Nguyen Quoc Hung, director of the State Bank of Vietnam’s credit department, recently told the media that banks have plentiful liquidity and are ready to lend to risky areas including the property sector.
“Though we all know real estate is a business with high risks, it does not mean the banks restrict lending to the sector.”
His statement came in the wake of the central bank making public a draft circular on adjustments to the Circular 36/2014/TT-NHNN, stipulating prudential ratios and limits in activities of credit institutions and foreign bank branches.
The draft circular set the risk weight asset ratio to 150 per cent for mortgages worth VND3 billion (US$126,000) and the rate for loans worth VND1.5-3 billion at 100 per cent (the current ratio for both loans is 50 per cent).
Besides, it will also adjust the ratio of short-term deposits that can be used for medium- and long-term loans. Under a three-phase roadmap lasting until 2022, the ratio will be reduced to 30 per cent by July 1, 2020, from the current 40 per cent.
The adjustments are expected to help the central bank control liquidity risks to ensure the safety of the banking industry in the face of economic changes, contributing to the country’s sustainable development.
But many experts have slammed this draft circular saying tightening credit for buying luxury homes could shock the housing market.
It would seriously affect the development of the high-end segment, which is expected to help Vietnam improve infrastructure quality and people’s living standards, they claimed.
They suggested that policy makers should reconsider to ensure balanced development of the property market.
The central bank should ask banks to carefully evaluate the financial capacity of buyers before lending to them instead of tightening credit to the entire high-end segment, they said.
A spokesman for the Vietnam Real Estate Association said credit for buying land for speculation purposes could be tightened but it was not necessary to tighten credit for home buying because it stimulates other industries such as construction, cement and steel.
In response to these protests, Hung said the credit tightening would apply to all sectors, not only real estate.
“Banks do not lack capital but need to limit risks. So they will only lend to effective projects that meet legal requirements and prove to be profitable.”
In reality, banks are offering big loans to individuals to buy houses at attractive interest rates.
Vietcombank is offering interest rates of 7.7-8.1 per cent for the first 12 months and 8.7-8.9 per cent for the first 24 months.
Clearly, the central bank’s new rules are not going to make lenders turn their backs on the real estate sector.
Last year outstanding loans to the real estate sector, including both to developers and house buyers, grew by 31.7 per cent.
In the first quarter of 2019 it grew by 3.29 per cent, higher than the overall lending growth.
Time for Vietnam to be choosy about foreign investment, focus on technology: experts
The US-China trade war has shown no signs of ending. Foreign investors in China are looking at other countries to move to, and Vietnam is at the top of the list.
They are moving to Vietnam because it has political and social stability and strong economic growth. Besides, it also offers the benefit of a number of bilateral and multilateral free trade agreements it has signed with many countries and territories around the world.
However, the country has been receiving capital flows mainly from foreign companies with medium-level technologies that use semi-skilled or moderately skilled labour. Vietnam has not yet become a destination that can attract major high-tech firms.
The US, for instance, invested only $180 million in the country in the first half of the year.
Overall it has invested only $10 billion in Vietnam out of the $300 billion it has invested abroad.
EU countries had invested $24.67 billion as of the end of 2018, a rather modest amount compared to their financial potential.
Data from the general Statistical Office shows a majority of foreign projects in Vietnam are involved in sub-contracting and assembling in the textile and garment, footwear and electronics sectors or processing. Investment in the property sector is also considerable, accounting for 10.8 per cent of the total amount.
The foreign sector continues to play a crucial role in economic growth through exports.
More than 1,700 new FDI projects were licensed in the first half of 2019 with total registered capital of about $7.4 billion, down 37.2 per cent from last year.
The manufacturing and processing sector attracted 73.4 per cent of the amount.
China remained Vietnam’s biggest investor with more than $1.6 billion, followed by South Korea, Japan and Hong Kong.
Analysts say since Vietnam is still a poor country with a high unemployment rate estimated at 2.16 per cent in the second quarter of this year, it has to accept low-tech and labour-intensive foreign projects to create more jobs.
Worse still, the country still has limitations such as a shortage of highly skilled human resources and a lack of an attractive business environment, undeveloped supporting industries and infrastructure system, low labour productivity, and low level of technology, all factors in fostering hi-tech projects.
For their part, foreign enterprises operating in Vietnam have not helped the country improve technology application since 80 per cent of them use medium-level technology and 14 per cent use low technology.
Even the remaining companies with high technology have yet to create a spillover effect that helps local firms improve their technology levels.
Experts say it is time for Vietnam to license only high-quality FDI to improve its quality of labour, technology, environment, and competitiveness.
While Vietnam does need capital but it needs technology more, and modern equipment to restructure the economy, thus improving its competitiveness to be able to extensively participate in global supply chains, they say.
The Ministry of Planning and Investment has drafted a foreign investment attraction strategy for 2018 -23 with a focus on priority sectors and quality of investments rather than quantity. It seeks to attract foreign investment in high-tech rather than labour-intensive sectors. Manufacturing, services, agriculture, and travel are the four major sectors it focuses on.
Top priority will be given to clean projects that carry out technology transfer and tie up with domestic businesses.
Experts say the signing of free trade deals has made Vietnam more attractive to foreign investors, but the government should selectively accept investments and closely monitor them to prevent dubious practices like origin-related fraud.
Meanwhile, current legal provisions are not enough to help ministries and provinces identify good FDI projects.
To resolve this problem, experts stress the need to concretise preferential policies to attract high-quality foreign investment while reducing incentives related to tax and land rents to low-quality FDI inflows.
Special preferences should be given to foreign projects that use high and eco-friendly technology and make high value-added products, and the government should also intensify reforms to create a more comfortable business environment and further invest in developing high-quality human resources to meet foreign hi-tech firms’ requirements, they say.
The final pieces in the puzzle are protecting intellectual property, simplifying administrative procedures and cutting red tape for ministries and localities to attract high-quality foreign investment, they add.
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