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Outstanding credit for real estate business is on the decline. Photos: H.Dịu

Real estate creditincreasing

In recent years, the State Bank of Vietnam (SBV)hasaffirmed that it has strictly controlled credit inpotentially risky areas (such as real estate loans, securities,build –operate – transfer (BOT) and build – transfer (BT))leading to positive adjustments in the credit structure. However, in the first threemonths of 2020, due to the impact of the Covid-19 pandemic, outstanding loans of priority sectors did not increase as much as the same period in 2019. Credit growth in agriculture and rural areas increased by 0.86 %, accounting for 24.8%; small and medium enterprises fellby 1.2%, accounting for 19.2%; exports increased by 3.74%, accounting for 2.99%.

Meanwhile, real estate credit outstanding growth was higher thantotal credit growth but focusedmainly on self-using loans. Meanwhile, the proportion of outstanding loans for real estate business in the total real estate loan balance was more and moreon the decline. Specifically, the decline by the end of 2017, 2018 and 2019 was 45.63%, 35.49%, and 32.95%, respectively. By the end of March 2020, credit for the real estate sector increased by 1.23% compared to the end of 2019, accounting for 19.31% of total outstanding loans,ofwhich, credit for housing needs accounted for 62.43% of real estate credit.

Regarding lending to BOT and BT projects, according to the State Bank, on average during 2016-2019, outstanding loans increased by 10.82%, accounting for 1.51% of total outstanding loans. This increase was considered lower than that inprevious years and the proportion also tended to decrease. By the end of March, outstanding loans in this sector increased by 1.27%, accounting for 1.35% of total outstanding loans. In addition, the agency said credit growth in the field of securities business investment and credits for consumption has been controlled and tended to decrease.

Economicrecovery leads to credit growth

Over thefive past months of 2020, current credit increased by only 1.32% year on year with a 5.74% increase. Many commercial banks revealed credit growth is slower than that every year due to low demand for loans from people and businesses. Meanwhile, profits of Vietnamese banks are still largely dependent on credit, if the increase is not as high as expected, it will greatly affectprofits. Therefore, there are concerns that banks will promote loans in risky areas, especially in the real estate sector when real estate firmsare also in need of capital.

According to financial and bank expert Dr Nguyen Tri Hieu, businesses are also facing a shortage in capital resources due to the "freezing" market before the social distancing orders ended. However, real estate businesses are mainly mobilized from banks recently these resources are limited due to banks' concern about rising NPLs as well as regulations on risk factors in real estate lending.

The State Bank has required credit institutions to focus on allocating capital loans into production and business sectors, especially in priority areas under the Government's policy. The agency also requires banks to continue to apply the risk ratio of real estate business loans to 200%; increase the risk ratio for life-serving loans with the total agreement VND 4 billion or more, gradually reduce according to the roadmap of short-term capital sources for medium and long-term loans; strictly control credit balance for stock investment and stock business; limit outstanding credit for investment and trading of corporate bonds not more than5% of charter capital; apply the risk coefficient on receivables for investment in securities trading.

It’s a matter of fact that banks have learneda lot of lessons regarding loans to the riskysectors such as BOT and BT sector. According to the SBV there are 49 completed and put into operation BOT projects but the revenue can’t reach initial financial goals. On the other hand, with loan balance of VND 64,676 billionnow in danger of restricting debts, transferring debtsandincreasing provisions has affected seriously business performance and the implementation of the scheme on restructuring and handling the bad debts of credit institutions.

Thanks to the Government’s effective disease control, businesses have been returning to recover production and business with many preferential credit programmes. Although it is very difficult to meet the initial target of the year, there are still many opportunities for businesses to recover.

Finance and banking expert Dr Can Van Luc estimated that recently, capital and credit mobilization has been active again, especially in the domestic market which is reflected strongly in private consumption.

Therefore, robust domestic demand, including domestic consumption will be an important driver for the country’s growth. As a result, credit is forecast to up again which can reach about 3.5 – 4% by the end of the second quarter and about 9-10% by the end of 2020. Although this growth can’t reach the 14% target set by the SBV in 2020, it plays a significant roleinthe socio-economic development and confirms the high ranking of Vietnam in the region.