Is it eligible to make an installment purchase while having bad debt in Vietnam?

Hello, Lawnet would like to answer as follows:

1. What is bad debt?

Bad debt is understood as nonperforming loan when the borrower is unable to pay the debt when it is due to pay as committed in the credit contract. Specifically, if the payment is overdue for more than 90 days, it is considered a bad debt.

According to the provisions of Clause 8, Article 3 of Circular 11/2021/TT-NHNN, nonperforming loan (NPL) refers to a bad debt on the balance sheet which is classified into group 3, 4 or 5 as prescribed in Article 10 of Circular 11/2021/TT-NHNN.

2. Classification of bad debts in Vietnam

According to Article 10 of Circular 11/2021/TT-NHNN, credit institutions and foreign bank branches shall classify debts/loans (except on-behalf payments under off-balance sheet commitments) into the following five groups:

Group 1: Standard debts/loans

- Unmatured debts/loans rated likely to be fully recovered in terms of both principal and interest by due dates;

- Debts/loans that are less than 10 days overdue and are rated likely to be fully recovered in terms of delinquent principal and interest, and likely to be fully recovered in terms of the remaining principal and interest by due dates;

- Debts/loans classified into group 1 as provided in clause 2 of Article 10 of Circular 11/2021/TT-NHNN.

Group 2: Debts/loans needing attention

- Debts/loans which are up to 90 days overdue, except those prescribed in point a (ii) of this clause and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans with first-time adjusted repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans classified into group 2 as provided in clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN.

Group 3: Sub-standard debts/loans

- Debts/loans which are from 91 days to 180 days overdue, except those prescribed in clause 3 of this Article;

- Debts/loans with first-time extended repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans on which interest is exempted or reduced due to the borrower's inability to pay in full as agreed upon, except for those specified in Clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans falling in one of the following cases that have not yet been recovered within less than 30 days from the effective dates of recovery decisions:

+ Those violating provisions laid down in clause 1, 3, 4, 5 and 6 of Article 126 in the Law on Credit Institutions (amended);

+ Those violating provisions laid down in clause 1, 2, 3 and 4 of Article 127 in the Law on Credit Institutions (amended);

+ Those violating provisions laid down in clause 1, 2 and 5 of Article 128 in the Law on Credit Institutions (amended);

- Debts/loans falling within the recovery periods under inspection and examination conclusions;

- Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered within a period of less than 30 days from the effective dates of recovery decisions;

- Debts/loans that are classified into group 3 as provided in clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans that are classified into group 3 as provided in clause 4 of Article 8 of Circular 11/2021/TT-NHNN.

Group 4: Doubtful debts/loans

- Debts/loans which are from 181 days to 360 days overdue, except those prescribed in clause 3 of this Article;

- Debts/loans with first-time rescheduled repayment terms that are up to 90 days past due from the first-time rescheduled maturity dates, except those specified in clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans with second-time rescheduled repayment terms that are unmatured, except those prescribed in point b of clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans referred to in point c(iv) of clause 1 of Article 10 of Circular 11/2021/TT-NHNN that are not yet been recovered in 30 and 60 days from the effective dates of recovery decisions.

- Debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in up to 60 days after expiry of the recovery deadlines;

- Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in 30 and 60 days from the effective dates of recovery decisions;

- Debts/loans that are classified into group 4 as provided in clause 2 and clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans that are classified into group 4 as provided in clause 4 of Article 8 of Circular 11/2021/TT-NHNN.

Group 5: Debts/loans likely giving rise to loss

- Debts/loans that are more than 360 days past due;

- Debts/loans with first-time rescheduled repayment terms that are at least 91 days past due from the first-time rescheduled maturity dates;

- Debts/loans with second-time rescheduled repayment terms that are past due from the second-time rescheduled maturity dates;

- Debts/loans with third- or more-time rescheduled repayment terms, except those prescribed in point b of clause 2 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans referred to in point c(iv) of clause 1 of Article 10 of Circular 11/2021/TT-NHNN that are not yet been recovered in more than 60 days from the effective dates of recovery decisions;

- Debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in more than 60 days after expiry of the recovery deadlines;

- Debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in more than 60 days from the effective dates of recovery decisions;

- Debts/loans of borrowers that are credit institutions put under special control, or foreign bank branches of which capital and assets are frozen;

- Debts/loans classified into group 5 as provided in clause 3 of Article 10 of Circular 11/2021/TT-NHNN;

- Debts/loans that need to be classified into group 5 as provided in clause 4 of Article 8 of Circular 11/2021/TT-NHNN.

2. Is it eligible to make an installment purchase  while having bad debt in Vietnam?

Installment purchase is a form of buying and selling assets and goods in which the buyer pays a part of the value of the goods, and the rest will be paid monthly by the buyer, including a part of the principal and interest.

Thus, depending on the level of bad debt assessment, you can borrow to buy in installments or not. Each debt group will be specified as follows:

- Group 1: Usually those who are able to pay principal and interest on time, so financial institutions or banks can consider disbursing customers' installment purchase documents.

- Group 2: If you belong to this group, you will not be accepted by banks for installment purchase documents, but you can carry out the procedure for buying installments at financial companies.

- Groups 3, 4 and 5: These debt groups belong to the group of bad debts, so they will not be loaned by banks or financial institutions. To be able to continue borrowing, customers need to pay off the principal and interest, then wait 3-5 years to borrow again.

Thus, customers in debt groups 1 and 2 can still continue to make installment loans.

 

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