Bank debt is a critical issue not only for individuals and businesses but also for the entire financial system. To manage credit risk, the State Bank of Vietnam has categorized debts according to strict regulations, helping determine risk levels and appropriate handling measures. This article will help you understand debt categories, how bad debts are classified, and how to effectively manage debts.
Debt classification according to state bank regulations
According to regulations, bank loans are divided into five debt groups based on overdue duration and recoverability:
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Group 1 (Standard debt): This includes loans that are repaid on time or overdue by less than 10 days. If overdue for more than 10 days, the debt moves to Group 2.
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Group 2 (Special mention debt): Loans overdue between 10 and 90 days. Although not classified as bad debt, this group poses higher risks.
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Group 3 (Sub-standard debt): Loans overdue between 91 and 180 days. Debt recovery becomes challenging.
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Group 4 (Doubtful debt): Loans overdue between 181 and 360 days, with a high risk of capital loss.
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Group 5 (Debt loss): Loans overdue for more than 360 days or those already processed but not recovered. This is the most severe category of bad debt.
These debt groups are recorded in the Credit Information Center (CIC), directly affecting a borrower’s future loan eligibility.
Bad debt: Understanding overdue debt groups
Bad debt refers to loans that borrowers cannot repay on time, causing significant consequences for the banking system. Typically, bad debts include Group 3, Group 4, and Group 5 loans.
Banks lending to Group 5 borrowers face high capital loss risks. Once a loan falls into this category, banks must make provisions and implement stringent debt recovery measures. Managing bad debt requires valuation firms to assess the secured assets’ value accurately.
Credit risk impacts the economy significantly. An increase in bad debt leads to cash flow disruptions, affecting banks lending capacity.
How can borrowers avoid falling into bad debt? Effective financial management, timely repayments, and thoroughly understanding loan terms are key factors.
Debt resolution: Solutions for overdue debt
When loans fall into overdue categories, borrowers need to act quickly to avoid legal repercussions and credit history damage. Financial institutions must accurately assess collateral value, determine risk levels, and implement debt settlement measures such as asset liquidation, legal action, or debt transfer. Here are practical solutions:
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Loan restructuring: Banks may extend repayment periods, reduce interest rates, or adjust loan terms to align with borrowers financial capacity.
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Negotiation with banks: Proactively discussing repayment options with financial institutions can help borrowers find flexible solutions and avoid bad debt classification.
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Utilizing other financial resources: Borrowers can secure funds from family, friends, or asset transfers to meet loan obligations.
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Debt Valuation for Settlement: Businesses can engage valuation firms to determine asset values, restructure debt, or find buyers for the debt, alleviating financial pressure.
Debt valuation – Minimizing risk, optimizing finance
In a volatile financial market, effective debt resolution is a major challenge for banks, financial institutions, and businesses. As bad debt increases, especially in the banking sector, the demand for debt valuation services to determine actual value and identify optimal solutions has become more urgent than ever.
Debt valuation is not just about assessing the real worth of a loan; it also helps stakeholders make crucial decisions regarding debt trading, transfer, or restructuring. Key benefits include:
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Determining the actual debt value: Valuation ensures transparency and fairness in transactions.
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Supporting debt restructuring: Based on valuation results, parties can negotiate reasonable restructuring plans, reducing risks and optimizing benefits.
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Managing credit risk: Debt valuation enables banks and financial institutions to assess risk levels and implement effective credit risk management strategies.
With over two decades of experience in valuation services, Hoang Quan Appraisal proudly offers specialized debt settlement valuation services, assisting banks, financial institutions, and businesses with:
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Asset collateral valuation: Accurately determining collateral value for debt recovery decisions.
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Debt valuation: Precisely assessing secured asset values to facilitate bad debt and overdue debt resolution.
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Debt settlement valuation: Evaluating asset values and assessing recovery potential to develop appropriate solutions.
If you seek reliable and efficient debt valuation solutions, Hoang Quan Appraisal is committed to providing professional services with accurate and timely results for effective debt resolution.
Contact us for detailed consultation:
Hoang Quan Appraisal Ltd
Address: HOANG QUAN APPRAISAL SYSTEM
Phone: 0934.252.707
Email: contact@sunvalue.vn
Facebook: HOANG QUAN APPRAISAL
Website: hqa.com.vn
Conclusion
As bad debt levels rise, leveraging Hoang Quan Appraisal’s debt settlement valuation services provides an effective solution for banks and businesses to manage debts swiftly and accurately. Let us help you minimize risks and optimize financial performance!
