Banks with high property loan ratios to benefit from amended circular

The withdrawal of three provisions from Circular 06/2023 by the State Bank of Vietnam (SBV) is expected to benefit banks with high ratios of outstanding property and construction loans.

It is estimated that such loans accounted for 17-35% of Vietnamese banks' total loan balance as of end-June.

Prominent among the expected beneficiary banks are Techcombank, LPBank, SHB, VPBank, HDBank and Maritime Bank.

As of June 2023, these were banks with a high proportion of outstanding real estate and construction loans with that of Techcombank at 35.5%, LPBank at 31.6%, SHB at 27.3%, VPBank at 22.5%, HDBank at 19.0% and Maritime Bank at 17.9%.

On August 23, the central bank issued Circular 10/2023 amending Circular 06. Accordingly, Clauses 8, 9, 10 of Article 8, deemed controversial because they further restricted access to loans, will be removed instead of taking effect on September 1.

Clause 8 dealt with loans intended to be used for capital contributions, purchases and transfer of capital contributions by limited liability companies or partnerships; capital contributions, purchases and transfer of capital contributions in joint stock companies that have not been listed on the stock market or not yet registered for trading on the unlisted public company market (UPCoM).

Clause 9 stipulated loans for paying capital contributions per capital contribution contracts, joint investment contracts, and business cooperation contracts for the implementation of investment projects not eligible for business operations per the legal framework at the time of the loans.

Clause 10 covered loans to pay financial compensation under certain conditions. First, customers would have already used their own capital to pay for the cost of implementing business projects, and such incurred less than 12 months prior to the loan; and second, when expenses paid by customers using their own capital were sourced from medium- and long-terms loans to carry out the projects

Assessing the impact of Circular 10, Asia Commercial Bank Securities (ACBS) said it believes that the circular is part of the government's support policy for the real estate market in particular and credit growth in general.

It argues that suspension of the three clauses will support struggling real estate businesses in restructuring through the transfer of capital in their projects to investors with better operating capacity or through business cooperation with a partner.

In addition, banks will have a legal corridor to lend to property buyers who have met legal conditions but not business conditions such as possession of a sales license. The latest circular will also support real estate businesses in borrowing capital for investment, expanding land banks or investing in a new project.

“Most realty businesses can benefit from the new circular,” the broker notes.

ACBS also believes that the latest amendments will support credit growth, which has been at a low level recently. By the end of July, credit growth was only 4.56% higher than at the year’s beginning, down 0.17% compared to June.

The new circular will create a legal corridor and favorable conditions for credit disbursement for banks that give preference to real estate loans.

From a long-term perspective, Viet Dragon Securities (VDSC) believes that Cicular 10 is only a temporary step to support the restructuring process of real estate businesses.

“A loose monetary policy should be aimed at general development of the economy; however, in reality, the economy depends heavily on the real estate sector. Therefore, sustainable growth can only be achieved when the policies and business environment for the real estate sector are fairer and more open and transparent," it notes.

It adds that in the long term, dependence on the real estate industry should be gradually reduced. Instead, it is necessary to create new models and industries with high degrees of innovation, creativity and added value.