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BANK MORTGAGE LOANS FOR BAD DEBT GROUPS
BANK MORTGAGE LOANS FOR BAD DEBT GROUPS
1. Legal Basis
Circular No. 31/2024/TT-NHNN dated June 30, 2024, of the State Bank of Vietnam, regulating the classification of assets in the operations of commercial banks, non-bank credit institutions, and branches of foreign banks (effective from July 1, 2024) Circular No. 03/2013/TT-NHNN dated January 28, 2023, of the State Bank of Vietnam, regulating the credit information activities of the State Bank of Vietnam
2. Content
2.1. Definition of Bad Debt
Bad debt is understood as debts that are difficult to collect when the borrower is unable to repay on the due date as committed in the credit contract.
According to Clause 1, Article 10 of Circular 11/2021/TT-NHNN, debts are classified into five groups as follows:
Group 1: Pass debt, including:
According to Clause 1, Article 10 of Circular 11/2021/TT-NHNN, debts are classified into five groups as follows:
Group 1: Pass debt, including:
- Debts that are within the due date and are assessed to be fully recoverable in terms of both principal and interest on time;
- Debts overdue for less than 10 days and assessed as fully recoverable both in overdue principal and interest and fully recoverable in remaining principal and interest on time; (iii) Debts classified in Group 1 as prescribed in Clause 2 of this Article;
Group 2: Special-mention debts, including:
- Debts overdue up to 90 days, except for debts specified at point a(ii) of this Clause, Clause 3 of this Article;
- Debts with the first-time rescheduled repayment term still within the due date, except for debts specified at point b of Clause 2, Clause 3 of this Article;
- Debts classified in Group 2 as prescribed in Clause 2, Clause 3 of this Article;
Group 3: Sub-standard debt, including:
- Debts overdue from 91 to 180 days, except for debts specified in Clause 3 of this Article;
- Debts with the first-time extended repayment term still within the due date, except for debts specified at point b of Clause 2, Clause 3 of this Article;
- Debts exempt from or reduced interest due to the customer's inability to fully pay interest as agreed, except for debts specified in Clause 3 of this Article;
- Debts under any of the following circumstances that have not been recovered within 30 days from the date the bank, non-bank credit institution signed the debt recovery document (hereinafter referred to as the recovery decision date):
- Debts violating provisions in Clauses 1, 3, 4, 5, 6, Article 134 of the Law on Credit Institutions;
- Debts violating provisions in Clauses 1, 2, 3, 4, Article 135 of the Law on Credit Institutions;
- Debts violating provisions in Clauses 1, 2, 5, 9, Article 136 of the Law on Credit Institutions;
- Debts within the recovery period as per the conclusion of inspection and audit; (vi) Debts required to be recovered by the bank’s or non-bank credit institution’s early recovery decision due to the customer's breach of agreement with the bank or non-bank credit institution but have not been recovered within 30 days from the recovery decision date;
(vii) Debts classified in Group 3 as prescribed in Clause 2, Clause 3 of this Article; (viii) Debts required to be classified in Group 3 as prescribed in Clause 4, Article 8 of this Circular;
Group 4: Doubtful debts, including:
Group 4: Doubtful debts, including:
- Debts overdue from 181 to 360 days, except for debts specified in Clause 3 of this Article;
- Debts with the first-time restructured repayment term overdue up to 90 days according to the first-time restructured repayment term, except for debts specified in Clause 3 of this Article;
- Debts with the second-time restructured repayment term still within the due date, except for debts specified at point b of Clause 2, Clause 3 of this Article;
- Debts specified at point c(iv) of Clause 1 of this Article have not been recovered within 30 to 60 days from the recovery decision date;
- Debts required to be recovered according to the conclusion of inspection and audit but have not been recovered within 60 days after the recovery period concluded by the inspection and audit;
- Debts required to be recovered by the bank’s or non-bank credit institution’s early recovery decision due to the customer's breach of agreement with the bank or non-bank credit institution but have not been recovered within 30 to 60 days from the recovery decision date;
- Debts classified in Group 4 as prescribed in Clause 2, Clause 3 of this Article;
- Debts required to be classified in Group 4 as prescribed in Clause 4, Article 8 of this Circular;
Group 5: Loss debts, including:
- Debts overdue by more than 360 days;
- Debts with the first-time restructured repayment term overdue by 91 days or more according to the first-time restructured repayment term;
- Debts with the second-time restructured repayment term overdue according to the second-time restructured repayment term;
- Debts with the third-time or later restructured repayment term, except for debts specified at point b of Clause 2 of this Article;
- Debts specified at point c(iv) of Clause 1 of this Article have not been recovered within more than 60 days from the recovery decision date;
- Debts required to be recovered according to the conclusion of inspection and audit but have not been recovered within more than 60 days after the recovery period concluded by the inspection and audit;
- Debts required to be recovered by the bank’s or non-bank credit institution’s early recovery decision due to the customer's breach of agreement with the bank or non-bank credit institution but have not been recovered within more than 60 days from the recovery decision date;
- Debts of customers who are credit institutions under special control, foreign bank branches subject to capital and asset freezes;
- Debts classified in Group 5 as prescribed in Clause 3 of this Article;
- Debts required to be classified in Group 5 as prescribed in Clause 4, Article 8 of this Circular.
According to Clause 3, Article 2 of Circular No. 31/2024/TT-NHNN:
"Non-performing loans (NPL) are bad debts recorded in the balance sheet (on-balance sheet NPL), including debts in Groups 3, 4, and 5."
"Non-performing loans (NPL) are bad debts recorded in the balance sheet (on-balance sheet NPL), including debts in Groups 3, 4, and 5."
2.2. Mortgage Loans for Bad Debt Groups at the Bank
According to Clause 1, Article 11 of Circular 03/2013/TT-NHNN, the bad debt information of customers will be stored for a maximum period of 5 years. All bad debts under 10 million VND will also cease to be reported after the customer has settled the debt, and the bank has updated the information.
When a customer seeks a mortgage loan from the bank, the bank will base its decision on the individual's legal documents, the legal status of the asset, and the ability to repay the loan. For debt groups 3, 4, and 5, classified as bad debt groups, most banks do not approve mortgage loans for these groups due to the high risk and the borrower’s low repayment ability. Currently, for different debt groups, banks have specific regulations applied to each group. Specifically:
When a customer seeks a mortgage loan from the bank, the bank will base its decision on the individual's legal documents, the legal status of the asset, and the ability to repay the loan. For debt groups 3, 4, and 5, classified as bad debt groups, most banks do not approve mortgage loans for these groups due to the high risk and the borrower’s low repayment ability. Currently, for different debt groups, banks have specific regulations applied to each group. Specifically:
- For Group 1 and Group 2 debts: Generally, for Group 1, once the previous loan is fully settled, the borrower can apply for a new loan. However, for Group 2, the bank will impose certain conditions before approving the loan, such as: requiring income verification, proving that the bad debt was caused by objective reasons/unintentional, ensuring the collateral asset has significant value, and the loan amount does not exceed the value of the collateral.
- For Group 3 bad debts: In certain cases, banks may still allow customers with Group 3 debts to apply for mortgage loans with stricter conditions, such as: customers having fully paid the principal and interest of previous loans; high-value collateral (usually real estate); stable income verification; proving that bad debt occurred due to objective reasons and not a loss of payment capacity; having a clear and feasible plan for utilizing the new loan and a clear repayment schedule. However, in reality, banks are very cautious in approving loans for customers with a bad history in this group.
- For Groups 4 and 5, customers are generally unable to secure mortgage loans from banks, even if the conditions of collateral and repayment capacity are better than those of other debt groups.
- Additionally, if a customer has more than one loan at one or more credit institutions, and any one loan is classified as bad debt according to the above regulation, all remaining loans will also be classified as bad debt. The bank must carefully review the loan application in such cases before approving any mortgage loan.
Therefore, whether a mortgage loan is granted depends on the debt status and the lending policies of the bank, and for those in bad debt groups, the chances of getting a loan are very low.
2.3. Mortgage Loans in the Cases of Relatives with Bad Debt
In some cases, borrowers may not qualify for a mortgage if their relatives have a history of bad debt. Typically, before approving a loan, banks will conduct a thorough review of the borrower's family relationships and relatives to determine the credit limit or decision on credit issuance.
Currently, some banks review the bad debt information of the borrower's parents and siblings, while others focus only on the information of the spouse and children.
Therefore, if the bank does not consider the bad debt record of the relatives, the borrower may be approved for a loan if they meet all the requirements according to the bank’s policy.
Conversely, if the bank decides to review the bad debt information on the relatives (especially the spouse), the borrower may be denied the loan approval. Specifically, at some banks, if the borrower's spouse has a bad debt history, the parties may make a commitment to confirm that the collateral is personal property and not related to the other party. In such cases, the bank may consider approving the mortgage loan based on the committed personal property.
Currently, some banks review the bad debt information of the borrower's parents and siblings, while others focus only on the information of the spouse and children.
Therefore, if the bank does not consider the bad debt record of the relatives, the borrower may be approved for a loan if they meet all the requirements according to the bank’s policy.
Conversely, if the bank decides to review the bad debt information on the relatives (especially the spouse), the borrower may be denied the loan approval. Specifically, at some banks, if the borrower's spouse has a bad debt history, the parties may make a commitment to confirm that the collateral is personal property and not related to the other party. In such cases, the bank may consider approving the mortgage loan based on the committed personal property.
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