Data released by State Bank of Vietnam (SBV) showed that by the end of May 2018, the outstanding loans to real estate sectors grew by 2.19 percent compared to the same period of 2017. This increase is in line with the orientation of SBV which is to tighten lending to potentially risky areas.
Representative of SBV said that the lending structure still focuses on production and business areas, while lending to risky areas continues to be strictly controlled. “Compared to the same period of 2017, the credit growth of the entire banking sector in the first five months of 2018reached 6.16 percent (equivalent to about 6,700 trillion dong). In particular, the loans were poured in production and business areas with lending to agriculture, forestry and fishery, industrial construction and other priority areas recorded higher growth than average”, said Nguyen Quoc Hung, director of Credit Department of Economic Sectors (SBV).
For sectors such as real estate, build-operate-transfer or Build-Transfer, SBV’s representative said that the lending saw modest increase. Specifically, the lending to real estate sector in the first five months of 2018 increased by 2.19 percent, to BOT increased by 2.15 percent (lending under previous commitments), while lending to securities sector fell by 3.92 percent.
In Hochiminh city the country’s economic centre, Nguyen Hoang Minh, SBV’s deputy director of Hochiminh city branch said that the credit growth in the first five months of the city was 6.42 percent and expected to rise by 7.5 percent in June, higher than the average level of the national average. Of the 1,890 trillion dong poured into the economy in the past few months, over 70 percent were for production and business sector, 10.8 percent were for real estate sector, and 13.2 percent were for securities and consumption.
According to Minh, unlike the 2007-2008 period when lending to real estate was often at high level of 31-33 percent, from 2016 until now, the real estate loans in Hochiminh city have significantly dropped to just about 10 percent. Along with that, SBV’s Hochiminh city branch has also regularly given warnings and requested credit institutions (CIs) in the city to seriously carry out lending appraisal and only approve investors who have financial and governance capacity. Thanks to that, the bad debt ratio in real estate lending of banks in Hochiminh city was low from 2-2.5 percent, said Minh.
Minh also said that, as one of the measures to prevent real estate risks and bad debts arising in the recent land fever, commercial banks listed the average land prices in the last three to four years. Based on that, banks only offered loans worth 50 percent of the appraised assets instead of 70-80 percent as before. Thus, the issue of bad debts arising in real estate sector is not very worrying.
Nghiem Xuan Thanh, Chair of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), the bank’s policy is not to promote lending to real estate sector. If any, only efficient projects with good output are approved. In the context when the real estate market is warming and some areas are even in hot fever especially the segment of land plots, Vietcombank has a new price valuation method which reduces the limit of lending in order to limit risks when pouring capital into this area. “Accordingly, the outstanding loans to real estate sector up to the present time account for less than 10 percent of Vietcombank’s total outstanding loans”, said Thanh.
Although the real estate outstanding credit is currently in good control, according to experts, it is important to pay attention to the rising consumer loans, because most of this capital is flowing in real estate area. Statistics showed that consumer credit in 2017 grew rapidly at three to four times higher than the average credit growth in the country. In particular, lending to home purchase and home repair loans increased by up to 76.5 percent, accounting for nearly 53 percent of the total outstanding consumer loans. In the first quarter of 2018, despite growing at a lower rate compared to 2017 (3.8 percent), the proportion was higher, reaching 17.42 percent of the total lending (these ratios were respectively 6.73 percent and 14.92 percent in 2017). “This has raised concerns, despite the fact that consumer credit is having very strong attractiveness on the market, because its nature is unsecured lending. If consumer lending is not tightly controlled, the risk of real estate bubble is unlikely to be avoided, especially when interest rates are rising again”, said a banking and finance expert.
Experts warned that the Vietnam’s real estate market has shown some signs of bubbles such as the number of transactions, prices, number of starting constructions, and number of locations are increasing; and the number of market members, the scale, project value and money inflows of real estate projects are also going up, etc.
“Now is the sensitive time for investors to make a decision on buying houses. Meanwhile, not only apartment segment, the ongoing land plot fever is also making the risk of real estate bubble to be repeatedly warned”, said an expert.
In 2018, the SBV set to develop credit by 17 percent. Accordingly, the agency requires credit institutions (CIs) to strictly control the credit growth rate in line with assigned targets and in line with SBV’s measures to operate monetary and credit policies, and banking operations, in which prioritising lending to production and business areas, etc. According to statistics of SBV, in 2017, the total outstanding loans in real estate business reached nearly 450 trillion dong. The real state outstanding loans account for about 6 percent of the total outstanding loans of the economy, with a growth rate of about 8.5 percent, still within the safety threshold (8-10 percent). The sectors recorded outstanding loans of over 100 trillion dong included lending to investments in urban zone and housing development projects (102.413 trillion dong); lending to home repair and residential home purchase, and residential home in combination with leasing, which are repaid by customers with non-wage income sources (100.083 trillion dong), and other business loans (112.561 trillion dong).
Although there is no sign of real estate bubble, to limit the risk of bad debt increase, SBV has recently issued Document 563/NHNN-TTGSNH requesting CIs to shift their credit structure in the direction of prioritising capital to production and business areas. Accordingly, SBV’s Governor Le Minh Hung asked CIs to limit the credit concentration in real estate and construction areas, balance capital sources, use funds for medium and long-term loans, and ensure liquidity. CIs should regularly review, assess and monitor the progress of real estate projects, financial capacity of customers as well as the loans and secured assets in order to take appropriate measures.
