The State Bank of Vietnam (SBV) is seeking opinions on the draft Circular, replacing Circular 36/2014/ TT-NHNN on the limits and ratios to ensure safety in operations of credit institutions and branches of foreign banks.
In particular, many concerns around the regulations on the application of risk factors from 50 percent150 percent for individual loans to meet the living needs, depending on different loan amounts. Notably, the 150 percent risk factor for debt balance of more than three billion dong will continue to tighten the credit flow into housing loans.
Concerning this issue, SBV has just given feedback that it needs to look objectively on the revised regulations. Because applying the risk coefficient according to the value of the different loan amount may not be reasonable for all loans related to real estate but it is a step ahead of the previous regulation.
Specifically, Circular 36 previously stipulated that all real estate loans (including loans for housing) applied a 200 percent risk factor, unless it was for consumer lending. This led to the fact that commercial banks offered loans to buy houses, repair houses for sale, for rent, etc., to reflect the risk nature of commercial banks, thereby distorting the policy of regulating consumer credit.
These days, the draft amendment of Circular 36 stipulates the limit of individual loans for customers to buy houses with the total outstanding principal under 1.5 billion dong, buying social houses, buying houses according to support project of the government applied a risk factor of 50 percent; 100 percent risk coefficient for loans with principal from 1.5 to three billion dong to better reflect policies to encourage and support people to buy houses and social houses, especially those who have real and essential needs.
“The risk thresholds applied have been classified to better influence, better adjust to the market, help policy beneficiaries benefit more. This is a positive point of the amendment regulation compared with the previous one”- representative of SBV analysed.
The drafting agency also said that it was necessary to assess more accurately about the level of three billion dong. According to the principle that banks only offer housing loans with the maximum lending rate of 70 percent of the value of the contract, the threshold of three billion dong of the original value of the loan was equivalent to the value of the house at the level of 4.2-4.5 billion dong. This was probably a reasonable number compared to the current average housing price in Vietnam, as well as the income of Vietnamese people and housing buyers.
In addition, the impact scope of this circular will not be too large to the real estate market, because it only applies to commercial banks facing financial difficulties during the merger and consolidation phase that have not met the Basel II standard.
Since 2020, foreign credit institutions and bank branches will apply the capital adequacy ratio as stipulated in Circular No. 41. Accordingly, the loan risk ratio is guaranteed by real estate, which will accurately reflect the risk level of the loan from 30 percent to 200 percent depending on the characteristics and structure of the loan (loan security ratio, collection rate, customer income and loan use purpose).
This regulation will more accurately reflect the risk level of the real estate loan and help SBV better control the liquidity and risk level of the banking system.
