Insights | Mechanism For Seizure and Realization of Collateral Under Law No. 96/2025/QH15: Some Key Updates & Practical Implications

Authors: Van Dao and An Mai

The Law amending and supplementing a number of articles of the Law on Credit Institutions No. 96/2025/QH15 ("Law No. 96/2025"), which takes effect from 15 October 2025, introduces an important legal framework to enhance the effectiveness of bad-debt resolution. The new framework codifies the right to seize collateral  ("Collateral"), reinforces the priority right of credit institutions ("Credit Institutions" or "CIs") over Collateral, and establishes a mechanism for the return of Collateral that are being held as material evidence in criminal proceedings.

This article analyses the most notable new points and assesses their practical implications for how Credit Institutions handle Collateral.

Legal context and effective impact

After Resolution No. 42/2017/QH14 of the National Assembly on the pilot resolution of non-performing loans of credit institutions expired at the end of 2023, Credit Institutions lost an important legal tool for resolving non-performing loans. In practice, many high-value Collateral could not be disposed of in a timely manner due to prolonged court procedures or overlapping provisions across related laws.

The enactment of Law No. 96/2025 is seen as an important step toward codifying certain bad-debt resolution mechanisms previously tested under the pilot regime, while addressing both the issues that have arisen and the long-standing shortcomings that continue to affect bad-debt resolution in practice.

In addition, Decree No. 304/2025/NĐ-CP dated 25 November 2025 (effective from 1 December 2025) sets out detailed conditions under which the Collateral of a non-performing loan may be seized under Point (dd), Clause 2, Article 198a of Law No. 96/2025. The Decree serves as an important implementing instrument enabling Credit Institutions to operationalize the seizure mechanism in practice.

These new points not only contribute to enhancing the effectiveness of non-performing loan resolution by Credit Institutions but also clarify the rights and obligations of the relevant parties throughout the process of seizure and realization of Collateral.

Taken together, these developments show that Vietnam’s legal framework on non-performing loan resolution is gradually shifting toward granting Credit Institutions greater autonomy in handling Collateral, while preserving control mechanisms to safeguard the lawful rights and interests of all relevant parties.

Key new features of Law No. 96/2025 on the mechanism for handling Collateral

1. First-time statutory codification of the right to seize Collateral

In credit operations, the ability to control and dispose of Collateral is critical to the debt-recovery effectiveness of Credit Institutions. In practice, however, the recovery of Collateral formed from loan proceeds — such as factories, transport vehicles, or production machinery and equipment — often faces significant obstacles arising from non-cooperation or opposition from borrowers and related parties.

Although credit agreements and security agreements typically impose an obligation to hand over assets upon a borrower’s default, enforcement of those provisions in practice continues to depend largely on the borrower’s voluntary cooperation.

One of the underlying causes is that the prior legal framework did not establish a clear mechanism allowing a secured party to seize the asset directly, even where the parties had so agreed in the security agreement or credit agreement. Article 301 of the 2015 Civil Code recognizes only the right to demand handover of a Collateral where the party holding it fails to perform its delivery obligation, but does not specifically regulate the secured party’s right of seizure.

To address these difficulties, Article 198a of the Law on Credit Institutions, as amended by Law No. 96/2025, establishes a legal mechanism under which Credit Institutions, foreign bank branches and debt-trading and debt-management organizations may seize Collateral of a non-performing loan, without necessarily having to go through court litigation or judgment-enforcement proceedings in certain cases.

This provision helps shorten the time required to resolve non-performing loans and reduces pressure on the court system and judgment-enforcement authorities.

That said, in practice the exercise of the right to seize Collateral still carries certain risks. Where the borrower or a third party objects to the seizure, the Credit Institution may still face civil disputes relating to ownership or asset-management rights. Credit Institutions should therefore build a rigorous seizure process and prepare a complete legal file to mitigate risks that may arise during enforcement.

Content of the new provisions on the right to seize Collateral:

• Obligations of the security provider / person holding the asset

The security provider and the person currently holding the Collateral of a non-performing loan are obliged to deliver the asset, together with all related documents and legal records, to the Credit Institution, foreign bank branch or debt-trading and debt-management organization for disposal in accordance with the security agreement and applicable law.

If the asset is not voluntarily delivered, the Credit Institution, foreign bank branch and debt-trading and debt-management organization are entitled to seize the asset in accordance with Article 198a of the Law on Credit Institutions (as amended by Law No. 96/2025).

• Conditions under which a Credit Institution may seize collateral of a non-performing loan

Under Law No. 96/2025, the right to seize Collateral of a non-performing loan is a right that CIs may exercise only when all of the following statutory conditions are satisfied:

• • A trigger event for the realization of collateral under Article 299 of the Civil Code has occurred.

Article 299 of the Civil Code sets out cases of realization of collateral as follows:

" 1. An obligator fails to perform or perform not as agreed an obligation when it falls due.

2. An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law.

3. Other cases as agreed by the parties or prescribed by law."

• • The security agreement contains an express provision on the right of seizure upon the resolution of a non-performing loan.
  • The security measure has been perfected and is effective against third parties.
  • The Collateral is not the subject matter of a dispute in a case that has been accepted but not yet resolved, or is currently being resolved at a competent court; is not subject to any interim emergency measure ordered by a court; is not subject to attachment or any other judgment-enforcement security measure under law; and does not fall within a case of suspended disposal under the law on bankruptcy.
  • The asset must satisfy the conditions set out by the Government (to be detailed in an implementing Decree).
  • The required public disclosure has been made in accordance with the law.
• Publishing information procedure (highly important)

• • Real estate: disclosure must be made at least 15 days in advance (posting on the website, sending to the Commune-level People’s Committee and Commune Police, posting at the Commune-level People’s Committee, and notifying the security provider).
  • Movable property: disclosure must be made before seizure (posting on the website, sending to the Commune-level People’s Committee / Commune Police, and notifying the security provider).

• Role of local authorities

• • The Commune-level People’s Committee and Commune Police are responsible for ensuring security and order during the seizure.
  • Where the security provider is absent or uncooperative, a representative of the Commune-level People’s Committee shall act as witness and countersign the seizure minutes.
• Delegation of the seizure

• • A Credit Institution may only delegate the seizure to its own debt-management company.
  • Similar provisions apply to debt-trading organizations and to Credit Institutions placed under mandatory transfer.
  • The use of any measure that is unlawful or contrary to social morality is prohibited.

• Internal regulations of the CIs

Each CIs must issue internal regulations setting out the order and procedures for seizure (including delegation arrangements).

Accordingly, Article 198a, as amended by Law No. 96/2025, codifies the right to Collateral of non-performing loans in a transparent manner and on strict conditions, prioritizing civil agreement, public disclosure, and support from local authorities. The aim is to enable CIs to resolve non-performing loans more effectively while still protecting the interests of the relevant parties.

In addition, Article 5 of Decree No. 304/2025/NĐ-CP further clarifies the mechanism by placing the burden of proof on the security provider. Specifically, if more than 10 working days elapse from the date the security provider receives the secured party’s request without the security provider producing documents confirming and proving that the Collateral falls within the category of "sole residence" or "primary and sole working tool", then the Collateral shall be deemed not to fall within those categories and may be seized under ordinary conditions. It should be noted that these are not categories of assets that are prohibited from being seized; rather, they are assets that may be seized subject to an additional condition that the secured party must set aside, for the benefit of the security provider, an amount equivalent to 12 months’ minimum wage (in the case of a sole residence) or 6 months’ minimum wage (in the case of a primary and sole working tool). This helps prevent the misuse of formalistic disputes intended to prolong the debt-resolution process.

2. Protecting the bank’s priority right in the realization of Collateral

A common difficulty in past practice was that the Collateral of a loan would be attached for the enforcement of other obligations of the judgment debtor, creating a conflict between the rights of the Credit Institution and the other civil obligations of the borrower. In practice, although a large volume of cases proceeds to the judgment-enforcement stage, the rate of successful enforcement remains modest, with many Collateral becoming stalled in coercive enforcement, auction or public sale processes. This not only prolongs the non-performing loan resolution process but also erodes the value of Collateral.

To address this, Article 198b of Law No. 96/2025 recognizes the priority principle of Credit Institutions in respect of Collateral of non-performing loans. Accordingly, Collateral of a non-performing loan that is being used to secure repayment obligations at a Credit Institution shall not be attached for the enforcement of other civil obligations of the judgment debtor.

This rule does not apply, however, in certain exceptional cases — for example, where the security agreement was entered into after the relevant court judgment or decision, or where the obligations concerned relate to spousal/child maintenance or compensation for damage to life and health.

Reinforcing the priority of the secured party enhances the legal certainty of credit transactions, thereby strengthening the safety of the banking system and supporting Credit Institutions in expanding lending activities, particularly for high-value loans backed by Collateral.

3. Handling Collateral that are material evidence in criminal proceedings

In a number of cases, Collateral of a loan is at the same time connected to a criminal case or an administrative violation, and is impounded by the competent authority as material evidence or as an exhibit. The Credit Institution’s right to dispose of the asset is effectively "frozen" throughout the investigation, prosecution and adjudication process, which may take several years.

The prior legal framework did not establish a clear mechanism for returning such assets to the secured party once evidence-gathering had been completed, nor did it clarify the principles for handling or for priority payment in respect of Collateral in such circumstances. As a result, the assets were exposed to the risk of physical deterioration or loss of value over time.

To resolve this difficulty, Article 198c of the Law on Credit Institutions, as amended by Law No. 96/2025, establishes a legal mechanism for the return of Collateral that are being impounded. Accordingly, once evidence-gathering and verification have been completed and provided that the return will not affect the resolution of the case or the subsequent enforcement of the judgment, the procedure-conducting authority is responsible for returning the material evidence — being the Collateral of a non-performing loan — at the request of the secured party (including a Credit Institution, foreign bank branch, or debt-trading and debt-management organization). A precondition is that the security agreement must contain a clause under which the security provider consents to the secured party’s right to seize Collateral of a non-performing loan upon the occurrence of a trigger event for the realization of Collateral under the law. This is an important drafting requirement: if the security agreement does not contain such a clause, the Credit Institution will lack the legal basis to request the return of the material evidence.

This provision helps reduce the prolonged "freezing" of assets and enables them to be brought into the disposal process more quickly for debt recovery, thereby contributing to the liquidity of the credit market.

Conclusion

Overall, the new provisions help complete the legal framework on bad-debt resolution and thereby strengthen the stability and safety of the banking and financial system. Bringing greater transparency to the mechanisms for seizing and disposing of Collateral not only helps reduce disputes but also reinforces investor confidence in the credit market.

At the same time, combining the Collateral realization mechanisms with measures supporting the banking system, such as the special-loan mechanism for weak Credit Institutions helps contain the risk of contagion across the financial system, particularly against a backdrop in which deposit interest rates remain relatively elevated and the need to support economic recovery is intensifying.

However, the actual effectiveness of these mechanisms in practice will continue to depend significantly on coordination among Credit Institutions, local authorities and procedure-conducting bodies.

Against that backdrop, Credit Institutions should proactively review their template security agreements, the clauses on the right of seizure, and the procedures for disposing of Collateral, in order to ensure that the legal conditions under Law No. 96/2025 are satisfied from the moment a credit transaction is signed. They should likewise build appropriate risk-management arrangements so as to make effective