What is a Bad Debt / Non-Performing Loan (NPL)?
A Bad Debt or Non-Performing Loan (NPL) (Vietnamese: Nợ xấu) refers to credit obligations where the borrower has defaulted on repayment, typically defined as loans overdue by 90 days or more. Under the State Bank of Vietnam's regulations (Circular 11/2021/TT-NHNN), NPLs encompass loan classification groups 3 (substandard), 4 (doubtful), and 5 (loss).
NPL Classification under the State Bank of Vietnam
- Group 3 – Substandard: Overdue 91–180 days
- Group 4 – Doubtful: Overdue 181–360 days
- Group 5 – Loss: Overdue more than 360 days or deemed irrecoverable
Impact of NPLs
NPLs reduce bank profitability through mandatory provisioning, constrain new lending capacity, and can threaten liquidity. A high NPL ratio is a key warning indicator of banking system health.
NPL Resolution in Vietnam
NPLs in Vietnam are resolved through VAMC (Vietnam Asset Management Company), collateral auctions, debt restructuring, or write-offs. Resolution 42/2017/QH14 created an important legal framework for more effective NPL resolution.
Impact on Borrowing Enterprises
Businesses classified as NPL borrowers face significant difficulty accessing new credit, are flagged in the National Credit Information Center (CIC) database, and suffer lasting damage to their creditworthiness with all lenders.
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