Procedures for seizing collateral under the Amended Law on Credit Institutions 2025

Under the Amended Law on Credit Institutions 2025, the seizure of collateral is one of the key tools enabling credit institutions, branches of foreign banks and debt trading and resolution organizations (“the Debt Settlement Party”) to expedite capital recovery, minimize credit risk and ensure the safety of the financial system. Through this article, TNTP will analyze issues relating to the procedures for seizing collateral for non-performing loans (“NPLs”) under the new provisions, helping credit institutions, debt management companies and other relevant parties clearly understand and correctly implement the law, thereby limiting disputes and complaints.

Pursuant to Clause 7, Article 198a of the Amended Law on Credit Institutions 2025, the Debt Settlement Party must formulate and promulgate internal regulations on the procedures for seizing collateral, including provisions on the delegation of collateral seizure as stipulated in Clause 6 of this Article. Currently, the law does not provide specific provisions on the procedures for seizing collateral, however, based on existing regulations, TNTP can outline the basic implementation steps as follows:

1.Verify the classification status of the debt

Under the Amended Law on Credit Institutions 2025, the right to seize collateral applies only to collateral securing NPLs. Therefore, the first step the Debt Settlement Party must take is to review, cross-check and determine whether the debt has been classified as an NPL in accordance with current legal provisions. Proving the status of “NPL” requires complete records and documents, including the debt classification minutes, the classification decision of the head office or the risk appraisal committee, together with accounting books showing that the debt is recorded as an NPL. These are important pieces of evidence to support the seizure process and to safeguard the legality of the asset disposal. If the debt has not been classified as an NPL, the provisions of Article 198a will not apply. In such cases, the Debt Settlement Party must resort to other measures such as negotiation, litigation or enforcement proceedings to recover the debt.

2.Request the securing party to deliver the collateral for disposal

Before disposing of collateral, pursuant to Articles 299, 300 and 301 of the Civil Code 2015, the Debt Settlement Party must send a written request to the securing party (or the person currently holding the asset) to deliver the collateral and relevant documents in accordance with the security agreement or another document (hereinafter collectively referred to as the “security contract”). This step is a practical and legal requirement to demonstrate that a valid request has been made before seizure. If the securing party cooperates, subsequent steps shall follow the security contract and the law. If the securing party fails to cooperate, this request dossier will serve as evidence to establish that the Debt Settlement Party’s right to seize the collateral has arisen under Article 198a.

3.Verify the conditions for the parties to have the right to seize collateral

It is necessary to verify the condition of the party because the law grants the right to seize collateral only to a limited group of entities, primarily credit institutions, branches of foreign banks and debt trading and resolution organizations or legally authorized parties. Other individuals or organizations outside this group, even if they have a right to collect debts, are not permitted to apply the seizure mechanism under Article 198a of the Amended Law on Credit Institutions 2025. Therefore, before carrying out the seizure, the Debt Settlement Party must clearly determine whether it has the legal standing to seize collateral under the law. This verification includes: reviewing the entity’s legal documents, reviewing the security contract to confirm that the right of seizure has been agreed upon, cross-checking documents proving the right to dispose of the asset, confirming the debt classification status and other related work (if necessary).

4.Verify the legal status of the collateral

The 2025 Amendments to the Law on Credit Institutions stipulate that one of the conditions for seizing collateral securing an NPL is that such collateral is not the subject of a dispute in a case accepted but not yet resolved or pending resolution by a competent court; is not subject to interim urgent measures by a court; is not seized or subject to enforcement security measures under the law and is not subject to a suspension of disposal under the bankruptcy law. Therefore, before seizure, the Debt Settlement Party must verify the status of the collateral by requesting confirmation from the court, enforcement agency or other competent authorities that the collateral is not in one of the above situations. If the collateral is involved in disputes, seizure, interim measures or bankruptcy proceedings, the seizure must be postponed until such procedures are resolved.

5.Publicize information on the collateral seizure

Before seizing collateral, the Debt Settlement Party must publicize information in accordance with Clauses 3 and 4, Article 198a. The forms of publicizing information include: (i) posting information on the Debt Settlement Party’s website; (ii) sending written notice to the commune-level People’s Committee and commune-level police where the collateral is located; (iii) posting the notice at the office of the commune-level People’s Committee where the securing party’s address is registered under the security contract and at the commune-level People’s Committee where the collateral is located and (iv) notifying the securing party and the person holding the collateral in the manner agreed in the security contract.

For real estate, the Debt Settlement Party must publicize information by all four forms above no later than 15 (fifteen) days before the seizure date. For movable property, the Debt Settlement Party only needs to carry out three forms of notification (i), (ii) and (iv) without posting the notice at the commune-level People’s Committee.

Publicizing ensures transparency and allows the securing party or third parties to be informed and respond in accordance with the law. Therefore, the Debt Settlement Party should establish internal procedures for publicizing information, including: notice forms; posting locations; minimum time limits for responses and scenarios for responses from the securing party (negotiation, mediation, litigation). In addition, the Debt Settlement Party must retain full documentation and evidence of publicizing in compliance with the law, such as postal receipts for sending notices, confirmation of website posting and photographs of posted notices at offices or related locations. Retaining these documents not only demonstrates the legality and transparency of the seizure process in case of disputes or complaints but also serves as a basis for authorities, courts or other parties to confirm that the Debt Settlement Party has fully complied with legal obligations before proceeding with seizure.

6.Authorizing the seizure of collateral (if any)

Authorization for seizure is limited to certain entities under Clause 6, Article 198a of the Amended Law on Credit Institutions 2025. This provision aims to avoid widespread authorization to units lacking capacity or having improper purposes. When authorizing, the Debt Settlement Party must have a clear power of attorney/authorization contract and prepare sufficient documents proving the capability of the authorized entity and the supervision process.

The Debt Settlement Party should develop and promulgate internal regulations on the procedures for authorization applicable to entities that meet statutory conditions. The authorization contract should specify the scope of authorization, rights and obligations upon receiving authorization, commitments to comply with the law and penalties for breaches of the authorization agreement.

7.Seizing the collateral

Once all the above conditions are satisfied, the Debt Settlement Party may proceed with the seizure according to the previously publicized information. The Debt Settlement Party organizes a lawful seizure team and prepares a seizure record. The record must state: the time, location, collateral, quantity, condition, delivery and receipt documents, the delivering party, the receiving party, witnesses and other relevant details.

Pursuant to Clause 5, Article 198a of the Amended Law on Credit Institutions 2025, the commune-level People’s Committee and commune-level police shall ensure security, order and social safety during the seizure. If the securing party fails to cooperate or is absent at the seizure time as notified by the Debt Settlement Party, a representative of the commune-level People’s Committee where the seizure takes place must witness and sign the seizure record. This provision ensures confirmation by local authorities of the legality of the Debt Settlement Party’s seizure and limits the possibility of abuse or excessive measures due to on-site state supervision.

In addition, the Amended Law on Credit Institutions 2025 provides that the Debt Settlement Party or the authorized organization seizing the debt must not use any measures that violate the law or contravene social ethics during the seizure process.

In the collateral seizure stage, the Debt Settlement Party may still face various difficulties and risks, even when all conditions are met and procedures are followed. In practice, risks often arise from the securing party or third parties resisting or obstructing the seizure process; the collateral being damaged, lost or dissipated before seizure or new legal disputes arising, interrupting the disposal process. Regarding these issues, please read the next article of TNTP for more detailed information.

In this article, TNTP has analyzed and presented an overview of the provisions on the procedures for seizing collateral under the Amended Law on Credit Institutions 2025. We hope this article will help our readers, particularly credit institutions and related individuals, clearly understand the new legal provisions, thereby proactively applying them correctly and minimizing legal risks in practice.

Sincerely,