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Banks, developers laud looser credit policy
Banks and property developers are heaving a sigh of relief after the State Bank of Viet Nam eased restrictions on lending to the real-estate and some other non-production sectors.
A recent central bank decision requires lenders to ensure credit at reasonable interest rates to secure social welfare and stabilise the economy.
It lifts a virtual ban on lending to property and housing projects that the SBV had imposed last March by mandating that commercial banks' outstanding loans to non-production sectors should not exceed 16 per cent of total loans by year-end.
But the figure remained stubbornly stuck at above 16 per cent since property developers were unable to repay their loans due to the market slump.
The new decision removes the bulk of the property sector from the list of non-production sectors.
Banks can again freely lend to developers building apartments for low-income people and workers in industrial, economic and processing zones.
Another category they can lend to is housing projects that will be completed before 2012. Besides, individuals can obtain mortgages based on their wages to buy or upgrade houses.
Analysts say this is mainly aimed at enabling banks to achieve the 16 per cent ratio.
A general director of a joint stock bank, who does not want to be named, says his bank's ratio is now just 8-9 per cent, "more than 10 percentage points lower [following the SBV's decision]".
Analysts also think the move will breathe life into the real estate market which went into a downward spiral, especially after credit was tightened and investments flowed into gold and other assets.
They say most loans to property developers were given in 2008-10, and the developers are mostly contracted to hand over apartments to buyers in early 2012.
Thus, many of these projects will be eligible for more loans, while the creditor banks will be able to recover their debts from the developers.
Hoang Anh Tuan, general director of property developer Tac Dat Tac Vang Company, says the new decision will allow people actually in need of housing to get loans.
"This is of great significance for developers like us because it will help us sell our products easier."
Tran Minh Hoang, chairman of another developer, Vinaland, says since most people who want to buy or upgrade housing depend on bank loans, loosening credit will help improve market liquidity.
The biggest hurdle for the market so far has been liquidity and not prices, he explains, since many developers have been ready to sell at a loss but still found no takers.
Once the real estate market recovers, related sectors such as construction and construction materials will also see a recovery, he says.
However, other analysts say that individuals will not benefit much since the mortgage amount depends on income and very few people have high enough wages.
Le Tham Duong from the Banking University says this also means the market liquidity will not improve as claimed.
Most banks have no liquidity while interest rates are still too high for both enterprises and individuals, he points out.
Banks should lend to property developments that are in actual need of funds and offer mortgages at reasonable interest rates if market liquidity is to improve, he says.
Draft decree sends gold prices into tailspin
On November 21 Agribank's gold trading company and Bao Tin Minh Chau Jewelry Company sold gold at nearly VND1 million a tael [37.5 grams, 1.2 troy ounces] less than that of Sai Gon Jewelry Corporation. They were selling at VND44.88 million compared to SJC's VND45.75 million.
They had to slash prices to compete with SJC which is likely to become the sole producer and trader of gold if a draft decree on management of gold trading is approved.
At Bao Tin Minh Chau Company's outlets, the number of buyers had fallen by half while the number of sellers had doubled.
But investors, worried about the fate of other brands if SJC does become the sole gold trader, ignored the price cuts and continued to flock to SJC despite the higher prices.
The State-owned SJC, which has already been designated by the Government as the market maker, had to respond to the price cuts, and within two days, reduced its spot price to VND44.8 million, VND300,000-400,000 lower than that of other brands, becoming the lowest level.
The rush to buy SJC bullion intensified and it has begun to sell 8,000 taels a day, tripling the normal figure. Needless to say, SJC's gain has been the others' loss.
Sacombank Jewelry Company, for instance, sold just 1,000 taels a day between November 21 and 23, or three to five times down from the normal figure.
The race to the bottom among the gold companies has had a positive fallout – domestic gold rates, which were VND2 million higher than global prices last month, have now narrowed the gap to VND1 million.
The Viet Nam Gold Traders Association has submitted a petition to the central bank, suggesting changes to the draft decree which it thinks is unfeasible.
Cement companies face hard times
With demand plunging and costs skyrocketing, at least three cement factories have been placed up for sale by their owners to raise money to pay off their debts. Many others are staring down the barrel.
Viet Nam Cement Corporation (Vicem), which has some of the strongest brands and a large market share, anticipated enormous difficulties and set itself a profit target of just VND1.25 trillion (over US$60 million) this year, or VND350 billion less than last year.
But by October, it had suffered a loss of VND220 billion, which has not happened for several years.
With demand plunging from 4.8 million tonnes a month early this year to 3.5 million tonnes now, many Vicem member companies have had to cut their output by 10 to 20 per cent.
Others, lesser known companies, face a worse plight.
Earlier this year, Dong Banh, Thai Nguyen, Tam Diep and Hoang Mai cement companies had to seek a Government bailout to repay foreign debts.
The industry expects demand to drop even further next year, and does not see any signs of improvement in the coming years because the real estate market is in a slump.
Meanwhile, interest rates remain sky-high, the dong continues to weaken, and other costs are increasing relentlessly. Fuel expenses, for instance, are up by 15.3 to 90 per cent.
Cement companies that are currently building new plants are expected to be the worst hit.
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