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City’s property-based loans down to safe level: SBV official
Ho Chi Minh City’s property loans have come down to a safe level, a senior central bank official says, dismissing speculation that local banks may sell off mortgaged properties to collect debts.
Total property loans now account for 11 percent of total lending by the banks at around VND57 trillion (US$3.5 billion), State Bank of Vietnam HCMC Director Ho Huu Hanh notes. It has decreased by 9 percentage points from 20 percent at the beginning of this year.
The situation is not worrisome any more, Hanh feels, because property loans have many categories, including loans for building infrastructure, industrial parks and office buildings which serve economic development and are not affected much by the real estate market downturn, he said.
“Since property loans have decreased so much, it is unlikely that local banks will sell off the mortgaged properties to collect debts [as some people have anticipated],” he said.
With the real estate market plummeting this year, many realty companies have been unable to pay off their bank loans. This has made some people afraid that the banks will sell off mortgaged properties to collect the debts.
The banks will not make the move since “procedures for selling off mortgaged properties are time-consuming as well as costly,” Hanh says.
Moreover, he adds, the mortgaged properties are mainly located in residential areas within the city where real estate prices have decreased slightly, making it all the harder for banks to sell them.
“The banks have to support borrowers in overcoming difficulties,” he said.
Selective measures work
The fact that local banks are more selective and stricter in providing property loans has partly helped mitigate the problem, Hanh says.
The banks have now stopped offering credit for recently-launched projects, including site clearance.
Loans given to buy houses, meanwhile, do not pose much risk as the mortgaged houses are of higher value than the loans.
Still, banks are continuing to provide credit for ongoing projects so that they can be completed and the loans repaid. It is worth noting that many speculators have sold their properties to pay debts, since they can’t afford high interest rates.
During the next months, the banks will focus on providing sufficient funds for businesses and ongoing projects instead of further tightening credit, Hanh is confident.
Improved procedures
Local banks had previously not categorized real estate loans, says Sacombank Board Chairman Dang Van Thanh. Loans for building houses or workshops were also considered as part of the real estate speculation bubble.
So, the State Bank is helping local banks improve their lending procedures so that clear lines can be drawn between different kinds of property-based lending.
The banks can then make funds available for reasonable and deserving projects, Thanh says.
“It is necessary that real estate loans be categorized so that analysis [about the real estate market] can be more exact.”
Although banks have continued offering property loans, demand has yet to increase because of high interest rates, according to Hanh.
However, the rates are necessary, Thanh feels.
“We should realize that inflation is being controlled, so the rates will be reduced gradually,” the State Bank official asserts.
The State Bank of Vietnam this year limited the growth of commercial bank lending by 30 percent, but “it will be flexible,” Hanh says.
Thanhnien
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