banks have spent a great fortune, so that they should have the full right of handling that asset.

Not only that, Mr. Thang is also pressing to assume that, in principle, collateral asset value is considered to be equal with the loan account, but the current legislation regulates that the collateral asset is not lower than the loans and does not affect the rights of the borrowers when the banks handling the loans. Thus, in the process of debt collecting, if the borrower does not cooperate, and refuses to sign an agreement on price, or does not accept the deal etc., the banks cannot recover the debt.

In addition, representatives of Vietcombank also shared that, with the loans guaranteed by a third party, when the borrowers cannot repay, the legislation requires the banks to handle the collateral assets of the borrowers first instead of the third party. If the collateral assets of the borrower cannot be handled then the property of third parties is the same so that the debt handling will be suspended and wasteful.

"Collateral asset also has a risk ratio, so with the case of three parties as mentioned above, it is necessary to firstly handle the easy collateral asset to quickly recover capital, then returning the capital flows to other manufacturing and business activities", Mr. Pham Manh Thang proposed.

Also experiencing the same problem, Mrs. Bui Nhu Y, Deputy Director of the Industry and Trade Joint Stock Bank of Vietnam (VietinBank) adds, the handling of collateral assets in housing investment projects still does not have specific guidelines. Therefore, when the bank accepts a collateral asset for housing investment projects, the handling may be prolonged, causing difficulties and confusion in the implementation process.

The implementation process is prolonged

It is from such problems, according to the statistics of Vietcombank, in 2016, the average time for civil enforcement agencies at all levels to recover debt for this bank with the collateral asset are housing (35% of cases), the collateral as a means of transportation, machinery and equipment (33% of cases) took over 24 months. But there are cases that took 5 years for handling with nearly 30 times of discounting. This process is not only time-consuming but also caused cost to the bank, significantly impacting business activities.

According to statistics of the Vietnam Technological and Commercial Joint Stock Bank (Techcombank), debt settlement is delayed or stalled because of the complex and prolonged litigation procedure and enforcement. The majority of the debt to be recovered by way of court and judgment usually lasts for more than 2 years creating a bad effect.

Mr. Thieu Anh Duong, General Director of the Techcombank AMC said the seizure, sale, transfer of ownership, and some collateral asset debt collection of Techcombank lasted for years. Particularly, there are many cases of property auctions having taken place since 2013, but until now, the property has not been transferred to the auction winner since the guarantors did not cooperate and local authorities could not agree.

In fact, Decree 163/2006/NĐ-CP on the right to handle collateral assets has allowed credit institutions to proactively deal with collateral assets or sue. But this method has not yet been effective, the main reason is because the current law does not have specific regulations, clearly and correctly identifying the responsibilities for processing of the lender and the borrower. Besides, representatives of the banks also indicated the status of "overdue", deliberately prolonging the execution time of not only the borrower but also the enforcement agencies.

"Although the banks previously submitted records and plans to seize property in accordance with local government regulations, but the local government still disagrees to support, even to prevent collateral asset handling of the banks by "inviting” the bank officials for testimony overnight; or ask the bank not to seize or require them to go out of the property area; in many cases, the banks are required to return the property that they just seized from the borrowers", said Mr. Anh Duong Thieu.

From this situation, Mr. Pham Manh Thang said, the thinking of managers has not changed, when they see that the banks as "the rich" while the borrowers are “the poor”, so that they only protect the collateral assets of the borrowers instead of the banks, then not defining this property is parity, not fully allocated to the bank to handle. Therefore, if this thinking does not change in the process of enacting and promulgating the law, the banks will suffer, and many debts will not be recovered quickly, turn into bad debts, affecting the banks activities.