Delving into Bank Overdue Debt Recovery: A Comprehensive Guide

Overdue debt casts a long shadow over the financial landscape, a spectre haunting both borrowers and banks. For borrowers, it’s a financial quagmire threatening credit scores and future borrowing prospects. For banks, it’s a critical challenge, impacting profitability and stability. This article by NT International Law Firm dissects the intricacies of bank debt recovery, equipping you with knowledge to navigate this complex terrain.

Delving into Bank Overdue Debt Recovery: A Comprehensive Guide

Understanding Overdue Debt: A Definition and Its Consequences

At its core, overdue debt arises when a borrower, be it an individual or an organization, fails to fulfill their obligation to repay principal and interest on a loan within the stipulated timeframe. As stated in Article 20 of Circular 39/2016/TT-NHNN, late payments trigger a transfer of the debt to “overdue” status, prompting notification from the bank. This notification details the outstanding principal balance, the date of transfer, and the applicable interest rate.

While banks often offer a grace period of 1-3 days, persistent delinquency pushes the debt into the realm of “overdue.” This carries grave consequences, impacting the borrower’s credit history through updates on CIC (Vietnam Credit Information Company) and potentially hindering future loan applications.

Two Faces of Overdue Debt:

• Secured Debt: When collateral backs the loan, the bank possesses the right to liquidate assets like property or vehicles to recover the owed amount. This can involve auctions or direct asset sales.

• Unsecured Debt: This riskier category relies solely on the borrower’s reputation and ability to repay. Without tangible collateral, banks face greater vulnerability in recouping their losses.

Classifying Overdue Debt: A Risk-Based Approach

Circular No. 11/2021 issued by the State Bank of Vietnam categorizes overdue debt based on the duration of delinquency:

• Group 1: Qualified Debt (Less than 10 days overdue): Recoverable debt with both principal and interest intact.

• Group 2: Debts Requiring Attention (10-90 days overdue or renegotiated but still delinquent): Signals potential risk, necessitating close monitoring and possible restructuring.

• Group 3: Substandard Debt (91-180 days overdue, extended but overdue for less than 30 days, or renegotiated twice): Raises concerns about the borrower’s financial health and requires proactive recovery measures.

• Group 4: Doubtful Debt (181-360 days overdue, late on first extension for 30-90 days or second extension for under 30 days): Indicates significant risk of loss, demanding decisive action.

• Group 5: Debt with Potential Loss of Capital (361+ days overdue, late compared to first or second extension for 90+ or 30+ days respectively, or extended for the third time): Represents the highest risk category, often necessitating legal intervention.

Navigating the Bank Debt Recovery Process

Navigating the Bank Overdue Debt Recovery Process:

Handling overdue debt is a core function of banks, with dedicated departments managing this critical task. The recovery process is guided by two main legal sources:

• General Regulations of the State Bank: Establishes overarching rules and regulations for credit institutions to adhere to.

• Charter and Loan Agreement: Each bank specifies its own regulations within its Charter and the loan agreement, often tailored to specific situations.

The typical bank debt recovery process involves:

1. Notification: Banks publicly announce the overdue debt status, informing the borrower about the outstanding balance, delinquency period, and applicable interest rates.

2. Restructuring (Optional): Depending on the borrower’s circumstances and negotiations, the bank may adjust the principal and/or interest repayment terms to facilitate debt resolution.

3. Collateral Handling: If repayment defaults persist, the bank holds the right to manage collateral assets according to the loan agreement. This involves notifying the borrower, assessing the asset’s value, and ultimately selling it or utilizing it to recover the debt.

4. Legal Actions: When faced with deliberate debt evasion or difficulty handling collateral assets, banks can pursue legal options, including:

• Lawsuits: Filing a lawsuit against the borrower in the local People’s Court to resolve the dispute through civil channels.

• Criminal Complaints: Reporting potential criminal violations by the borrower to seek legal repercussions.

5. Flexible Processes: Beyond the general framework, individual banks may implement additional processes outlined in their Charter and loan agreements. Transparency and clear communication of these procedures are crucial for both parties.

Facing the Challenges: Balancing Risk and Recovery

Facing the Challenges: Balancing Risk and Recovery:

For banks, borrowing and recovering capital are two sides of the same coin, inherently bearing risk. Borrowers, on the other hand, grapple with diverse reasons for falling behind on payments, potentially leading to conflict. Recognizing this, many banks have adopted flexible yet assertive approaches, striving to comply with legal frameworks while safeguarding their interests throughout the debt recovery process. This often involves:

• Early Intervention: Proactive engagement with borrowers experiencing financial difficulties allows banks to explore solutions like restructuring or payment extensions before the debt escalates.

• Open Communication: Maintaining transparent communication channels fosters trust and understanding, enabling a collaborative approach to finding solutions.

• Alternative Dispute Resolution: Utilizing mediation or negotiation techniques before resorting to litigation can lead to faster and more amicable resolutions while minimizing legal costs.

• Focus on Credit Rehabilitation: Beyond mere debt collection, some banks actively support borrowers in improving their financial literacy and creditworthiness, empowering them to regain financial stability and prevent future delinquencies.

Seeking Legal Expertise: Navigating the Uncertain

Seeking Legal Expertise: Navigating the Uncertain:

While banks possess internal debt recovery capabilities, navigating complex legal intricacies and maximizing recovery often necessitates expertise from qualified legal professionals. NT International Law Firm stands ready to assist with:

• Debt Recovery Strategies: Crafting customized strategies tailored to the specific debt category, borrower profile, and legal framework.

• Negotiation and Mediation: Utilizing skilled communication and legal knowledge to advocate for clients and achieve optimal debt recovery outcomes.

• Litigation Support: Providing comprehensive legal representation in court proceedings, ensuring clients’ rights are protected and claims are presented effectively.

• Compliance Guidance: Advising clients on adherence to relevant banking regulations and ensuring legal compliance throughout the recovery process.

Conclusion:

Bank debt recovery, while fraught with challenges, presents an opportunity for proactive risk management and collaborative problem-solving. By understanding the classification, process, and legal aspects of this intricate scenario, both banks and borrowers can navigate towards resolutions that prioritize fairness, financial stability, and a path towards a secure financial future. NT International Law Firm stands beside you, offering expert guidance and support to facilitate smooth, effective, and legally sound debt recovery solutions.

NT International Law Firm is Here to Help You

NT International Law Firm is Here to Help You

NT International Law Firm has addressed the question of how banks collect their loans. If you have any further questions or concerns regarding civil law, please contact our law firm immediately for expert legal advice.

If you require any legal assistance, please feel free to reach out to us via phone at 090 252 4567 or through email: info@ntpartnerlawfirm.com. At NT INTERNATIONAL LAW FIRM, our team is committed to offering you prompt and personalized advice.

You also might be interested in:

• The 2015 Civil Code in English
• The 2015 Civil Procedure Code in English