Similar to Circular 22/2019/TT-NHNN applied to banks, one of the most noticeable contents in the draft circular amending Circular 36/2014/TT-NHNN was that non-bank credit institutions, which included consumer finance companies, were requested to limit real estate loans by raising the risk coefficient when calculating the capital adequacy ratio.
In the roadmap for revising Circular 36/2014/TT-NHNN defining limits, prudential ratios in operations of credit institutions and foreign bank’s branches, SBV of Vietnam (SBV) had decided to separate that Circular into specific one for each type of credit institution.
In 2019, SBV issued Circular 22/2019/TT-NHNN stipulating limits and prudential ratios in operations of banks and foreign bank branches.
For non-bank credit institutions, SBV had just released a draft circular regulating safety limits and ratios in the operation of non-bank credit institutions.
Basically, the draft circular inherited the provisions of Circular 36. However, similar to Circular 22 applied to banks, one of the most remarkable contents in the draft circular for non-bank credit institutions, which included consumer finance companies, was the tightening of real estate loans.
Accordingly, SBV decided to amend and supplement a number of risk factors related to real estate lending.
Specifically, the Credit Assets group had a risk factor of 50 percent applicable to accounts receivable guaranteed entirely by houses (including future houses), land use rights, public works. The construction process was associated with the borrower’s land use rights and had to meet one of three conditions.
The first was a loan to serve business activities according to SBV’s regulations on lending activities of credit institutions and foreign bank branches. The second was personal loans for customers to buy social houses, to buy houses under the government’s support programmes and projects.
The third was a personal loan to a customer who bought a house whose loan agreement/loan amount under the credit contract was less than 1.5 billion dong.
Notably, the risk coefficient was raised for accounts receivable from individuals serving their living needs with the total amount of loan amount in the customer’s credit contracts from 4 billion dong and above (after subtracting the customer’s claim already applied the risk factor of 50%).
Specifically, this Credit Asset group would be subject to a risk factor of 120 percent (effective from 1/1/2021 through December 31, 2021) and 150 percent (effective from January 1, 2022).
The same group of Assets Assets valued from 1.5 billion dong to 4 billion dong was subject to a 100 percent risk factor.
Previously, all claims that were secured entirely by houses (including future houses), land use rights, construction works associated with the borrower’s land use rights had applied a 50 percent risk factor.
According to SBV, this adjustment was to carry out the government’s policy on perfecting the mechanisms, policies and laws related to the real estate market, ensuring the efficient and sustainable development of the market and the safe operation of the credit institution system in general and non-bank credit institutions in particular.
SBV also based on the proposal of the Ministry of Construction in Report No.175/TTr-BXD dated October 8, 2018 on ‘strict control of credit in real estate sector in the direction of tightening credit sources, reducing the loan limit for high-end real estate projects and the fact that investor needed a large amount of loans for many real estate projects.’
That provision strongly reflected the message of SBV on controlling individual loans to serve real-life needs related to real estate to buy high-class housing, SBV said. Besides, it was also indirectly requiring non-bankers to reserve more capital for the real estate sector that was potentially risky. Thus, non-bank credit institutions would need to control individual loan balances to serve the needs of life related to real estate in the high-end segment.
The agency reassured that the regulation had little effect on non-bank credit institutions with good financial capacity and high capital adequacy ratio.
SBV added that this regulation contributed to help non-bank credit institutions to be more cautious and control more strictly for life loans but use loans for real estate business purposes. Thereby, they could minimise risks when the real estate market had strong fluctuations in a bad direction. That also helped the real estate market to operate healthier and more stable.
In addition, the new regulation did not affect the demand for loans to buy social houses, buy houses under the government’s programmes and projects, houses priced under 1.5 billion dong per unit as well as the demand for borrowing capital to serve daily essential activities of customers, as risk coefficient did not change.
In addition to adjusting the risk factor when calculating the capital adequacy ratio, the draft Circular also supplemented the conditions and limits on credit extension for enterprise bond investment and business.
Accordingly, non-bank credit institutions might not provide credit to customers for investment and trading of corporate bonds of enterprises which were subsidiaries of such non-bank credit institutions in order to restrict the use of non-bank credit loan flows to buy corporate bonds issued by subsidiaries of non-bank credit institutions.
In addition, another notable provision was that non-bank credit institutions must deduct accumulated losses when calculating medium and long-term capital.
