SHS expert: The answer to the bad-debt problem lies in... confidence

SHS experts believe the key is for the banking system to truly regain confidence in the ability to resolve debt through legal means. When that happens, banks will proactively classify debt more in line with reality, aggressively make provisions and accelerate off-balance-sheet write-offs.

In the 2022-2024 period, Vietnam's banking system fell into one of its most difficult periods in years. Credit institutions simultaneously had to absorb shocks from a frozen real estate market, wobbling corporate bonds and a sharp decline in corporate cash flows.

Moving into 2025-2026, the banking system is gradually shifting from a defensive state to rebuilding its risk-handling capacity. After key mechanisms of Resolution 42 were enshrined in law, the market began to show more positive signals.

The pace of bad-debt growth has slowed from the same period last year. Photo: HA

When the system gradually regains the initiative

According to statistics from Mirae Asset Vietnam, the group 3-5 bad-debt ratio of listed banks in Q1/2026 exceeded 2% amid a sharp rise in lending rates and slowing credit growth.

However, the divergence between bank groups is becoming increasingly clear. Large banks still maintain stable asset quality, while the mid-sized and small groups face significantly greater bad-debt pressure.

In Q1/2026, the total value of newly incurred bad debt was estimated at about VND53.4 trillion, up from the previous quarter but lower than the same period last year. This shows that the pace of deterioration in the system is gradually slowing, although the underlying pressure remains large.

Mr. Vu Tuan Duy – Macro Expert at Saigon-Hanoi Securities Joint Stock Company (SHS) – believes the bad-debt story today is no longer merely a bookkeeping issue, but reflects how banks perceive risk and operate capital flows.

Notably, the banking system has gradually regained the initiative in handling collateral. When Law No. 96/2025/QH15 took effect on 15/10/2025, mechanisms such as the right to seize collateral, distrain assets and return collateral in criminal cases were placed in a clearer legal framework. After a prolonged legal vacuum from early 2024, this is seen as a step to restore operational confidence for the entire system.

Nevertheless, Mr. Duy believes this is only the restart stage of the machine. The ability to convert collateral into real cash flow still proceeds more slowly than expected, as real estate currently still accounts for about 80-90% of the value of collateral across the system.

Therefore, the problem today no longer lies in "whether it is permitted to sell or not," but in whether the market has enough liquidity to absorb that volume of assets. The final recovery value still depends greatly on the health of the real estate market.

In particular, Mr. Duy assesses that the slowing pace of newly incurred bad debt is a positive signal, but looking only at this metric would be rather one-sided. Credit growth of 19.01% in 2025 contributed to diluting the on-book bad-debt ratio.

More important is whether the banking system has truly regained confidence in the ability to resolve debt through a clear legal mechanism. When they believe the ability to recover debt has improved, banks will proactively classify debt more in line with reality, aggressively make provisions and accelerate off-balance-sheet write-offs.

BIDV's aggressive handling of large corporate loans in Q4/2025 reflects a change in the operating mindset of the system. Photo: HA

A typical example is BIDV in Q4/2025, when the bank aggressively handled large corporate loans, helping to reduce the group-5 debt ratio by 0.23%. According to Mr. Duy, this reflects a change in the way banks approach risk rather than a purely accounting story.

He also believes that bad debt should not be viewed in an absolute state between "bad" and "not bad." A loan facing short-term difficulties but still having collateral and the ability to restructure cash flow is not necessarily truly bad debt.

Only when cash flow completely loses the ability to recover and the enterprise no longer has a chance to restructure does it become "truly bad debt."

The current divergence therefore reflects risk-management capacity and liquidity resilience more than a comprehensive downturn cycle.

While Vietnam's banking sector still maintained revenue and profit growth even during the 2022-2024 period, banks heavily dependent on real estate, corporate bonds or unsustainable CASA funding are facing clearer pressure.

As they move closer to Basel III standards, this divergence will become even clearer through liquidity-management capacity and internal rating systems approved by the State Bank of Vietnam. This is seen as a deeper restructuring of the competitive capacity of the entire banking system.

The divergence will become even clearer among groups in terms of liquidity-management capacity and internal rating systems approved by the SBV as they move closer to Basel III.

The biggest bottleneck is still real estate

Looking beyond the technical solutions for handling debt, the core bottleneck of Vietnam's bad-debt problem still lies in a credit growth model heavily dependent on real estate. The legal difficulties of the property market or the weakened health of enterprises are, in essence, consequences arising from this structure.

When about 80-90% of collateral is real estate, every recovery effort ultimately returns to the same question: whether the market has enough liquidity to absorb the volume of foreclosed assets.

Resolution 42, after being enshrined in law, has improved the speed of debt recovery, but has not yet been able to solve the recovery-value problem in the context of a still-weak real estate market.

Currently, most bad debt still circulates internally through VAMC or DATC, while the market still lacks strong enough private institutions to participate in valuation, restructuring and risk absorption.

Mr. Vu Tuan Duy emphasized the need to develop a genuine Distressed Asset market and a Secondary Debt Market, where debts can be bought, sold, restructured and have their risk distributed across multiple tiers of investors instead of piling the entire burden on the banking system's shoulders.

International experience shows that securitization instruments, though once controversial after the 2008 crisis, ultimately still help disperse risk and create liquidity for the market.

However, the prerequisite is that the capital market must be deep enough, the institutional investor base must be large enough and the valuation mechanism must be transparent enough. Vietnam has yet to fully meet these conditions.

Therefore, the priority now is not to copy complex financial instruments, but to build the foundation in the right order. First is completing the legal framework for the private debt-trading market. Next is a transparent mechanism for valuing and handling collateral. Only after that does it advance to securitization.

When those foundations are fully formed, bad debt will no longer be a burden sitting immobile on banks' balance sheets. Instead, it can become a type of asset capable of circulating, thereby helping to disperse risk across the entire financial system.

Vietnam's banking system is entering a pivotal stage. Legal changes have opened up new operating space, but the journey of converting assets and dispersing risk still needs more time along with deeper, broader reforms.

Patience and a clear strategy during this rebuilding stage will determine the system's resilience in the next cycle.

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Source: TheLeader — theleader.vn. This article is republished to share knowledge with the community of founders and investors in the HCM VIF ecosystem.