ABS Investment Banking Director: 'It is time to consider securitizing and splitting up bad debt'

According to expert Nguyen The Minh, the bank that controls risk better will have a greater advantage during a period of rising bad debt.

Nearly one year after the core mechanisms of Resolution 42 were codified into law, the bad-debt picture of the banking system is beginning to show clearer signs of divergence.

According to statistics from 27 listed banks, the bad-debt ratio (NPL groups 3-5) at the end of the first quarter of 2026 rose to over 2% compared with the start of the year, lower than the increase in the same period of 2025.

Meanwhile, the total value of newly arising bad debt was about VND53.4 trillion, and although it rose quarter-on-quarter, it has fallen significantly compared with the same period last year. This shows that bad-debt pressure has not disappeared, but the pace at which new bad debt forms is showing signs of slowing.

However, intra-industry divergence is growing ever larger, as the group of banks with good asset quality still maintains stable metrics, while the mid-tier bank group records a strong increase in group 3-5 debt and also group 2 debt.

Speaking with_TheLEADER,_ Mr. Nguyen The Minh - Director of the Investment Banking Division at An Binh Securities JSC argued that, fundamentally, the economy has passed through the most difficult phase.

Reporter: How do you assess the current bad-debt picture of the Vietnamese economy? Has the market begun to move past the "worst" phase, or does pressure still lie ahead?

Mr. Nguyen The Minh: As to whether the economy has passed the most difficult phase, it can be seen that we are now beginning to move past that phase. The bad-debt developments at banks over the past period also, to some extent, reflect this trend.

However, the current legacy issues cannot be resolved immediately in the short term, because the wave of bad debt stems from a series of consecutive shocks, from the COVID-19 pandemic to geopolitical tensions, interest-rate volatility, monetary policy and global trade instability. These factors have placed great pressure on businesses' production and business operations and cash flows.

Mr. Minh argued that the capital-flow equation for businesses is also seeing positive changes.

That said, the notable point is that the biggest bottleneck for bad debt today does not lie entirely in the nature of the businesses but mainly stems from the general economic context and the pace of growth recovery. As the economy improves, business operations recover and cash flow is unblocked, the ability to handle bad debt will also gradually improve accordingly.

In fact, some positive signals have begun to appear. If in 2025 real growth had not yet improved too clearly, then in the first quarter of 2026 many indicators became more favorable, reflecting that demand and production and business activities are gradually recovering.

In addition, the capital-flow equation for businesses is also seeing positive changes. After the difficult period from 2022, when both bank credit and corporate bonds encountered obstacles, the bond market gradually stabilized again by 2025.

Many businesses are now restructuring their capital sources, both handling old debts and supplementing capital for production and business operations.

This is seen as one of the notable bright spots in the current bad-debt picture, because when businesses recover their cash flow and ability to access capital, the pressure on the banking system to handle bad debt will also gradually ease.

Q1/2026 data shows that the pace of new bad-debt formation has slowed compared with the same period, but group 5 debt remains anchored high. In your view, what does this reflect about the current risk-absorbing capacity of the banking system?

Mr. Nguyen The Minh: In fact, group 5 debt has existed from the COVID-19 period until now, and its handling still depends greatly on businesses' recovery capacity. Banks are still maintaining buffers and actively handling bad debt, but the pressure remains quite large because a significant portion of the loan balance is related to the real-estate sector.

However, the problem today does not lie in weakness of the banking system. Overall, the system is still stable, and bad-debt pressure remains within the absorption capacity of the capital buffer.

What matters now is the banks' handling strategy: whether to continue growing and accept the arising of further bad debt in the future, or to focus on decisively resolving current legacy issues to bring the bad-debt ratio back to the safe zone.

The group 5 debt equation today revolves around two core issues.

First is businesses' recovery capacity. As mentioned, most of the difficulty does not stem from businesses being "bad" in nature but from the impact of the general economic context and a prolonged phase of declining growth.

Second is the story of real estate and the liquidity of collateral. Over the past period, the government has been strongly pushing to remove legal obstacles for real-estate projects. As legal obstacles are gradually resolved, the liquidity of collateral also has a basis to improve.

In the period after 2022, many banks, despite holding large amounts of bad debt, were almost unable to handle collateral because the market was frozen and lacked liquidity. Now, the situation has changed more positively as many projects begin to complete their permits and unblock legal matters, thereby creating conditions for the initial step of handling collateral.

However, the final equation still lies in the market's absorption capacity. When assets have been transferred to the bank, what matters is whether the market has enough demand and cash flow to absorb them, thereby helping to resolve bad debt decisively.

On financial statements, it can be seen that the divergence in asset quality among bank groups is becoming increasingly clear, as large-scale banks break away well ahead of the rest. In your view, what is the decisive factor for this gap: risk-management capability, collateral quality, or capital and provisioning headroom?

Mr. Nguyen The Minh: The divergence among banks today comes from all three of the main factors mentioned above. Among them, the decisive factor is still governance capability.

Governance capability lies not only in controlling credit growth but also in the ability to manage collateral quality and loan-portfolio quality. The bank that controls risk better will have a greater advantage during a period of rising bad debt.

Banks with large capital scale usually have a better ability to withstand and absorb risk. Photo: HA

In addition is the story of the capital buffer and risk-provisioning capacity. Banks with large capital scale, especially in the leading group, usually have a better ability to withstand and absorb risk.

Conversely, small-scale banks with limited capital headroom will face greater pressure when bad debt rises, because they are forced to increase provisioning, which then directly affects profits and system safety.

Therefore, the current divergence mainly reflects differences in the ability to control asset quality and the strength of each bank's capital buffer.

From a policy perspective, in your view, what is the biggest practical benefit that codifying the mechanisms of Resolution 42 has created for the banking industry so far?

Mr. Nguyen The Minh: The biggest benefit of tightening the current regulations is enhancing credit discipline and increasing the level of safety for the entire financial system. This is also an inevitable trend as Vietnam is gradually moving toward broadly applying the Basel III standard.

Whereas in the past implementation was mainly on an encouragement basis, the State Bank's goal in the coming period is to move toward mandatory application across the entire banking system.

Therefore, the increasingly strict regulations relate not only to controlling bad debt but are also tied to the requirement of raising the capital-adequacy ratio. This does not mean tightening credit or restricting lending, but rather aims to ensure the banking system has a better ability to withstand risk.

This is an especially important issue in the context where the State Bank is orienting credit growth in the 2026-2030 period at around 15% per year. When credit continues to grow at double digits, if asset quality and bad debt are not well controlled from now, the amount of new bad debt arising in the future will be very large and could create systemic risk.

Not stopping at the scope of individual banks, bad debt also directly affects the national credit rating. If credit risk rises and bad debt balloons, international financial institutions will have a more negative assessment of Vietnam, thereby affecting the ability to raise international capital, both in the banking sector and in national public debt.

Conversely, strongly pushing bad-debt handling and raising the system's safety standards now will help significantly improve Vietnam's credit standing in the international financial market, thereby creating a more stable foundation for long-term growth.

From the perspective of the financial market and asset handling, do you think Vietnam still lacks any conditions for handling bad debt more effectively in the coming period? Has the time come to develop a more professional and larger-scale debt-trading market?

Mr. Nguyen The Minh: In fact, the most important thing today is to build a debt-trading market oriented toward greater professionalism. However, debt trading alone is not enough; the core lies in the ability to create liquidity for those debts. Liquidity is always a matter of survival for every type of asset.

The lesson from 2022 shows this very clearly. Although many real-estate assets still had value, when the market lost liquidity and there were no buyers, the assets were almost "frozen," leaving holders stuck with their capital.

Therefore, in the future, instead of only handling debt through the traditional trading model between credit institutions, the market may need to head toward more flexible models, such as "tokenizing" or securitizing debts. At present, debt-trading activity still takes place mainly in a "wholesale" manner between banks or between debt-handling organizations.

Meanwhile, the investment demand of individual investors is almost untapped. Instead of transferring an entire large debt worth hundreds of billions of dong from one bank to another, one could consider splitting debts through a tokenization or securitization mechanism to expand the base of participating investors.

If that can be done, the market will have more liquidity and an outlet for bad debts, instead of leaving the banking system to trade debts among itself in circles. Because when the entire system bears pressure together, its risk-absorbing capacity will be limited and the market can easily fall into a state of congestion.

Therefore, developing models such as tokenizing debt assets is a direction worth studying in the long term, in order to increase the flexibility and depth of the debt-handling market in Vietnam.

Thank you, sir!

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Source: TheLeader — theleader.vn. This article is republished for the purpose of sharing knowledge with the community of founders and investors within the HCM VIF ecosystem.