Conditions for the purchase and sale of debts arising from credit institutions’ lending activities

The sale of debts is a crucial component of financial and risk management strategies for credit institutions. This process involves transferring debts, typically non-performing or hard-to-collect debts, from banks to other organizations or individuals. Debt sales enable banks to optimize their financial structure, improve non-performing loan ratios, and focus resources on core business activities. Additionally, this activity contributes to cleaning up the economic system, enhancing liquidity, and mitigating systemic risks. In Vietnam, debt sale processes comply with legal regulations, including the Law on Credit Institutions and related guidelines, ensuring transparency, efficiency, and the protection of stakeholders’ rights. This is an essential tool for banks to maintain sustainable growth and support the economy’s stability. In this article, the author will outline several conditions related to the purchase and sale of debts as prescribed by law.  

1. Definition of Debt Purchase and Sale

Clause 1, Article 3 of Circular 09/2015/TT-NHNN, which regulates the purchase and sale of debts by credit institutions and branches of foreign banks (“Circular 09”), defines debt purchase and sale as a written agreement involving the transfer of debt collection rights related to debts arising from lending activities or payment obligations under guarantees. Under this agreement, the debt seller transfers ownership of the debt to the debt buyer and receives payment in return. 

However, not all debts arising from lending activities or payment obligations under guarantees can be transferred to the debt buyer. Such debts must meet specific conditions prescribed by law (detailed in Section 2.2 below). 

2. Conditions for credit institutions to conduct debt purchase and sale

2.1 Conditions for the Debt Seller 

According to Clauses 2 and 3, Article 3 of Circular 09, a credit institution must meet the following conditions to qualify as a debt seller under the law:  

• Be established and operate in compliance with legal regulations (specifically the Law on Credit Institutions); 

• Possess legitimate lending operations approved by competent state authorities; 

• Own debts eligible for sale as stipulated by law; 

• Have internal regulations on debt purchase and sale that are validly issued and submitted to competent state authorities. 

It is important to note that, under the law, credit institutions selling debts are not required to obtain approval from the State Bank of Vietnam.(1)

2.2 Conditions for the debt being sold 

Pursuant to Clause 2, Article 3, and Article 4 of Circular 09 (as amended and supplemented by Circular 18/2022/TT-NHNN), debts eligible for purchase and sale must meet the following conditions: 

• The debt must arise from lending activities or payment obligations under guarantees, based on a credit agreement signed with the credit institution.

• The debt must be recorded in the on-balance sheet, off-balance sheet, or already written off from the off-balance sheet of the debt seller.

• The debtor must have an obligation to pay the credit institution.

• The documents, records, and related materials of the debt, including secured agreements (if any) provided by the debt seller, must accurately and fully reflect the debt’s actual status in compliance with legal regulations.

• There must be no written agreement prohibiting the purchase and sale of the debt. 

• The debt must not be used to secure the performance of civil obligations at the time of purchase and sale unless the secured party provides written consent for the sale. 

3. Conditions for Debt Buyers from Credit Institutions

According to Clause 4, Article 3, and Clause 7, Article 5 of Circular 09, parties eligible to purchase debts from credit institutions (“debt buyers”) must meet the following conditions depending on their specific case:  

3.1 For debt buyers who are credit institutions or the branch of a foreign bank:  

3.1.1 Credit institutions or foreign bank branches must receive approval from the State Bank of Vietnam (SBV) to engage in debt purchase activities.(2) To qualify, they must meet the following conditions(3): 

(1) The SBV must approve their debt purchase activity in the establishment and operation license of the credit institution or the establishment license of the foreign bank branch. 

(2) They must maintain a non-performing loan (NPL) ratio below 3% in the most recent classification period as prescribed by the SBV before requesting approval for debt purchase activities, except for credit institutions under special control. 

(3) They must maintain an NPL ratio below 3% in the most recent classification period as prescribed by the SBV before signing the debt purchase agreement, except in specific cases. 

• Credit institutions under special control may purchase eligible debts as stipulated in Clause 2, Article 146 of the Law on Credit Institutions. 

• Credit institutions under special control may purchase eligible debts from supporting credit institutions under a recovery plan approved according to Clause 1, Article 148 of the Law on Credit Institutions.

• Commercial banks subject to mandatory transfer may purchase eligible debts from credit institutions receiving mandatory transfers under a mandatory transfer plan approved by the competent authority.

• Supporting credit institutions may repurchase debts sold to credit institutions under special control under a recovery plan approved according to Clause 6, Article 148 of the Law on Credit Institutions. 

• Credit institutions receiving mandatory transfers may repurchase debts sold to commercial banks subject to mandatory transfer. 

(4) Internal regulations on debt purchase and sale activities must be issued. These regulations should clearly specify the delegation of authority, separating responsibilities for debt appraisal and decision-making; the methods and procedures for debt purchase and sale; payment methods; debt valuation processes; and risk management protocols. 

(5) Compliance with legal requirements on operational safety for credit institutions and foreign bank branches is mandatory. 

Credit institutions or foreign bank branches must maintain the safety limits and ratios regularly required by the State Bank of Vietnam under Circular 22/2019/TT-NHNN, which stipulates safety limits and ratios in banking operations. 

3.2 For debt buyers who are other organizations (including resident and non-resident entities): 

(i) Debt buyers must not be subsidiaries of the credit institution conducting the debt sale, except in the following cases: 

• The subsidiary is a debt management and asset exploitation company established in accordance with the law and maintains a non-performing loan (NPL) ratio below 3%, except where the debt sale to the subsidiary is part of a restructuring plan approved by the competent authority of the credit institution.(4)

Note: Circular 09 does not define the concept of a “restructuring plan.” Therefore, the “restructuring plan” mentioned refers to plans for restructuring credit institutions under Clause 29, Article 4 of the Law on Credit Institutions 2024. However, debt purchase and sale under these plans may only occur when the credit institution is under special control. 

• Credit institutions receiving mandatory transfers may sell eligible debts to commercial banks subject to mandatory transfer under a mandatory transfer plan approved by the competent authority. 

(ii) For other organizations, including resident and non-resident entities, the Foreign Exchange Ordinance defines certain entities as follows:(5)

• Economic organizations that are not credit institutions, established and operating businesses in Vietnam. 

• State agencies, armed forces units, political organizations, socio-political organizations, socio-political-professional organizations, social organizations, socio-professional organizations, social funds, and charitable funds of Vietnam operating in Vietnam. 

• Overseas representative offices of the above-mentioned entities. 

• Diplomatic missions, consular missions, and representative offices of Vietnam at international organizations abroad. 

• Branches of foreign economic organizations in Vietnam, forms of foreign presence in Vietnam engaged in investment activities as stipulated by investment law, and operational offices of foreign contractors in Vietnam.

3.3 For individual debt buyers (including resident and non-resident individuals):  

Current regulations do not clearly define conditions or restrictions for this group. However, the Foreign Exchange Ordinance specifies certain individuals as follows:(6)

• Vietnamese citizens residing in Vietnam or Vietnamese citizens residing abroad for less than 12 months. 

• Vietnamese citizens working at representative offices of the entities listed in Section 3.2(ii) above and individuals accompanying them. 

• Vietnamese citizens traveling, studying, seeking medical treatment, or visiting abroad. 

• Foreigners allowed to reside in Vietnam for 12 months or more. Foreigners studying, seeking medical treatment, traveling, or working for diplomatic missions, consular offices, international organizations’ representative offices in Vietnam, or foreign organizations’ representative offices in Vietnam, regardless of the duration, are not considered resident individuals. 

(1) Article 5.3, 5.4 of Circular 09

(2) Article 3.4(a) of Circular 09 

(3)  Article 5.3, 5.4, 5.6 and 5.12 of Circular 09 

(4) Article 5.7(a) và 5.8 of Circular 09

(5) Article 2 of the Foreign Exchange Ordinance

(6) Article 2 of the Foreign Exchange Ordinance

See more:

1/ Procedures for debt sale and purchase by credit institutions

2/ Concerns over prohibition against debt collection service

3/ Can debt repayment right be mortgaged?

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