Vietnam’s legislature has approved sweeping changes to credit institution laws, boosting the central bank’s discretion and streamlining how commercial lenders tackle bad debts—moves that analysts see as pivotal for financial stability and banking sector reform.
Under the revised legislation, approved Friday by the National Assembly and effective October 15, the State Bank of Vietnam is now authorized to provide special, unsecured loans with zero interest rates to distressed banks. Previously, that intervention power rested with the Prime Minister’s office, but the new measure is expected to speed up crisis response and safeguard the broader financial system.
The law is essential in dealing with troubled banks, enabling quicker and stronger intervention that could prevent system-wide damage, said Nguyen Anh Duc, head of institutional brokerage and investment advisory at SBB Securities. He noted that the central bank, with these tools, would be positioned to stabilize vulnerable lenders and contain liquidity shocks.
The new law also grants commercial banks the right to seize and liquidate collateral assets for non-performing loans, given that prior agreement exists with borrowers.
This long-awaited clarification is expected to ease a logjam caused by cumbersome legal procedures that had slowed the resolution of bad debts, particularly in the real estate sector. Banks can now proactively recover overdue loans by liquidating collateral, which should improve bad debt recovery and free up frozen capital, noted Duc.
The urgency of these reforms follows a period of relative stability for Vietnam’s banks—but also persistent regulatory warnings about risk management. In 2022, concerns about systemic risk surfaced after Saigon Commercial Bank suffered a brief bank run, linked to a high-profile real estate investigation into Van Thinh Phat Group.
According to RongViet Securities analyst Tung Do, non-performing loans at 27 listed banks surged by over 37 trillion dong (roughly US$1.4 billion) in the first quarter—a 16% jump from the previous quarter. He cautions that this upward trend is likely to persist.
Recent government measures to open the sector to more foreign investment are also reshaping the landscape. In May, Vietnam lifted the foreign ownership cap for certain banks that acquire struggling institutions to 49%, up from 30%, as part of a broader effort to accelerate banking sector restructuring.
The regulatory overhaul boosted sentiment in the market, with several bank stocks making notable gains. Vietnam Prosperity JSC Bank advanced as much as 2.2%—its strongest increase since June 16—while Orient Commercial JSB rose by up to 2.1%.
