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Secured Transactions Law
Secured lending is an essential element of an effective and vibrant market economy. It allows a business or a person to borrow more funds at lower cost while reducing the risk to the lender. A modern secured lending environment also allows a business or person to borrow and retain possession of their assets, including moveable and immovable property, thus increasing liquidity.
A number of elements constitute an effective secured lending environment. The lack of any one element will impair the entire system. The legal framework must allow for the taking of secured interests and their registration with a state-sanctioned authority. An effective registration system in turn requires a functioning registry. Finally, should the debtor default, resulting in a need to exercise the creditor’s rights, there must be effective enforcement.
Only two of these elements—the legal framework and the registry—are present in Vietnam. The ineffective enforcement system, which is a feature of the entire legal system, has stunted the growth of lending and the economy in general.
The legal regime for secured interests in property in Vietnam is sound. The basic framework is in the new Civil Code, which includes important changes to the framework for secured transaction. The Civil Code articles on secured transactions are implemented by Decree No. 163 (2006) on Secured Transactions (163/2006/ND-CP, 29 December 2006).
The registry for immovables is computerized, functions rapidly and inexpensively, and enjoys excellent reviews from users. The only significant shortcoming of the registry is its current inability to transmit a new registration in “real time” to the centralized National Database. Rather, the registrations in the three centers currently used—Hanoi, Da Nang, and Ho Chi Minh City—are emailed each evening to be entered in the National Database. This deficiency can be remedied by linking the three systems to the National Database. Another change that would enhance the system and promote collateral lending on movables would be an increase in the number of registration centers. This would help promote collateral lending outside the three main cities, and help promote the growth of SMEs and business in less populated areas.
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