Will the outstanding balance become a danger to the banking system and how will this be dealt with?

Banks’ concern

A financial and banking expert, Bui Kien Thanh said that the current high mortgage debt will greatly affect banks’ assets. If the equity capital level of loan recipients is not enough under banking regulations, banks will have to take on the risk. Therefore, they should reconsider which loans can be changed into bad debts and categorised as assets and report this to the State Bank of Vietnam (SBV).

The Head of the SBV’s Department for Strategy and Development, Le Xuan Nghia, said the total amount of lending capital borrowed by real estate from enterprises has now amounted to US$25-30 billion. If 1/3 of this amount is not paid, banks will be plunged into difficulties. As a result, the SBV will face a major challenge in supporting commercial banks.

In some other countries, commercial banks are not allowed to directly provide loans for enterprises to run real estate businesses but they can secure loans for them. But Vietnamese commercial banks can provide loans directly. However, the Vietnamese accounting system fails to re-assess the total security assets as US banks do on a monthly basis.  Therefore, it is difficult to define how much bad debt there is on the real estate market, said Mr Nghia.

Mr Thanh said that the price of real estate in Vietnam is based on the purchase-sale price, instead of the cost price, pushing the real price up to an unreasonable level. This is one of the reasons why the real estate market is frozen.

According to experts and businesses, if Vietnam wants to break the frozen market, it should pump in more capital to create liquidity. However, most banks are reluctant to give out such loans.

Le Xuan Nghia said that it is necessary to strictly control loans for real estate purchases and devise measures to prevent default. This does not mean that banks should say “no” to these loans (even while some banks have issued resolutions against providing such loans). Mr Nghia concluded that commercial banks can restructure their interest rates according to risk. For example, they provide loans for consumption, real estate and securities trading at either higher or lower interest rates. This means that they can offer more capital for good projects. Therefore, when the US financial market stabilises these projects will be completed and can be sold.

Vietnam has not had the policy to support needy people to buy houses, Mr Thanh added. In the US, since the 30s the State had systems in place, which offer loans at low interest rates to needy people to purchase houses. Vietnam can draw on this experience and encourage real estate lenders to provide high-quality products at reasonable prices.