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VIETNAM ACADEMY OF SOCIAL SCIENCES GRADUATE ACADEMY OF SOCIAL SCIENCES TRAN THI THANH THUY TRADING OF COMMERCIAL BANKS’ DEBTS UNDER APPLICABLE LAWS AND REGULATIONS OF VIETNAM Major: Economic Law Code: 93.80.107 SUMMARY OF PHD DISSERTATION IN LAW HANOI, 2021 This research was completed at: Graduate Academy of Social Sciences Vietnam Academy of Social Sciences Supervisors: 1 Assoc Prof Dr Nguyen Nhu Phat 2 Dr Le Anh Tuan Examiner 1: Assoc Prof Dr Pham Thi Giang Thu Examiner 2: Assoc Prof Dr Le Thi Thu Thuy Examiner 3: Assoc Prof Dr Le Mai Thanh This dissertation will be defended in front of the Academy-level Examining Committee, at: Graduate Academy of Social Sciences, 477 Nguyen Trai, Thanh Xuan, Hanoi at on This dissertation can be found at: - The National Library - The Library of Graduate Academy of Social Sciences LIST OF ACADEMIC PUBLICATIONS RELATING TO THE TOPIC OF THIS DISSERTATION 1 Tran Thi Thanh Thuy (2020), “Debt buyers in trading of commercial banks’ debts in Vietnam", Democracy and Law Journal No 343 - October 2020, pp.36-42 2 Tran Thi Thanh Thuy (2020), “On the rights to dispose of collateral by debt buyers in trading of commercial banks’ debts”, Legal Professions Review Journal No 10 – 2020, pp.23- 24 3 Tran Thi Thanh Thuy (2021), “On several provisions in the debt sale and purchase agreements with commercial banks”, Legal Professions Review Journal No 10 – 2021, pp.25- 31 INTRODUCTION 1 Rationale of the research Along with the development of the international-integration-oriented market economy, commercial banks have been constantly developing into a worldwide network The sustainable development of commercial banks is closely associated with their ability to administer debts, including bad debts and debts that are not bad debts Therefore, debt trading activity was invented as one of the optimal solutions to help banks resolve this vital problem Debt trading activity firstly appeared and took its first steps in Vietnam in the late twentieth century when the State Bank of Vietnam (SBV) issued Decision No 140/1999/QD-NHNN14 dated 19 April 1999 providing the regulations on trading of debts of credit institutions With Decision 140/1999/QD-NHNN14 in place, debt trading activity has been officially recognized and protected by the laws of Vietnam From that time until today, the legal regulations on trading of commercial banks‟ debts have been gradually perfected Not only a relatively complete legal framework has been formed, but the contents of the regulations have gradually become more and more complete and specific which significantly contributed to the development of business activities of commercial banks and facilitated the safe and effective administration of capital sources by commercial banks However, the implementation of legal regulations on trading of commercial banks' debts in reality still reveals many shortcomings The legal regulations are still not consistent, complete and clear In addition, there are many legal documents regulating the activities of different entities leading to a scattered, ununified and unsystematic of the legal provisions on trading of commercial banks‟ debts, or even overlapping and contradictory provisions Furthermore, the lawmaking does not work very well with the enforcement of such law thus the effectiveness of implementation is impaired In light of the above, it can be seen that the legal regulations on trading of commercial banks‟ debts have certain shortcomings and yet to become an effective tool to effectively help with settlement of commercial banks' debts, contribute to a healthy and sustainable development of the banking system in particular and the national financial system in general Therefore, studying the legal regulations on trading of commercial banks' 1 debts is essential to accurately assess the status, shortcomings, and orientation to perfect these In recent years, bad debts of credit institutions have tended to increase due to negative fluctuations in the domestic and foreign economies According to the monitoring results by the SBV: bad debts in 2010 was about VND 38 billion (accounting for 2.1% of total outstanding loans), and in 2011 was about VND 78 trillion (accounting for 3.2% of total outstanding loans) By the end of September 2017, total bad debts was about VND 566,000 billion, equivalent to 8.61% By the 4 th quarter of 2019 and in 2020, there was an increase in the on-balance bad debt ratio from 1.6% at the time of the 4th quarter of 2019 to 2.4% at the end of the 3rd quarter of 2020 This situation poses a need to amend the legal regulations on trading of commercial banks‟ debts to effectively and sustainably deal with bad debts Therefore, the Government‟s solution was to speed up the settlement of bad debts and establish a debt trading platform At the same time, in Section III.2 of Resolution No 77/2014/QH13 “on the socio-economic development plan of 2015”, as approved by the 13th National Assembly in the 8th Session on 10 November 2014, the National Assembly also required to “Focusing on speeding up the settlement of bad debts in association with restructuring credit institutions by way of perfecting the legal framework for debt trading market…” To implement these regulations and policies, from the legal aspect, it is necessary to conduct in-depth studies on theoretical, legal, and practical issues relating to trading of credit institutions‟ debts in general and commercial banks‟ debts in particular, at the same time provide necessary solutions to perfect the legal regulations on trading of commercial banks‟ debts in Vietnam to effectively create a legal framework to help develop the debt trading market and facilitate the settlement of bad debts in Vietnam From the above practical needs, the author chooses this topic “Trading of commercial banks’ debts under applicable laws and regulations of Vietnam” as her doctoral dissertation 2 Purposes and missions of research of this dissertation 2.1 Purposes of research The purposes of this dissertation are to study the theoretical issues relating to trading of commercial banks‟ debts; to interpret and assess the current legal regulations on trading of commercial banks‟ debts; basing on which, to propose solutions to perfect the legal regulations on debt trading and development of market for trading of commercial banks‟ debts in Vietnam 2.2 Missions of research - Providing an overview of research relating to trading of commercial banks‟ debts in Vietnam; evaluating the results of those studies and identifuing issues that need further research in this dissertation; - Clarifying the theoretical basis of the laws on trading of commercial banks‟ debts; - Analysing and assessing the status of the laws on trading of commercial banks‟ debts in Vietnam and practical implementation of these laws; - Arguing, building a system of viewpoints to perfect the legal regulations and propose solutions to perfect the legal regulations on trading of commercial banks‟ debts in Vietnam 3 Objects and scope of research - Objects of research: theoretical issues relating to debt trading; current regulations of the laws of Vietnam on debt trading, and enforcement in reality of the legal regulations on trading of commercial banks' debts in Vietnam - Scope of research: + Subject of research: trading of commercial banks‟ debts There will not be any in-depth research on trading of other entities‟ debts such as non-bank credit institutions, micro financial institutions, nor people's credit funds The debts are those arising from the loan contracts between commercial banks and borrowers, excluding corporate bonds and government bonds + Location of research: legal regulations on trading of commercial banks‟ debts in Vietnam, with reference to the legal regulations and practical implementation of the laws on trading of commercial banks' debts in several countries around the world + Time of research: since the promulgation of Law on Credit Institutions 2010 until now 4 Methodologies This dissertation flexibly utilises many research methods, in which the following methods are typical: dialectical method, statistical method, expert evaluation method, theoretical analysis and synthesis method, theoretical classification and systematization method, historical research method 5 New contributions of this dissertation from scientific aspect Firstly, this dissertation contributes to the perfection of the concepts of debt and bad debt of commercial banks by proposing a definition that is comprehensive, clear, and truly reflects the nature of the subject from the legal perspective Accordingly, the concept of “debt” of a commercial bank is defined as an amount including the principal, interests and other costs that the borrower has to pay the commercial bank at one or or several points in time, called payment due date(s), as agreed upon by the commercial bank and the customer in their agreement; the concept of “bad debt” is defined as debts with high credit risk, low recoverability, and has potential to cause damage to the lending commercial bank, which is based on the evaluation of overdue time and the commercial bank‟ estimation on the customer‟ low ability to repay debt On the basis of accurate definition of debts of commercial banks, this dissertation fully analyses and outlines the characteristics of debts of commercial banks In addition, this dissertation also analyses debt classification activity as a particularly important risk management activity of commercial banks, thereby showing that debts are classified into different types, each of which will require a unique management method, one of which is debt trading, the effects of debt classification on the parties engaged in debt trading Secondly, on the basis of inheriting and completing previous studies, this dissertation introduces a more complete and accurate concept of trading of commercial banks' debts, which is a transaction based on voluntary agreement between the debt seller and the debt buyer with the object of the transaction is the right to request the debtor to fulfill their payment obligation when the payment is due and the transfer of other rights to claim of the commercial bank in whole or in part to the debt buyer From there, this dissertation further clarifies the legal characteristics of the trading of commercial banks‟ debts, the role of debt trading activities to the parties involved in the transaction and to the economy, and the principles of trading of commercial banks‟ debts beginning with the general principles of civil contractual relationships to form the specific principles for this activity Thirdly, this dissertation systematically studies the legislative theoretical issues of trading of commercial banks‟ debts, pointing out the fundamental and particular characteristics of the legal regulations on trading of commercial banks' debts This dissertation also contributes several legislative theories on trading of commercial banks‟ debts relating to several issues such as (i) objects in trading of commercial banks‟ debts, (ii) subjects engaging in debt trading, (iii) payment instruments in trading of commercial banks‟ debts, (iv) debt sale and purchase agreements with commercial banks, and (v) disposal of collateral of the transacted loan, etc Fourthly, this dissertation systematically analyses and evaluates the applicable legal regulations on trading of commercial banks‟ debts and the implementation of those regulations in reality, thereby clarifying the achievements and shortcomings that are left ungoverned by the laws The main regulations analysed and evaluated by this dissertation include: (i) the concept of debt of commercial banks; (ii) conditions for trading of commercial banks‟ debts; (iii) parties to debt trading transactions; (iv) payment instruments in trading of commercial banks‟ debt; (v) debt purchase price; etc Fifthly, this dissertation provides a specific and clear orientation for perfecting the legal regulations on trading of commercial banks' debts, rectifying general and incomplete orientation in previous research From there, this dissertation proposes solutions to perfect the legal regulations on trading of commercial banks‟ debts to establish a uniform legal system, facilitate debt trading activities and the formation of all necessary conditions to establish a complete debt trading market for different types of debt, rectify limitations and shortcomings of the applicable legal regulations Finally, this dissertation proposes several solutions to perfect the enforcement mechanism of regulations on trading of commercial banks‟ debts in Vietnam to ensure the regulations are effectively enforced and implemented in practice such as: to allow debt trading in blocks, to rectify the oversupply and shortage of demand in trading of commercial banks‟ debts, to establish and develop professional credit rating agencies, to establish debt trading associations, etc 6 Theoretical and practical significance of this dissertation - To provide an overview and contribute to perfecting the theory of trading of commercial banks‟ debts - To provide legal knowledge on trading of commercial banks‟ debts for purposes of training and implementing the laws in Vietnam - To provide evaluations and recommendations to serve as a useful source of references for the state agencies in perfecting and improving their ability to enforce regulations on trading of commercial banks‟ debts 7 Structure of this dissertation In addition to the four parts including Introduction, Conclusion, List of references, Appendices, this dissertation comprises four chapters: Chapter 1: Overview of research status and theoretical basis of the research; Chapter 2: Theory on trading of commercial banks‟ debts and legal regulations on trading of commercial banks‟ debts; Chapter 3: Current status of the legal regulations on trading of commercial banks‟ debts in Vietnam; Chapter 4: Orientation and proposal to perfect and improve the efficiency of enforcement of legal regulations on trading of commercial banks‟ debts Chapter 1 OVERVIEW OF RESEARCH STATUS AND THEORETICAL BASIS OF THE RESEARCH 1.1 Overview of research status This dissertation provides an overview of research status in trading of commercial banks‟ debts, including (i) theoretical studies on issues relating to trading of commercial banks‟ debts; (ii) legislative theoretical studies on issues relating to trading of commercial banks‟ debts; (iii) practical studies on trading of commercial banks‟ debts under the application laws of Vietnam In general, there has been much research on different issues concerning trading of commercial banks‟ debts which is related to the topic of this dissertation 1.2 Overall evaluation of research status Previous research mentioned and studied several theoretical issues relating to trading of commercial banks‟ debts, and legislative theoretical issues relating to trading of commercial banks‟ debts There are several issues that have not been resolved in previous research and need to be further studied: 1.2.2.1 Regarding the theory of trading of commercial banks’ debts The theory of trading of commercial banks‟ debts has been mentioned and evaluated in much research However, there are still issues that need to be further studied and perfected to be more complete, accurate and clear, including: concepts, characteristics and classification of commercial banks‟ debts; the concept, characteristics of trading of commercial banks‟ debts and the role of debt trading activities; principles of trading of commercial banks‟ debts 1.2.2.2 Regarding the current status of the regulations on trading of commercial banks’ debts Some research was able to address the current status of the regulations on trading of commercial banks‟ debts, however, there are still many regulations that need in-depth and comprehensive assessment on the basis of analysing and evaluating in both theoretical and practical aspects of such regulations, such as the current status of regulations on objects of trading of commercial banks‟s debt, parties to the debt trading transactions, payment instruments in debt trading transactions, debt purchase price, disposal of collateral, etc 1.2.2.3 Regarding the orientations and solutions to perfect the regulations, enforcement mechanism of the regulations to improve the efficiency of enforcement on trading of commercial banks’ debts Orientations to perfect the regulations need to be more and more specific to align with the characteristics of trading of commercial banks‟ debts On the basis of specific and proper orientations, it is necessary to provide solutions to facilitate debt trading activities, to allow more types of debts to be eligible to trade but not only focus on bad debts, to attract more and more traders and related entities from various economic sectors, and foreign investors, to ensure these entities are more and more proactive and able to promote their roles in debt trading market In addition, it is also necessary to consider the feasibility and efficiency in implementing the regulations on trading of commercial banks‟ debts by perfecting the enforcement mechanism of the regulations in this area 1.3 Theoretical basis, research questions, research hypotheses, and research approaches 1.3.1 Theoretical basis of research Firstly, behavioral theory and asymmetric information theory, which are applied to study the behavior of the parties when engaging in debt trading transactions and risks relating to the debts Secondly, contract theory, which is to analyse the terms provided in the contract as well as the process of drafting, signing, and executing the contract Thirdly, monetary theory, which is based on the idea that changes in the money supply are the main drivers of economic activity bases on which to provide its own definitions of the concepts of “debt” and “bad debt” of commercial banks as follows: “Commercial banks’ debt”: means an amount including the principal, interests and other costs that the borrower has to pay the commercial bank at one or or several points in time, called payment due date(s), as agreed upon by the commercial bank and the customer in their agreement “Commercial bank's bad debt”: means debts with high credit risk, low recoverability, and has potential to cause damage to the lending commercial bank, which is based on the evaluation of overdue time and the commercial bank‟ estimation on the customer‟ low ability to repay debt 2.1.1.2 Characteristics of commercial banks' debts This dissertation outlines the fundamental characteristics of commercial banks‟ debts as follows: - Firstly, commercial banks‟ debts arise on the basis of credit agreements with the commercial banks and are closely associated with property relationships - Secondly, commercial banks‟ debts are property relationships - Thirdly, commercial banks‟ debts include the principal, interests and other expenses, if any - Fourthly, commercial banks‟ debt always carry risks, especially credit risks 2.1.1.3 Classification of commercial banks’ debts Debt classification is a professional - legal measure to categorize a debt into a certain group based on the recoverability of such debt Debt classification is one of the important operations of commercial banks to control the debt quality of the banks, thereby offering appropriate risk management and debt recovery plans Debt classification of commercial banks plays an important role in the operation of the financial system, affecting both the lenders being commercial banks and the borrowers who are customers of commercial banks Because based on the results of this classification, the banks need to take appropriate measures to control credit risks such as making provisions, deciding to sell debts As for the borrowers, once the debt is classified as a higher-risk debt, they have to bear the consequences of a bad credit rating This affects the customers‟ ability to raise capital due to bad credit history 2.1.2 Concept, characteristics of trading of commercial banks’ debts 2.1.2.1 Concept of trading of commercial banks' debts Trading of commercial banks‟ debts is a transaction in which the right to request the debtor to perform their payment obligations when the payment is due and other rights of the commercial banks are transferred in whole or in part to the debt buyer, while the debt buyer is obliged to pay the commercial bank 2.1.2.2 Characteristics of trading of commercial banks' debts The objects of trading of commercial banks‟ debts are debts, including qualified debts, but most common are bad debts The trading of qualified debts usually occurs in the following cases: trading of debts in syndicated loan agreements; trading of debts to allow the commercial banks to continue to disburse new loans, and trading of debts at the request of the borrowers when they want to change the lending banks 2.1.3 The role of trading of commercial banks’ debts - To help commercial banks quickly recover a part of their capital, improve their liquidity, and to contribute to maintaining the safe and efficient operation of the entire banking system and the economy in general - Not only to help lenders resolve bad debt issues, but also to help borrowers improve their financial situation, creating opportunities for borrowers to access new sources of capital and facilitating a smooth cash circulation in the market, contributing to socio-economic development, opening up more development opportunities for businesses - Debt buyers seek profits from the difference when buying back the right to request payment of debt from commercial banks - Once the capital recoverability of commercial banks has been improved, the capital flow in the market shall be cleared, thus contributing to the competitiveness of domestic enterprises on the international market, and consolidating the sustainable development of the economy and society 2.1.4 Principles of trading of commercial banks’ debts Debt trading is essentially a contract, thus the execution of debt sale and purchase agreements must also follow the general principles of a civil contract: voluntary principle; equality principle; parity exchange principle; goodwill and honesty principles; principle of freedom to contract but not against the law and social ethics In addition, the transaction must follow particular principles on transaction methods, subject of transaction, and object of transaction 2.2 Legislative theoretical issues relating to trading of commercial banks’ debts 2.2.1 Concept of legal regulations on trading of commercial banks’ debts Legal regulations on trading of commercial banks‟ debts is a system of conduct promulgated or recognized by the State and guaranteed to be implemented in order to regulate relationships arising from and relating to trading of commercial banks‟ debts 2.2.2 Characteristics of legal regulations on trading of commercial banks’ debts Legal regulations on trading of commercial banks‟ debts, in addition to sharing the common characteristics of the legal regulations on contracts and trading, also has the following particular characteristics: the sources of law governing the trading of commercial banks‟ debts provide particular legal regulations in this area; the subjects governed by the legal regulations on trading of commercial banks‟ debts are the debt sellers and debt buyers and several related entities; the objects governed by the legal regulations on trading of commercial banks‟ debts are the relationships arising in the process of entering into and performing the debt sale and purchase agreements 2.2.3 Factors affecting the legal regulations on trading of commercial banks’ debts - Economic and social conditions, and the orientations and policies of the State; - Factors connecting capital and financial markets and practical needs; - International integration trend; - The legal regulations on debt trading must be consistent with those of the national legal system 2.2.4 The main provisions governing the trading of commercial banks’ debts 2.2.4.1 Objects in trading of commercial banks’ debts The object of exchange in debt trading activity is the right to request payment of debt - which was formed under the loan contract between commercial banks and the borrowers This is a type of property right, has monetary value and is transferable under the civil law 2.2.4.2 Subjects engaging in debt trading - Regarding the debt sellers: commercial banks who have given loans and have the need to liquidate these loans for various purposes - Regarding the debt buyers: Depending on the development of the debt trading market and factors affecting the laws of each country, the eligible debt buyers are different from country to country, these may include credit institutions allowed for debt purchase, debt trading companies that meet the requirements for conducting this business, and other organizations and individuals - Regarding the borrowers: the change of their creditor does not change the obligations to which they are obliged - Other subjects: brokers, valuation firms, auction firms, or the intervention and management of public authorities (SBV), etc 2.2.4.3 Purchase price of commercial banks’ debts In reality, the debt purchase price is determined by the parties to the transaction through negotiation or auction To ensure compliance with market price principle, the agreed price or the starting price for auction must be determined on a clear, specific, and transparent basis 2.2.4.4 Debt trading methods There are two methods for debt trading, namely negotiation and through auction 2.2.4.5 Payment instruments in trading of commercial banks’ debts Payment instruments in trading of commercial banks‟ debts comprise cash and bonds issued by debt buyers When payment is received in the form of bonds, the commercial banks exchange the right to request payment of a debt with the right to request payment of another one 3.2.4.6 Debt sale and purchase agreements with commercial banks Debt sale and purchase agreements with commercial banks indicate the agreement on debt trading between the debt buyers and the commercial banks acting as the debt sellers This agreement records the rights, obligations, as well as related terms that the parties have negotiated to come to an agreement This is the basis for the parties to perform their obligations and pursue their rights, as well as the basis for the law and other entities to honor the rights and obligations of both parties An agreement must be valid in order to be binding on the parties thereto When one of the conditions to give effect to the agreement is missing, the agreement will be invalid The legal regulations on trading of commercial banks‟ debt does not have any provisions providing the conditions to give effect to the agreement, which will be referred to and complied with the provisions of the Civil Code 2015 2.2.4.7 Disposal of collateral of the transacted loan, selling and dealing with disputes arising in trading of commercial banks’ debts In trading of commercial banks‟ debts, when the debt buyer becomes a new creditor, in principle, the debt buyer shall inherit all rights and obligations associated with the debt from the lending commercial bank, including the right to dispose of the collateral When a debt is overdue or insolvent, the new creditor has the right to dispose of the collateral to collect the debt There are different methods to resolve a dispute such as negotiation, mediation, commercial arbitration, court Which method to choose depends on the parties‟ agreement Chapter 3 CURRENT STATUS OF THE LEGAL REGULATIONS ON TRADING OF COMMERCIAL BANKS’ DEBTS IN VIETNAM 3.1 Current status of the legal regulations on trading of commercial banks’ debts in Vietnam 3.1.1 Current status of the legal regulations on objects of trading of commercial banks’ debts The concept of “debt” is provided in several applicable legal documents, for example, Clause 2, Article 3 of Circular No 02/2013/TTNHNN, Clause 2, Article 3 of Circular No 09/2015/TT-NHNN and Clause 1, Article 1 of Circular No 09/2017/TT-NHNN However, there is still no unified definition nor method to clearly determine the nature of debt, but merely a provision listing out debts that are eligible for trading by commercial banks Not all commercial banks‟ debts are eligible to be traded, but those debts must meet the requirements provided under Circular No 09/2015/TT-NHNN, specifically: (i) debt arising from the lending operation and liability to be paid on third party‟s behalf in the guarantee operation under a signed credit agreement with a commercial bank, monitored for accounting on the balance sheet, off the balance sheet or left off the balance sheet of the debt seller and meeting the conditions provided by law, and the debtor is obliged to pay the commercial banks; (ii) Dossier and related documents and records of the debt to be traded and security contract (if any) provided by the debt seller must fully and accurately show the status of the debt; (iii) There is no written agreement on prohibition of trading of the debt, (iv) The debt is not used to secure any civil obligation at the time of trading, except in the case where the secured party agreed in writing on the trading 3.1.2 Current status of the legal regulations on subjects engaging in debt trading Debt sellers in the primary market are commercial banks whose debts are eligible to be traded in accordance with the law The commercial banks must be established and operating legally in accordance with the law with an operating license issued by the SBV The commercial banks who sell the debt must have legal title to such debt in order to have the right to dispose of the debt The right to dispose of this debt of the commercial banks may be limited in some cases where the transfer affects other entities Debt buyers are organizations and individuals as provided in Clause 4, Article 3 of Circular No 09/2015/TT-NHNN, including: (i) credit institutions and foreign bank branches having obtained the SBV‟s approval of debt purchase activity; (ii) organizations providing debt trading services (other than credit institutions and foreign bank branches) fully meeting the conditions provided by law for provision of debt trading services; (iii) other organizations and individuals not providing debt trading services; and (iv) organizations and individuals being nonresidents 3.1.3 Current status of the legal regulations on trading price of commercial banks’ debts: Debt purchase price is the amount that the debt buyer must pay to the debt seller under the debt sale and purchase agreement as provided under Circular No 09/2015/TT-NHNN Debt purchase price is normally based on the principle of market value, except for the case where VAMC buys debt based on book value 3.1.4 Current status of the legal regulations on debt trading methods: Circular No 09/2015/TT NHNN provides debt trading methods that the parties engaging in debt dealers can choose, including: (1) agreement method, (2) auction method In which, each method is associated with a different bad debt trading relationship 3.1.5 Current status of the legal regulations on payment instruments in trading of commercial banks’ debts: The law provides for 03 groups of payment instruments, namely: (i) Cash, which is a common payment instrument and must meet the following legal principles: the currency used in debt trading must be Vietnamese Dong; the use of foreign currency as payment currency in debt trading must comply with the provisions of law on the use of foreign currency in the territory of Vietnam, and must comply with regulations on anti-money laundering; (ii) Special bonds are termed valuable papers issued by VAMC to buy bad debts from commercial banks at book value; (iii) Bonds are instrument that VAMC uses to pay for bad debts purchased from commercial banks at market prices, applicable since the effective date of Circular No 14/2015/TT-NHNN 3.1.6 Current status of the legal regulations on debt sale and purchase agreements with commercial banks The law provides strict regulations on the form and basic provisions of debt sale and purchase agreements with commercial banks The form of the agreement must be in writing Regarding the content, the law provides basic provisions which must be set out in the agreement, and at the same time allows the parties to agree on other provisions as long as such provisions are not contrary to the provisions of Circular No 09/2015/TTNHNN In terms of validity, for this agreement to take effect, it must satisfy the general conditions to give effect to a civil transaction as provided in Article 117 of Civil Code 2015 A debt sale and purchase agreement with a commercial bank can be terminated in circumstances as provided under the Civil Code on termination of civil transactions in general However, the termination of debt sale and purchase agreement between commercial banks and VAMC must also comply with the provisions of Article 19 of Circular No 19/2013/TT-NHNN, whereby VAMC may unilaterally terminate the same in certain cases 3.1.7 Current status of the legal regulations on disposal of collateral of the transacted loan, and dealing with disputes arising in trading of commercial banks’ debts: In case the object of a debt sale and purchase agreement is a secured debt, the debt buyer may dispose of the collateral when: (i) the obligor fails to perform or perform an obligation not in accordance with the agreement when it becomes due as provided in Clause 1, Article 299 of Civil Code 2015, (ii) the creditor collects the debt before its term as agreed in the credit agreement as provided in Clause 3, Article 299 of Civil Code 2015, (iii) an asset is used to secure more than one obligation and one of which becomes due, the undue payment obligation at the undue bank will be considered due and this bank is entitled to participate in the disposal of the collateral as provided in Clause 3, Article 296 of Civil Code 2015, or (iv) before declaring the borrower bankrupt under Point b, Clause 1, Article 53 of Law on Bankruptcy 2014 Upon occurrence of these events, the debt buyer, that is, the new creditor has the right to dispose of the collateral by ways of: auctioning the property, selling the property by itself, or possessing the property itself to compensate the performance of obligations of the guarantor, or another method based on the initial agreement between the bank and the borrower, in case there is no agreement, the collateral shall be auctioned according to Article 303 of Civil Code 2015 The settlement of disputes arising in debt trading activities shall comply with agreement of the parties in the debt sale and purchase agreement and in accordance with the general forms of civil transaction dispute resolution In the case of debt trading involving foreign elements, the parties may agree to the governing law, a court or a foreign commercial arbitration to resolve the dispute if such agreement is not contrary to the provisions of the laws of Vietnam 3.2 Analysis and evaluation of trading of commercial banks’ debt in practice under the applicable laws of Vietnam 3.2.1 Regarding objects in trading of commercial banks’ debts In reality, bad debt trading accounts for a majority of transactions as a measure to resolve bad debts in the Vietnamese market The trading of qualified debt (debts categorized in group 1 and group 2) has been carried out in some cases but no official statistics are available 3.2.2 Regarding subjects engaging in debt trading For AMC: a majority of activities of AMC are only transactions such as liquidation of set-off assets, management of mortgages, collection of debts for the parent bank, etc In addition, AMCs also carry out debt trading with other credit institutions, but not much, buying debt from other organizations and individuals has not been carried out For DATC: the total value of debt that DATC participates in handling at the request of the Government to support state-owned enterprises with extreme difficulties is about over VND 63,000 billion, thereby supporting the restructuring of debt and creating a healthy financial situation for several state-owned groups and corporations in the process of restructuring Besides, from 2004 to date, DATC has purchased debts on market price principle with the book value of the purchased debts and assets of VND 17,142.6 billion For VAMC, according to the report of the SBV on the results of trading and disposing of bad debts of VAMC: - Debt purchased with special bonds: Accumulated from 2013 to 31 December 2019, VAMC purchased bad debts of VND 359,393 billion in-balance loans, corresponding to the debt purchase price of VND 327,413 billion - Debt purchased at market value: Accumulated from 2013 to 31 December 2019, VAMC purchased bad debt at market value with a principal balance of VND 8,013 billion (accounting for 2.18% of the total bad debts purchased by VAMC) with debt purchase price of VND 8,207 billion - Regarding debt settlement results: Accumulated from 2013 to the end of 2019, VAMC has coordinated with credit institutions to recover the debts with the recovery value of VND 152,120 billion (of which mainly the resale of bad debts purchased with special bonds to credit institutions when the special bonds become mature or the credit institutions buy back the debts sold to VAMC before the maturity of the special bonds) For other debt trading companies as prescribed in Decree No 69/2016/ND-CP: According to the research on the business registration portal of the Ministry of Planning and Investment, there are currently about 20 enterprises registering the business of debt trading However, there is no data on the activities of these enterprises to date In reality, the debt trading market in Vietnam is still underdeveloped and lacks competition among debt buyers Although the supply of bad debt is huge, the number of debt buyers participating in the market is not significant, mainly AMCs of commercial banks in addition to DATC and VAMC only, active participation of other investments, especially foreign investors, have not been seen The almost monopoly in buying bad debts has made the bid prices of these organizations very low, which in turn reduced the demand for selling debts of commercial banks having bad debts, hindering the development of the debt trading market Meanwhile, the scale, scope of operation, financial resources or even the debt settlement experience of AMC, DATC and VAMC are very humble, not meeting the market's expectations while the amount of bad debts required to be settled are huge 3.2.3 Regarding debt purchase price Practical experience in settling bad debts of centralized asset management companies in countries such as Thailand, Indonesia, Malaysia, Korea, and China, as well as the practice of this activity in Vietnam in the past years shows that bad debts trading at book value is only meaningful in the early stages of the bad debt settlement process At this stage, with the main goal is to quickly bring the bad debt ratio of the banking system to the minimum safety level, the purchase price of bad debts is determined at book value to help debt trading companies concentrate on quickly collecting bad debts from the banking system to one place However, this will be very risky for VAMC and does not really sustainably resolve the bad debts of commercial banks 3.2.4 Regarding debt trading methods Practical experience shows that currently the trading of debt between the commercial banks and debt buyers is done mainly by agreement due to the advantages of this method However, when the debt trading market is formed, especially when debt trading service companies (including AMCs of commercial banks) formed a network, the auction method will be preferred by commercial banks 3.2.5 Regarding payment in debt trading Practical experience in trading of commercial banks‟ debts shows that currently the main payment methods are bonds and special bonds However, this dissertation shall point out the shortcomings of these bonds and special bonds 3.2.6 Regarding disposal of collaterals Currently, the disposal of collateral takes time, materially affecting the efficiency of bad debt settlement for the following reasons: For bad debts of commercial banks eligible for a pilot plan on settlement of bad debts under Resolution No 42/2017/QH14, the debt buyer is entitled to seize the collateral securing the bad debts But for other debts that are not eligible under Resolution No 42/2017/QH14, as Civil Code 2015 has removed the right to seize the collateral of the creditor, such creditor (debt seller and debt buyer) is unable to actively seize the collateral when the property owners disagree, deliberately oppose, even create disputes over to the collateral and file a lawsuit to the court to prolong the disposal of the collateral 3.2.7 Regarding efficiency of enforcement of the legal regulations on trading of commercial banks’ debts Currently, the implementation of legal regulations on trading of commercial banks‟ debts in Vietnam is not very effective, the reason is that there are shortcomings in the legal regulations as well as in the enforcement mechanism of the same as mentioned in items 3.1 and 3.2 above This is partly reflected in the results of debt settlement (especially bad debts) which have not been thorough and sustainable, the risk of recurrence of bad debts and new bad debts of commercial banks still tends to increase Chapter 4 ORIENTATION AND PROPOSAL TO PERFECT AND IMPROVE THE EFFICIENCY OF ENFORCEMENT OF LEGAL REGULATIONS ON TRADING OF COMMERCIAL BANKS’ DEBTS 4.1 Orientation to perfect the legal regulations on trading of commercial banks’ debts in Vietnam Perfecting the legal regulations on trading of commercial banks‟ debts is an inevitable requirement to regulate the social relationships arising from trading of commercial banks‟ debts This action should be based on the basis of conformity with the viewpoints and orientations of the Communist Party and the State on socio-economic development, development of the banking system, settlement of bad debts and restructuring of the banking system, diversifying objects of debt trading, sources of capital to participate in the debt trading market, and debt traders to encourage the formation and development of a complete debt trading market, in line with the debt trading market of commercial banks in reality, ensuring the independence and objectivity of the SBV in the management of national monetary policy, in line with the development trends all over the world 4.2 Proposal to perfect the legal regulations on trading of commercial banks’ debts This dissertation proposes many solutions to amend and supplement the legal provisions on trading of commercial banks‟ debts as follows: To unify the concept of debt: currently, the concept of “debt” is provided differently in several applicable legal documents Therefore, it is necessary to uniformly define the concept of “Debt” of a commercial bank as an amount including the principal, interests and other costs that the borrower has to pay the commercial bank at one or or several points in time, called payment due date(s), as agreed upon by the commercial bank and the customer in their agreement To clarify the concept of bad debt: by current legal definition, the English acronym “NPL” is used to refer to bad debts, however it causes confusion with the concept of „qualified debt” according to the Basel Committee‟s regulations on banking supervision or the International Monetary Fund Therefore, it is necessary to change to the English acronym “bad debt” for accuracy To clarify the definition of debt trading transaction: it is the transfer of “all rights and obligations pertaining to the debt” To perfect the legal regulations on objects of trading of commercial banks’ debts: to clearly define the objects of trading of commercial banks‟ debts which are not only bad debts but also qualified debts; to reduce the conditions required for bad debts eligible to be purchased by VAMC at market value to facilitate VAMC‟s purchase of debts at market value To perfect the legal regulations on subjects engaged in trading of commercial banks’ debts and facilitate the development of a debt trading market: to expand the entities eligible to participate in debt trading on the market, allowing private and foreign investors to participate in the debt trading market, to perfect the legal regulations on the operations and roles of AMCs, to expand the scope of operation of AMCs and not limiting their operation within settlement of bad debts of the parent bank, to improve the scale and financial capacity of DATC to better promote its role, to develop market-based debt trading solutions for VAMC To perfect the legal regulations on debt purchase price and debt trading methods: this dissertation proposes the issuance of rules and base prices to provide the involved parties with a grounds to determine debt purchase price, reserve price at auction In addition, the method of determining the selling price of bad debts at book value as provided in Decree 53/2013/ND-CP should be removed to force VAMC to purchase bad debts at market price for a realistic bad debt trading relationship To perfect the legal regulations on payment instruments in trading of commercial banks’ debts: For cash, it is necessary to issue regulations on the inspection and supervision mechanism by the state agencies For bonds and special bonds, it is necessary to provide specific regulations for organizations other than VAMC when paying with this instrument and limit the debt turnover through VAMC To perfect the legal regulations on the right to request and the obligation to provide information in the debt sale and purchase agreement: this dissertation proposes a supplementation of a provision requiring the debt sellers to provide all information related to the debts being traded to the debt buyers, as long as such provision is in compliance with the law and is not contrary to the signed credit agreements or security contracts Adding to that is a mechanism to hold the debt seller responsible in case of not providing sufficient information as prescribed To perfect the legal regulations on disposal of collateral in trading of commercial banks’ debts: the main recommendation of this section is to amend the provisions of Civil Code 2015 to be consistent with the provisions of Resolution No 42/2017/QH14 in the way that expands the mechanism for seizing the collateral to apply not just to bad debts as provided in Resolution 42/2017/QH14 but also to all loans with collateral at commercial banks In addition, this dissertation recommends amending Circular No 219/2013/TT-BTC in the way that the debt buyers are also entitled to enjoy the benefits to which the debt sellers being commercial banks are entitled to, namely the right not to pay value added tax when disposing of collateral This also ensures equality among creditors on the market, encouraging more and more investors to participate in this market 4.3 Perfecting the enforcement mechanism of the legal regulations on trading of commercial banks’ debts in Vietnam In addition to the proposals to perfect the legal regulations, this dissertation also proposes several solutions to perfect the enforcement mechanism of legal regulations on trading of commercial banks‟ debts in Vietnam, which are: (i) to allow debt trading in blocks, (ii) to issue policies to rectify the oversupply and shortage of demand in debt trading market, (iii) to establish and develop professional credit rating agencies, (iv) to strengthen the basis for debt valuation, (v) to improve the of state agencies‟ capacity in management, organization and enforcement of law This is a top priority issue, set out to ensure that the legal regulations are enforced and implemented in practice CONCLUSIONS By conducting this research on “Trading of commercial banks‟ debts under applicable laws and regulations of Vietnam”, the author made the following conclusions: Firstly, the formation of theories on trading of commercial banks‟ debts and legislative theories on trading of commercial banks‟ debts play an important role in perfecting the applicable legal regulations on trading of commercial banks‟ debts in Vietnam After analysing the legal nature of social relationships arising from trading of commercial banks‟ debts from the civil law perspective, this dissertation has systematized, supplemented and provided an in-depth insight to the theories of debts and trading of commercial banks‟ debts, perfected the concepts of “debt”, “bad debt”, “debt trading” to fully express the characteristics and the legal nature of these terms, clarified the role and meaning of debt classification activity and the relationship between this activity and the trading of commercial banks‟ debts, fully addressed the particular characteristics of debt and trading of commercial banks‟ debts, the role of commercial banks‟ debt trading activities In addition, this dissertation continued to contribute and enrich the research on theoretical issues of the legal regulations on trading of commercial banks‟ debts by clarifying the fundamental and particular characteristics of the legal regulations on trading of commercial banks‟ debts, analysing and clarifying the factors affecting the legal regulations on trading of commercial banks‟ debts Secondly, this dissertation has evaluated the status of the legal regulations on trading of commercial banks‟ debts in all legal aspects: objects of trading of commercial banks‟ debts, subjects engaging in trading of commercial banks‟ debts, method of trading of commercial banks‟ debts, debt purchase price, payment instruments, debt sale and purchase agreement with commercial banks, disposal of collateral in trading of commercial banks‟ debts and settlement of disputes arising from trading of commercial banks‟ debts The research has shown that although the legal regulations in this area have been relatively complete and there have been certain achievements, there are still limitations and shortcomings as well as issues that are left ungoverned by law such as: the applicable legal regulations only focus on bad debt trading but not paying enough attention to trading of other qualified debts; the conditions required for the formation of a complete debt trading market to attract various traders to participate and diversify types of debt traded, for example: conditions for debts to become eligible for trading are still relatively strict and have not facilitated the trading of debts, and there has not yet been an effective legal mechanism to attract individual and foreign investors to this market, the applicable legal regulations on functions and scope of operation of debt traders on the market still have limitations that prevent these entities from archiving their full potential, there is a lack of a framework to use as the base for the parties to determine the proper debt purchase price and minimize risks, the special bond payment method still has shortcomings while the bond payment method has not yet fully promoted their advantages, etc Thirdly, continuing to perfect the legal regulations on trading of commercial banks‟ debts is an inevitable need The aim of perfecting the legal regulations on trading of commercial banks‟ debts is to create a uniform legal system on trading of commercial banks‟ debts and debt trading market to meet practical needs, ensure safety and efficiency for the operation of the banking system in particular and the national financial system in general To achieve these goals, this dissertation has proposed orientations and solutions to perfect legal regulations, improve efficiency in enforcement of legal regulations on trading commercial banks‟ debts It is apparent that the perfection of the legal regulations on trading of commercial banks‟ debt not only meets the requirements for settlement of bad debt but also creates a healthy and develops the credit activities of the entire commercial banks system, promotes the development of the debt trading market and macro-financial markets, thereby contributes to the stable and sustainable development of Vietnam's economy and society in the future ... area 1.3 Theoretical basis, research questions, research hypotheses, and research approaches 1.3.1 Theoretical basis of research Firstly, behavioral theory and asymmetric information theory, which... commercial banks‟ debts in Vietnam Objects and scope of research - Objects of research: theoretical issues relating to debt trading; current regulations of the laws of Vietnam on debt trading, and... debts in Vietnam to ensure the effectiveness of the legal regulations Chapter THEORY ON TRADING OF COMMERCIAL BANKS’ DEBTS AND LEGAL REGULATIONS ON TRADING OF COMMERCIAL BANKS’ DEBTS 2.1 Theoretical