When is the bank entitled to seize the collateral of the enterprise without adjudication?

Collateral plays an important role in capital mobilization transactions at banks of enterprises. On the other hand, the right to seize collateral is an important support for the handling of bad debts of the banking system. The Law amending and supplementing a number of articles of the Law on Credit Institutions, which was approved by the 15th National Assembly, 9th session on June 27, 2025 and takes effect from October 15, 2025 (the amended Law on Credit Institutions) has added new regulations on the right to seize collateral of banks. On November 25, 2025, the Government also issued Decree No. 304/2025/ND-CP effective from December 1, 2025 regulating the conditions for collateral of bad debts to be seized (Decree 304).

The borrower uses the assets owned by him or the related party to secure the performance of the loan payment obligation without handing over this asset to the bank.

What is collateral?

Normally, the borrower uses the assets owned by him or the related party to secure the performance of the loan payment obligation without handing over this asset to the bank. In this case, the security measure for the performance of obligations is the measure of mortgage of assets specified in Clause 1, Article 317 of the Civil Code No. 91/2015/QH13 dated 24/11/2015.

Vietnamese law currently does not define collateral, but it can be understood as objects, money, valuable papers and property rights[1] that enterprises use to secure the performance of obligations to the secured party through security measures such as pledges, mortgages, etc  guarantee, deposit... According to the provisions of law, the conditions for an asset to be used as security for the performance of obligations include:[2]

• Existing assets or assets formed in the future, except for cases where the Civil Code and other relevant laws prohibit the purchase, sale, transfer or other transfer of ownership at the time of establishment of security contracts or security interests;
• Assets sold in asset purchase and sale contracts with reservation of ownership;
• Assets subject to obligations in bilateral contracts that are violated for lien measures;
• The property is owned by the whole people in cases prescribed by relevant laws.

How is the bank's right to seize collateral exercised?

According to the Law on Credit Institutions No. 32/2024/QH15 dated January 18, 2024, amended and supplemented in 2025, banks have the right to seize collateral of bad debts when they fully meet the following conditions:[3]

Firstly, the bank shall only seize the collateral when the collateral is disposed of, including: (i) the performance of the secured obligation is due but the enterprise fails to perform or improperly performs the obligation; (ii) the enterprise must perform its secured obligations ahead of time due to breach of obligations as agreed upon or in accordance with the provisions of law; or (iii) other cases as agreed upon by the parties or provided for by law.[4]

Secondly, the  security contract must have an agreement that the enterprise agrees to give the bank the right to seize the collateral of the bad debt. The agreement on the seizure of collateral in the contract is a prerequisite for the bank to incur the right of seizure.

Thirdly, the  security interest has arisen as an antagonistic effect against the third party. That means that the security contract has taken legal effect. At the same time, the parties have registered the security interest if it falls into the case of registration under the provisions of the Civil Code.  other relevant laws.[5]

Fourthly, the collateral is not a disputed property in a case that has been accepted but has not yet been settled or is being settled at a competent court; is not being subject to provisional emergency measures by the Court; is not being distrained or applied as a security measure for judgment enforcement as prescribed by law; is not a case of being subject to temporarily suspend the handling in accordance with the law on recovery and bankruptcy.

Fifth, the seized collateral must meet the conditions prescribed by the Government. For example, the case of a third party being an individual using his or her assets to ensure that the enterprise mobilizes credit capital. If the collateral is the individual's only residence, the bank must deduct to the individual an amount equal to 12 months' salary calculated according to the minimum wage. If the collateral is the primary/only labor tool of the individual, the amount to be deducted is equal to 06 months' salary calculated according to the minimum wage. The minimum wage is calculated according to the region where the individual with collateral is actually living. The obligation to certify and prove to be entitled to the above-mentioned deductions belongs to individuals with collateral. According to Article 5 of Decree 304, individuals must have a commitment to certify and prove that the collateral belongs to or does not fall into the above cases at the request of the bank within 10 working days from the date of receipt of the request. Supporting documents include certificates of ownership, bank account statements recording monthly income, documents proving the fulfillment of personal income tax obligations, electricity or water bills or internet recording permanent or temporary residence addresses,...

Sixth, the bank must fulfill the obligation to disclose information at least 15 days before the date of seizure of collateral which is real estate.[6] In case the collateral is movable, the bank must also fully fulfill the notification obligation, except for posting the written notification at the head office of the commune-level People's Committee.[7] The information to be disclosed includes the time and place of seizure of the collateral, the seized collateral, and the reason for the seizure of the collateral. The form of information disclosure as prescribed by law includes all steps:

• Posting information on the website;
• Send a written notice to the commune-level People's Committee and the commune-level police office where the collateral is located;
• Post up the written notice at the head office of the commune-level People's Committee where the enterprise registers its address under the security contract and the head office of the commune-level People's Committee where the collateral is located;
• Notify the enterprise or the person holding the collateral (if any) according to the notification method agreed in the security contract. In case there is no agreement, the bank must send a written notice directly or through authorization, postal services or electronic means according to the information and address provided by the enterprise or the person holding the collateral.

Seventh, the bank is only authorized to seize collateral for the debt management company and exploit the bank's own assets, and at the same time is not allowed to apply measures that violate the prohibitions of the law and are contrary to social ethics.[8]

Enterprises should ask the bank to provide relevant internal regulations before entering into a security contract.

In addition, the bank must develop and promulgate internal regulations on the order and procedures for the seizure, including regulations when authorizing the seizure of collateral.[9]

To ensure the interests of businesses when transacting with banks

In order to best protect their legitimate rights and interests, enterprises need to understand the contents related to the order and procedures for seizing collateral at the secured bank. Enterprises should ask the bank to provide relevant internal regulations before entering into a security contract.

Make sure to carefully review the security contract and understand the conditions for seizure of collateral

It is especially important to carefully review the security contract. This is the basis for enterprises to compare and detect violations related to the bank's performance of the security contract and the seizure of collateral under the contract. In case the enterprise agrees to allow the bank to seize the collateral of the bad debt, this content must be clearly recorded in the security contract. On that basis, the bank has the right to seize the collateral of the enterprise.

Need advice from an experienced expert on the seizure of collateral by the bank

In addition, before the bank seizes the collateral, the enterprise needs to review whether it is in the case of being handled as collateral or not. In case of necessity, it is recommended to consider consulting experts, lawyers or consultants to protect their legitimate interests in this case. For example, when there is a risk of seizure of collateral, the enterprise has the right to request the bank to perform the obligation to disclose information before the date of seizure of collateral in accordance with the provisions of law. The time and place of seizure of collateral, seized assets, and reasons for seizure must be clearly recorded in the bank's notice. In addition, in order to promptly receive and process information from banks, businesses need to notify banks when there is a change in information and address to receive notifications.

It can be seen that the amended Law on Credit Institutions 2024 has legislated the bank's right to seize collateral when the parties have an agreement on the right to seize, without going through a court to adjudicate according to civil law. Accordingly, the bank acts according to the contractual rights but must still ensure compliance with the regulations on the case of handling collateral, the conditions of the collateral, and the obligation to disclose information,... This requires businesses to be very careful and have an appropriate transaction strategy so that the secured assets are not seized contrary to regulations and the wishes of the business.

Nguyen Tuong An Chi

HM&P Law Firm

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