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Property market slump has bad debts rising
The downturn in the property market this year may lead to the insolvency of many investors, adding to the volume of non-performing loans in Vietnam’s banking sector, experts have said.
Speaking at a conference in Ho Chi Minh City last week, Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Program, said when property prices surged last year, many investors applied for loans with real estate as collateral.
Those short-term loans have maturity of one year and many will fall due at the end of this year. But as the local real estate market has lost steam since January, it is likely that investors can’t manage to pay off their bank loans, he said.
Property prices have fallen 30 percent or more in some areas since early this year, adding to the volume of bad debt in Vietnam’s banking sector.
The director of a real estate company said in the past businesses that borrowed more money from banks to invest in real estate had a better chance to earn huge profits.
But now, with the real estate market plummeting, many have no choice but to sell their properties in order to maintain their operations, he said. Even supposing commercial banks lower their annual interest rates to 10 percent, real estate businesses will be unable to survive if the market does not recover, he said.
The country’s borrowing costs are still the highest in Asia, along with Pakistan’s, even after the central bank cut the key rate to 13 percent on October 20. The highest lending rate among commercial banks is now 19.5 percent per year.
Most of the bad debt would come from the real estate sector and inefficient businesses, online newspaper Vietnamnet last week quoted Le Xuan Nghia, head of the State Bank of Vietnam’s Banking Development Strategy Department, as saying.
If the bad debt is not managed properly, some banks may face difficulties at the end of this year, he said.
As of September 30, total non-performing debt stood at some VND35 trillion (US$2.1 billion), accounting for 2.92 percent of overall outstanding loans, said Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien.
However, Tien said the local banking system is currently safe and there are no commercial banks losing their payment ability.
The bad debt ratio may increase in the remaining months, but it is difficult to exceed 4 percent, Tien said.
In Hanoi and Ho Chi Minh City, the percentage of bad debts in real estate was lower than 2.5 percent.
Le Duc Thuy, chairman of the National Financial Supervisory Commission, said the slowdown in the property market can lead to many bad consequences, including the increase in non-performing loans and the bankruptcy of many businesses.
“We are trying to find a solution for loans against property, restructuring them in order to revive the market,” he said.
Local banks have set up risk prevention funds against bad debts collateralized by real estate, but if the non-performing loans keep increasing, a comprehensive plan will be needed to deal with them, he said.
If bad debts go into default at the end of this year, banks can sell off mortgaged properties at more reasonable prices to home buyers who have real needs, said Pham Do Chi, deputy director of VinaCapital Investment Management Ltd.
Thanh Nien, VNA
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