In the context of slow credit growth due to the Covid-19 epidemic, many banks had heavily lent properties.
Leaders of many banks affirmed that, if there were a strategy of dispersing risks, pouring money to the right subjects, real estate would still be the safe lending field and the highest profit margin.
Bank prioritised real estate lending
In 2020, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) set the target of 13 percent of credit growth, thanks in part to the bank’s real estate, construction, and building materials ecosystem from the corporation with some big companies such as Sungroup, Vingroup.
With concerns from shareholders about relying too much on real estate, Ho Hung Anh, Chair of Techcombank’s Board of directors, said that real estate was a field that the bank had identified as a priority area five years ago because of many advantages and the fact that real estate had grown rapidly this year.
Currently, individual customers had substantial real estate investment needs, so it was normal for banks to serve their most significant needs. In the value chain of real estate, construction, and building materials, Techcombank would continue to focus on low-risk segments, such as housing buyers, sales, and delivery phases of the project. The bank would concentrate on lending to contractors to disperse risks, said Ho Hung Anh.
Regarding the risk when the real estate market frozen, Techcombank leaders said that the bank was meeting all requirements of capital adequacy ratio (CAR). On the other hand, Techcombank’s real estate loan balance was quite large, but not too high compared to other organisations.
Not only Techcombank, but many other banks were also focusing on promoting home loans, disbursing capital for real estate. For example, at Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), while credit, credit to small businesses, enterprises SMEs declined, the bank leaders intended to promote home loans.
Can Van Luc, Chief Economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that, although the real estate market, in general, was difficult due to Covid 19, many segments were still bright, such as logistics real estate; industrial real estate with clean land available; middle and low-end housing. Lending to these segments, banks could always ensure safety.
Data from the State Bank of Vietnam (SBV) showed that as of June 2020, the real estate credit of the whole system only increased by about one percent, half of the national credit growth rate. However, in proportion, real estate credit still accounted for nearly 20 percent of the country’s total credit balance, of which almost 63 percent of total real estate loan balance was personal home loans.
The SBV representative also affirmed that the banking industry would strictly control real estate credit, directing this capital flow to actual demand. Accordingly, banks could only provide credit with feasible projects, having complete legal documents. In which, banks had to focus on lending to individuals who bought houses to prove their ability to repay debt instead of lending to investors to divide risk.
With the transparency of banks and investors, real estate credit was not scary.
Talking about the bank’s current real estate lending trend, the retail director of a joint-stock commercial bank said real estate lending focusing on individuals buying houses would help banks and businesses in real estate overcomes difficulties. Enterprises in other fields recovered very slowly, while the demand for housing and investment of individuals was still quite good. Boosting loans to buy houses then helped people and investors take advantage of the opportunity to purchase homes with reasonable prices, and activate businesses in the ecosystem of the restored bank.
Recently, SBV had taken measures to tighten real estate credit, such as reducing the rate of using short-term capital for medium and long-term loans; improve risk factors. SBV also encouraged banks to lend money to individuals to buy houses, limiting loans to investors. The draft circular regulating the investment in corporate bonds of banks built by SBV also strictly regulated that banks had to buy corporate bonds to restrict the purchase of bonds to reverse debts.
However, lending in this sector still accounted for a large proportion of the portfolio of banks. Talking to reporters of the Investment Newspaper, Le Xuan Nghia said that real estate was always a favourite field for banks because of good net income margin (NIM), and valuable mortgage assets with highly liquid.
If investors and banks were transparent, real estate lending was not so scary. Even bad debt in this sector was lower than in some other areas. In fact, in many developed countries, real estate loans (including loans for individuals to buy houses and credits to investors) were substantial, Le Xuan Nghia emphasized.
According to banking experts, SBV had to control real estate credit for this market to develop stably. But the regulator should not control too tightly to freeze the market. A long-term credit policy was essential for the sustainable development of the real estate market.
To support real estate credit, SBV might consider postponing the roadmap of reducing short-term capital use rates for medium and long-term loans, relaxing measures to restrict real estate loans and home loans, further reducing medium and long-term loan interest, Le Xuan Nghia suggested.
Despite support for boosting real estate credit, this expert also said that banks need to corporate with investors to control the money flow. Only projects with good liquidity, positive prospects could receive the loans, avoiding risks.
