10:24 | 24/03/2017 Finance - Banking
(VEN) - The real estate market is expected to continue growing strongly in 2017, attracting capital from different sources, the biggest of which is the banks. However, early this year, the State Bank of Vietnam told commercial banks to scrutinize and control credit for such potentially risky areas as property.
Credit for the real estate sector should be controlled
Since early this year, shares of real estate and construction companies listed on the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) have attracted an increasing amount of investment capital. Investors poured hundreds of billions of dong into real estate shares each trading session.
Commercial banks continually offered credit packages for individual and enterprise customers, most of it for real estate projects and purchase.
The State Bank’s statistics showed that the total outstanding loan balance for the economy in the first 11 months of 2016 hit more than 5.35 million billion dong. Agriculture, forestry and fisheries; industry and construction; trade, transport and telecommunications; and other service sectors were the major users of loans, with credit for the industrial and construction sector accounting for 31 percent (more than 1.67 million billion dong) of the total.
According to their financial statements, commercial banks fueled property construction and business projects with a large amount of capital. Specifically, in 2016, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) lent construction projects about VND24.9 trillion, while 9.5 and 4.5 percent of the Military Bank (MB Bank)’s outstanding loan balance was for construction and real estate business projects, and 4.7 percent of the Vietnam International Bank (VIB Bank)’s loans were for construction projects.
Capital flows to the real estate market have been increasing since late 2015 and are expected to continue growing in 2017. Dr. Nguyen Tri Hieu, a banking expert, said the banks should control these capital flows because the real estate market always carries big potential risks.
The State Bank has issued several circulars governing safety limits by which credit institutions must abide. According to Circular 06/2016/TT-NHNN, credit institutions must decrease the rate of credit for medium to long-term loans to 50 percent within 2017 and to 40 percent from January 1, 2018.
A recently issued instruction on the implementation of monetary policies and safe banking operations in 2017 says relevant authorities must oversee credit for industries with potential risks, such as real estate, and BOT (build, operate, transfer) and BT (build, transfer) transport projects in order to enhance risk control and ensure safe banking operations.
The State Bank of Vietnam has told commercial banks to regularly review and evaluate lending, including loans secured with
property, in potentially risky areas such as real estate. It has also instructed them to increase the proportion of credit for
housing projects for the poor and people on welfare benefits in order to better satisfy the demand for housing in accordance
with government policies.