Tighten real estate lending

Right from the beginning of 2016, in a working session with the banking sector in Ho Chi Minh City, Deputy Governor of the State Bank of Vietnam (SBV) Nguyen Phuoc Thanh said that the banking sector's orientation in 2016 is to continue to promote credit growth but go hand in hand with quality and control of bad debt; will strictly control credit in potentially risky areas such as real estate (RE)...

New building in District 7 provides housing for people in Ho Chi Minh City

Sharply reduce limits, increase risk factor

And recently, the State Bank of Vietnam has sought comments to complete the draft circular amending Circular No. 36/2014 (TT36) issued on November 20, 2014, regulating the limits and safety ratios in the operations of credit institutions and foreign bank branches. One notable content of the draft is that the State Bank has adjusted the maximum ratio of short-term capital for medium and long-term loans of credit institutions, foreign bank branches and Cooperative Banks from 60% as currently regulated to 40%; of non-bank credit institutions from 200% to 80%. Along with that, the State Bank of Vietnam also plans to increase the risk coefficient for receivables for real estate business to 250% instead of the current level of 150%. Thus, with the orientation of sharply reducing the above limit, there has been concern that general lending activities of credit institutions in the coming time will be limited; some medium and long-term lending sectors, especially the real estate sector (mainly long-term lending) will be affected.

Regarding the above draft, a leader of the State Bank of Vietnam (SBV) branch in Ho Chi Minh City said that the SBV is still collecting opinions to complete the draft. However, the SBV will consider the reduction rate to ensure that short-term capital is used for medium- and long-term lending of each block according to a gradual reduction roadmap to ensure compliance with the direction of limiting medium- and long-term credit provision and reducing liquidity risks.

Is it possible that the State Bank of Vietnam has made the above amendment because in the past, banks have been lending excessively and without control, so it is time to "tighten" lending again to avoid causing a market bubble? Mr. Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam, Ho Chi Minh City branch, said that in Ho Chi Minh City, the ratio of short-term capital used for medium- and long-term loans in Ho Chi Minh City only accounts for about 50% - 52% of total outstanding loans, so there is no need to worry. Particularly, real estate credit in Ho Chi Minh City in 2015, although it increased compared to previous years, was lower than the national average and lower than the average total outstanding loans of the banking sector. Large real estate projects in the city of Vincom Group, Dai Quang Minh... all borrowed from BIDV and Techcombank in Hanoi. Specifically, in 2015, outstanding real estate loans in the city increased by 13.4%, while in 2014 this increase was 11.2%. However, this increase is lower than the average growth rate of total outstanding loans in the city at 15.7% and there is no sign of overheating. "This shows that banks are very interested in the appraisal and risk management of real estate lending. Accordingly, banks only disburse loans to projects with capable investors and the ability to implement the project to control loan recovery and ensure risks," said Mr. Minh. In general, capital in real estate mainly flows into the mid-range housing segment. Also in this trend, with about 5.5 billion USD in remittances to Ho Chi Minh City in 2015, remittances flowing into real estate accounted for 21.7%, mainly into the construction, repair and purchase of houses in unfinished projects at average prices.

Unchanged

In fact, many bank leaders in Ho Chi Minh City are currently promoting real estate lending, affirming that even if the bank adjusts the rate down to the above level, it will not affect the bank's real estate lending. Mr. Nguyen Trung Thanh, Deputy General Director of Vietbank, said that currently the real estate lending rate is still within the allowable level and this bank mainly lends real estate in the consumer lending segment, that is, young families with stable jobs and sources of debt repayment; at the same time, loans to buy houses in the middle segment, so the bank continues to maintain real estate lending in this segment and does not change policies or interest rates.

HDBank's leaders said that home loans are one of the bank's core products and HDBank is currently collaborating with nearly 200 real estate projects to lend. However, the projects that banks collaborate with to lend are all carefully monitored by the banks and not given out massive loans. ACB is also offering preferential credit of up to VND15,000 billion for customers to borrow to buy houses and for flexible consumption. ACB is also collaborating with nearly 50 real estate projects to lend to individual customers at these projects. “Currently, personal consumer loans account for 49% of ACB’s total outstanding loans, of which real estate credit balance has been very good recently but mainly flows into housing projects from 1.2 billion VND/unit or less; we will continue to promote lending to this segment because this is a real need of customers. However, the bank also only focuses on lending to projects that ACB has selected to link up with,” Mr. Tu Tien Phat, Deputy General Director of ACB Bank emphasized.

According to Saigongiaiiphong