Central bank direction seeks to better control bad debts and maintain credit growth in the sectors within safe limits.
The State Bank of Vietnam (SBV) has asked credit institutions to limit their lending to the real estate and construction sectors to better control bad debts and maintain credit growth in the sectors within safe limits.
Banks must keep a close eye on lending to the sectors, continuously review and assess the progress of realty projects and their developers’ financial condition, particularly as it relates to their collateral assets, and have measures in place to handle any defaults, the SBV said in a statement.
Besides comprehensively evaluating and processing loan applications, credit institutions must also monitor borrowers to ensure they refrain from using consumer loans for investment in property or securities.
“Credit expansion should go hand-in-hand with strict supervision to ensure loans are used for their intended purpose and do not add to bad debts,” according to the statement.
Commercial banks were asked to increase their lending to the manufacturing, production, and business sectors, particularly those in need of capital for growth, such as agriculture, exporters, support industries, and small- and medium-sized enterprises (SMEs).
This is not the first time the central bank has told local lenders to tighten the valve on credit to the real estate and construction sectors. The move was made after consumer lending accelerated last year and a significant amount of consumer loans actually went into real estate.
According to the National Financial Supervision Committee (NFSC), the amount of consumer lending last year has grown from 12.3 per cent of total credit in 2016 to 18 per cent of total credit in 2017, reaching VND1,170 trillion ($51.54 billion).
Some banks dodged credit regulations by offering lending packages supposedly earmarked for “house repairs” or “house construction” to consumer credit customers. Loans for house repairs and construction last year soared 76.5 per cent year-on-year and accounted for nearly 53 per cent of total consumer loans.
Vietcombank deputy CEO Pham Manh Thang told local media that the capital limit in the real estate and securities sectors would help the banking system develop sustainably as banks would have to select feasible property projects to provide loans, avoiding non-performing loans (NPLs) in the future.
Bad debts in the country’s banking sector, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.3 per cent by the end of 2017, down from 2.46 per cent at the end of 2016, according to SBV.
The central bank set up an institution to deal with toxic loans, the Vietnam Asset Management Corp. (VAMC), in late 2013. Credit ratings agency Moody’s upgraded its outlook for Vietnam’s banking system in October from stable to positive for the next 12 to 18 months, reflecting the country’s strong economic prospects and positive outlook for most rated banks.
