Central bank urges property lending caution

The State Bank of Vietnam (SBV) has asked credit institutions to limit their lending to the real estate and construction sectors to better control bad debts.

Under Document 563/NHNN-TTGSNH issued recently, SBV asked lenders to avoid too much focus on real estate customers and maintain credit growth in the sectors within safe limits.

The institutions must keep a close watch on lending to the sectors, continuously review and assess the progress of realty projects and their developers’ financial condition, particularly as it relates to their collateral assets, and have measures in place to handle any defaults, SBV said in the document.

State Bank of Vietnam (SBV) has asked credit institutions to limit their lending to the real estate and construction sectors to better control bad debts (Photo: vietnamfinance.vn)
Besides evaluating and processing lending applications with scrutiny, the institutions must also monitor borrowers to ensure that they refrain from using consumer loans for investment in property or securities.

Credit expansion should go hand in hand with strict supervision to ensure loans are used for their intended purpose and do not add to bad debts, the document said.

As an alternative, commercial banks were asked to increase their lending to the manufacturing, production and business sectors, particularly those in need of capital for growth, such as agriculture, export, supporting industries and small- and medium-sized enterprises.

This is not the first time the central bank has told local lenders to tighten the valve on credit meant for the real-estate and construction sectors. The move was made after consumer lending accelerated last year and a significant amount of consumer loans went to the real estate sector.

According to the National Financial Supervision Committee, the growth rate of consumer lending last year was three times higher than the average credit growth rate of 18% to reach VND1.17 quadrillion (US$51.54 billion).


Notably, some banks dodged credit regulations by offering lending packages supposedly earmarked for “house repairs” or “house construction” to consumer credit customers. Loans for house repairs and construction last year soared 76.5 percent and accounted for nearly 53 percent of total consumer loans.

Pham Manh Thang, deputy general director of Vietcombank, said the capital limit in the real estate and securities sectors would help the banking system develop sustainably as banks would have to select feasible property projects to provide loans, avoiding non-performing loans in future.

Bad debts in the country’s banking sector, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.3% by the end of 2017, down from 2.46% at the end of 2016, according to SBV.

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