Tighten lending to stop housing and land bubble

The Governor of the State Bank of Vietnam (SBV) recently issued Official Dispatch No. 563 to credit institutions and foreign banks requesting to limit the level of credit concentration in the real estate, construction, and securities sectors.

Limit bad debt

In the above document, the Governor of the State Bank also requested credit institutions to control the quality of consumer credit well, improve the efficiency of reviewing documents, especially loan conditions to limit risks; closely monitor the use of consumer loans but in fact for investment and trading in real estate and securities.

“Banks' credit expansion must go hand in hand with quality control, strengthening appraisal and supervision of loan use, ensuring proper purposes, and limiting the emergence of new bad debts,” the Governor of the State Bank emphasized.

Sharing more about the above message from the beginning of the year, Mr. Nguyen Quoc Hung, Director of the Department of Credit for Economic Sectors of the State Bank, explained: In 2017, credit for risky sectors such as securities, real estate, etc. was strictly controlled, in line with the direction of the management. However, the State Bank still proactively requested credit institutions to strictly control, including credit for the consumer sector to minimize bad debt.

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Agreeing with this view, many opinions say that recently consumer credit of banks has grown very rapidly. More worryingly, banks have included loans for home repair and home purchase in consumer loans to circumvent regulations restricting real estate loans.

Specifically, according to the National Financial Supervisory Commission, in 2017, consumer credit increased very strongly, 3-4 times higher than the average credit growth rate of the whole country (consumer loan balance is approximately 1.17 million billion VND). In particular, real estate credit is "hiding" in consumer credit is very large: Credit for buying and repairing houses increased by 76.5% and currently accounts for nearly 53% of total outstanding consumer loans.

Home buyers are worried about being affected.

However, as a real estate investor, Mr. Nguyen Huu Khanh, a resident of Phu Nhuan District, Ho Chi Minh City, expressed concern that tightening capital in the real estate sector will make it difficult for consumers to borrow capital for investment. Because this is an investment channel that is very sensitive to fluctuations in credit policy. Any change will directly affect both investors and home buyers.

"It is likely that investors will increase house and land prices in the coming time, especially in the high-end and luxury apartment segment," Mr. Khanh predicted.

In Official Dispatch No. 563, the State Bank also requested credit institutions to shift their credit structure towards prioritizing capital for production and business, especially fully and promptly meeting capital needs for priority sectors including: Agriculture, rural areas, export, supporting industries, small and medium enterprises, and high-tech enterprises.

Ms. Nguyen Thi Thanh Huong, General Director of Dai Phuc Land, also affirmed that the credit tightening will certainly affect the liquidity of real estate projects. In fact, in order to cope with the fluctuations in lending policies related to real estate of banks, many investors have now introduced policies to help customers with little capital to buy houses immediately; helping customers minimize difficulties when encountering capital barriers.

“For example, the plan for apartment buyers to pay 30% of the contract value. Some projects even apply flexible payment plans, extending the payment period up to 20 months for townhouse products,” Ms. Huong cited.

Meanwhile, Mr. Pham Manh Thang, Deputy General Director of Vietcombank, said: "Tightening capital into the consumer, real estate, and securities sectors will help the banking and financial system develop sustainably. Particularly for the real estate sector, banks also need to choose feasible projects to lend, limiting massive lending that will cause bad debt to return."

In addition, tightening real estate lending may cause difficulties for businesses and people, but it will be good for the market and banks in the medium and long term. Because the real estate and stock markets have grown rapidly in recent times, attracting huge capital, which can lead to a gradually inflated asset bubble. This is not good, even dangerous for the economy.

Find ways to avoid regulations

In recent years, consumer credit and retail credit of banks have increased very strongly, especially home loans which are occupying a very large market share in the consumer lending sector. According to statistics, credit in real estate business in 2017 increased by 8.56% compared to 2016, accounting for 6.53% of outstanding debt of the economy. Credit in this sector is equivalent to about 400,000 billion VND.

Survey data from the Banking Strategy Institute under the State Bank of Vietnam also shows that loans for home purchase and repair always account for over 50% of total outstanding consumer loans. To avoid the State Bank's regulations, many banks do not directly lend to real estate businesses but instead switch to lending to consumers to buy homes and finance construction materials.