Despite agreeing with the State Bank of Vietnam’s tightening of real estate credit, many experts recommend the caution with the reduction of short-term capital for medium and long-term loans to 30 percent.
The draft circular specifies the limits and safety ratios in the operation of foreign banks and branches to replace Circular 36/2014/ TT-NHNN, which continues to receive many comments from organisations and individuals.
Accordingly, the comments on the draft Circular mentioned above focus mainly on two major changes. Firstly, SBV proposes to continue to reduce the ratio of short-term capital for medium and long-term loans from the current ratio of 40 percent to 35 percent (from 1/7/2020) and 30 percent (from 1/7/2021) or 37 percent (from 1/7/2020) and 34 percent (1/7/2021), and 30 percent (July 1, 2022). The second is to narrow down the scope of mortgages with housing to apply a risk factor of 50 percent and increase the risk factor from 100 percent to 150 percent with consumer loans of three billion dong or more.
In fact, as soon as the Draft Circular was announced, HCM City Real Estate Association (HoREA) sent a document to the prime minister and SBV to feedback on the two amendments. Accordingly, the Association approved the policy of SBV on the roadmap to limit credit for potential risk areas such as securities, real estate, and consumer credit. However, HoREA proposed to keep the capital ratio unchanged at 40 percent from now until the end of 2020 as many real estate enterprises have not yet converted into joint stock companies eligible to list on the stock market, so the stock market has not yet been a channel for capital to the real estate market. While the number of real estate investment funds is too small, it is not really a channel to provide capital for the market.
HoREA’s concern is also understandable because currently the ratio of short-term capital for medium and long-term loans of banks is about 31.5 percent32.5 percent, so if SBV’s proposal becomes a reality, many banks do not dare to lend any additional medium and long-term capital.
In fact, SBV has repeatedly made public reminders to credit institutions to control lending to potential risk areas such as real estate. Even at the end of 2018, SBV also warned that it would conduct unexpected inspections with credit institutions with sudden increase in real estate credit.
Although SBV constantly reminded, many experts also said that it was difficult to control real estate loans that were hiding under the form of consumer loans. This makes the picture of real estate credit not accurately reflected, so it is necessary to separate credit to buy houses and repair houses from consumer credit to pour into real estate credit. And according to an expert’s calculations, if including the loan for buying and repairing houses, the real estate loan accounts for about 20 percent of the total debt balance of the whole economy.
But it is very difficult to extract the loans now. Therefore, the agency’s solution is to tighten the medium and long-term credit. This again negatively affects the ability of enterprises to access capital to invest in production and business expansion.
There are also opinions that enterprises should find medium and long-term capital sources in other channels such as issuing stocks or bonds. However, not all businesses can mobilise capital through this channel. Although there are about 600,000 businesses operating in the whole country, up to 95 percent of them are small and super small, so the number of public companies listed is only about one thousand businesses.
Or is it the mobilisation of capital through bond issuance. Many experts believe that it is still “a remote prospect” of the majority of businesses. By the end of 2018, the size of the new corporate bond market was about 474.5 trillion dong, equal to 8.6 percent of GDP in 2018- so small compared to the size of credit of more than 130 percent of GDP. Moreover, the successful bond issuers are mainly big corporations and groups.
“In the context of bank credit is still the main capital channel of enterprises and the economy and it is possible that in 5-10 years, SBV should consider tightening medium and long-term credit in order not to affect the goal of economic growth,” one expert suggested, adding that to tighten real estate credit, SBV might consider further increasing the risk factor for real estate loans.
