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VN central bank reports VND2.2 quadrillion worth of real estate loans, points out risks

The State Bank of Vietnam (SBV) has submitted to National Assembly’s deputies a report on issues raised at the third session of the 15th National Assembly, noting risks in real estate, securities and corporate bond lending.

Investment in corporate bonds

As for the lending of credit institutions, the Ministry of Finance (MOF) reported that as of April 2022, credit provided to fund securities investments had accounted for 0.5 percent of total outstanding loans, mostly short-term loans (98 percent) and loans used to invest in government bonds.

The total investment in corporate bonds of credit institutions reached VND320.4 trillion, which just accounted for a small proportion, 2.86 percent, of total outstanding loans. This shows that credit institutions’ investments in corporate bonds is still under control.

In an effort to control risks related to securities and corporate bonds,  to ensure the safety of credit institutions, SBV said the legal framework has been step by step perfected with stricter regulations. 

When issuing bonds, credit institutions must comply with regulations stipulated in the Securities Law and the legal documents that guide the implementation of the law, and at the same time comply with the regulations on safety ratios in operation as prescribed.

The central bank has also strengthened the examination, inspection and supervision over credit provided to fund banks’ investments in securities and corporate bonds, in order to discover risks and take remedial measures. 

SBV has instructed credit institutions to re-assess credit providing activities, use measures to management risks, improve the efficiency of internal examinations over credit provision, including to private corporations, large real estate firms and related people in order to minimize risks.

Regarding existing problems, SBV said that risks from the securities market and corporate bonds mostly originate from the operations of listed companies in the stock market and bond issuers (put under the management of other ministries and branches). The inspection and supervision over banks’ operations related to the field is just a measure to manage risks from banks.

Therefore, there should be comprehensive measures with the cooperation of related ministries and branches to make the stock market and corporate bond market ‘clean’ and healthy, according to SBV.

SBV said it is considering amending some regulations that govern credit institutions’ buying and selling corporate bonds, and tighten requirements and administrative standards for credit institutions when joining the corporate bond market to ensure safety and help the market develop in a sustainable way.

The central bank has also intensified inspection and supervision over investments in corporate bonds, applied measures to discover risks and violations, and given warnings whenever risks are detected.

VND2.2 quadrillion in loans to real estate sector

SBV reported that as of the end of April 2022, the total outstanding loans to the real estate sector had reached VND2,288,278 billion, an increase of 10.19 percent over the end of 2021, accounting for 20.44 percent of total outstanding loans of the entire economy, while the bad debt ratio was 1.62 percent.

SBV says real estate is one of the risky sectors for banking operations and needs strict control.

The heavy fluctuations of the real estate market, inflation of real estate prices and abnormally high land auction prices all affect credit granting and mortgaged asset valuation.

Credit provision to the real estate sector as well as credit quality are still under control. However, in order to minimize the negative impact of the real estate market on the macro economy, SBV believes that there should be comprehensive solutions with the coordination of relevant ministries, departments and sectors to ensure a healthy, safe and sustainable real estate market.

According to SBV, about 94 percent of outstanding loans provided to the real estate sector are medium and long term loans (10-25 years), while banks’ capital is mostly short-term capital. The difference in deposit and lending terms and in interest rates pose high risks to banks.

Regarding a plan for the immediate time, the central bank will continue to direct banks to grow credit safely and effectively; tightly control credit provided to business fields with risks, including investments in real estate. 

At the same time, it will create favorable conditions for institutions and individuals to access bank loans to buy houses for their own accommodation, especially social housing products, houses for workers, and low-cost commercial housing.

Luong Bang

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