The demand for home loans of customers always increases in addition to the capital “thirst” of project owners. However, with the lessons on bad debt arising when promoting real estate loans in the past time, banks are currently cautious in accelerating lending in this field.
At Vietnam Technological and Commercial Joint Stock Bank (Techcombank) in the end of 2017, the Capital Adequacy Ratio (CAR) was 12.68 percent, higher than the 9 percent required by the State Bank of Vietnam (SBV). The bank’s outstanding special bonds of Vietnam Asset Management Company (VAMC) was zero dong. After the process of cleaning the balance sheet, Techcombank is facing a risk of having fairly high outstanding real estate loans.
In the past five years, the outstanding real estate loans of Techcombank have quickly expanded, reaching the peak in 2016 with outstanding loans of 24.182 trillion dong, 6.6 times higher than 2012, accounting for 17 percent of the bank’s total outstanding loans. That is also the reason why Techcombank was cautious in lending out in the first quarter of 2018. Closing the first three month of the year, the bank’s lending grew at a modest level of 1.93 percent (lower than the average credit growth of the entire system of 3.5 percent).
Meanwhile, the outstanding home loans at the banks that focus on this segment are still rising significantly. At Asia Commercial Joint Stock Bank, the outstanding home loans recorded good growth in 2017, accounting for about 30 percent of the total outstanding loans to individual customers and 55 percent of the bank’s total outstanding loans. The growth rate of home loans this year, according to Tu Tien Phat, vice general director of ACB, will be satisfactory and the demand will be only slightly higher than 2017.
According to SBV, the stable macro economy and strong Gross Domestic Product (GDP) growth, which are the foundations for the development of the real estate market this year, have partly influenced the growth of real estate outstanding loans. That requires a measure to control and limit the risks of bad debts.
Recently, SBV’s Governor Le Minh Hung has issued documents directing CIs to strictly control when lending real estate credit and focus on the segments of social housing and housing for middle and low income earners, avoiding to focus credit and control credit in hot growth areas.
That is the reason for SBV’s issuance of Circular 19/2017/TT-NHNN amending some provisions of Circular 36/2014/TT-NHNN when reducing the ratio of using short-term funds for medium and long-term lending from 60 percent to 45 percent from early 2018 and to 40 percent from early 2019, at the same time raising the risk factor for real estate loans from 150 percent to 200 percent.
Sensitive time
Although banks have learned lessons from the rise of real estate bad debts, financial experts said that the race to gain market share and the profit ambition have made many banks to crossed the safety boundary of lending in this field. The concern about real estate bubble like 10 years ago has been mentioned by experts at the Forum on “Real estate market 2018: Impacts from policies”.
At the forum, Tran Kim Chung, deputy director of the Central Institute for Economic Management said that Vietnam currently has eight out of 10 signs of real estate bubble. Accordingly, the increase of the number of transactions, prices, the number of operating works and locations; and the expansion of market participants, size and value of projects and capital inflows of real estate projects are indicating the risk of a crisis.
From 2011 to 2013, the real estate market was at the bottom of the crisis. It recovered in 2014 and started to develop from 2015 to 2017. The year 2018 is expected to not witness the return of this market cycle, but financial experts said that this is an extremely sensitive time for investors when deciding whether to buy or not. Meanwhile, the apartment fever and the land fever which is happening across the country have made the risk of real estate bubble to be repeatedly warned.
Dr Bui Quang Tin (Hochiminh city Banking University) said that in the present time, investors need to be very conscious and carefully consider the cash flows as the market is not always favourable but may reverse. If the market goes down, those who borrow bank loans will go bankrupt like 10 years ago.
However, according to Dr Tin, the difference between the current market and 2007 market is that the lending to real estate sector is strictly controlled. In 2017, the credit growth rate was 18.17 percent, and it is expected at 17 percent this year. Moreover, the risk factor, which has been raised from 150 percent to 250 percent, will affect the CAR of banks. Thus, banks will be more cautious in lending to real estate projects.
Dr Tran Dinh Thien, former Head of the Vietnam Institute of Economics said that the above concern is needed, as in fact, the latent risk of real estate bubble still exists in Vietnam’s unpredictable real estate market.
