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With new barrier, real estate credit expected to flow more slowly

With Circular 22, which took effect on January 1, the State Bank of Vietnam (SBV) has laid a new block to restrict capital flow to the property sector.

Under the legal document, the risk coefficient in lending to the property sector has been raised from 150 percent to 200 percent.




The ratio of short-term funds that can be used for medium and long-term loans will be lowered step by step from the current 40 percent to 30 percent by September 2022.

Analysts believe that the new regulation will have big impact on the real estate credit, with VND1,500 trillion worth of outstanding loans to date.

“It is impossible to apply the same risk co-efficient for all real estate loans. Therefore, it is impossible to calculate how banks’ expenses will increase after applying the new regulation with the higher risk co-efficient,” a member of the board of directors of a joint stock bank explained.

Under Circular 41, applied to the banks meeting Basel II standards, there are many different risk factors – 70 percent, 100 percent, 120 percent, 150 and 200 percent.

With Circular 22, which took effect on January 1, the State Bank of Vietnam (SBV) has laid a new block to restrict capital flow to the property sector.

Currently, of the total real estate outstanding loans, it is unclear about the percentage of loans given to real estate project developers and the percentage of loans given to individuals to fund their house purchases. It is also unclear how high the proportion of clients borrowing to do business is.

In many cases, commercial banks write on credit contracts that clients borrow money to repair houses and therefore don’t count in the loans when calculating ‘real estate outstanding loans’.

In general, the banks meeting Basel lI standards assign the risk factor of 200 percent to loans provided to real estate project developers. Meanwhile, another classification method is applied to the loans provided to individuals.

The individuals who buy houses for accommodation, have 30 percent of total amounts of money needed to buy houses and borrow the remaining 70 percent from banks, and have average level of income or more, will be assigned the risk ratio of 70 percent.

Meanwhile, the individuals who buy houses for rent will be assigned the risk ratio of 120 percent.

At present, the capability of banks to provide capital to the real estate sector depends on the capital adequacy ratio (CAR). The ratio is 8 percent according to Circular 41 and 9 percent according to Circular 36.

VietinBank is one of the banks which has not increased their outstanding loans because of the regulations on CAR. The problem is that it cannot increase regulatory capital (including chartered capital and other items) because the state, as a shareholder, will not spend more money to buy more shares if the bank issues shares.

Thanh Lich 


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