Banks remain interested in housing sector

Banks remain interested in housing sector

Although the State Bank of Vietnam (SBV) has tightened credits to risky sectors including real estate, other banks have plentiful liquidity and are ready to lend the housing sector.
03:00, 07/08/2019

Nguyen Quoc Hung, Director of the SBV’s credit department, told local media: “Though we all know real estate is a business with high risks, it does not mean the banks restrict lending to the sector.”

Hung’s statement came in the wake of the SBV making public a draft circular on adjustments to the Circular 36/2014/TT-NHNN, stipulating prudential ratios and limits in activities of credit institutions and foreign bank branches.

In particular, the draft circular set the risk weight asset ratio to 150 percent for mortgages worth VND3 billion ($126,000) and the rate for loans worth VND1.5-3 billion at 100 percent. The current ratio for both loans is just 50 percent.

Additionally, the central bank will also adjust the ratio of short-term deposits that can be used for medium- and long-term loans. Under a three-phase roadmap lasting until 2022, the ratio will be cut down from the current 40 percent to 30 percent by July 1, 2020.

These adjustments are expected to help SBV control liquidity risks to ensure the safety of the banking industry in the face of economic changes, contributing to sustainable development of the country.

However, lots of experts have slammed this draft circular saying tightening credit for buying luxury homes could shock the housing market.

They said the tightened credit would seriously affect the development of the high-end property segment, which is expected to help Vietnam enhance infrastructure quality and people’s living standards.

Experts suggested policy makers should reconsider to ensure balanced development of the domestic real estate market.

They said SBV should ask banks to carefully evaluate the financial capacity of buyers before lending to them instead of tightening credit to the entire high-end property segment.

Credit for buying land for speculation purposes could be tightened but it was not necessary to tighten credit for home buying because it stimulates other industries such as construction, cement and steel, said a spokesman for the Vietnam Real Estate Association (VNREA).

In reply to these protests, Mr Hung from SBV said the credit tightening would apply to all sectors, not only real estate. He explained: “Banks do not lack capital but need to limit risks. So they will only lend to effective projects that meet legal requirements and prove to be profitable.”

In fact, banks are offering big loans to individuals to buy houses at attractive interest rates. For example, Vietcombank is offering interest rates of 7.7-8.1 percent for the first 12 months and 8.7-8.9 per cent for the first 24 months.

Thus, SBV’s new regulations are not going to make lenders turn their backs on the property sector. In 2018, outstanding loans to this sector, including both to developers and home buyers, saw an increase by 31.7 per cent.

In the first quarter of 2019 it grew by 3.29 per cent, higher than the overall lending growth.

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