Credit into real estate harbors big risks: State Bank governor

By Phan Ca
Tue, June 7, 2022 | 2:58 pm GMT+7
An aerial view of the New City Thu Thiem project in District 2, Ho Chi Minh City. Photo courtesy of Vietnam News Agency.

An aerial view of the New City Thu Thiem project in District 2, Ho Chi Minh City. Photo courtesy of Vietnam News Agency.

About 94% of outstanding real estate credit are medium and long-term, while bank deposits are mainly short-term, which has exposed local banks to high risks, according to the State Bank governor.

"The disparity between borrowing and lending terms means lending to the real estate sector harbors significant risks to banks," Governor Nguyen Thi Hong stated in a report submitted to the National Assembly.

She added that property investment is "a risky area when it comes to bank loans and requires control measures."

According to the governor, the property market fluctuated dramatically, with inflated prices causing virtual fever, as well as land auctions at unusually high prices, which affected financial institutions’ credit issuance and collateral valuation.

Total outstanding real estate loans among Vietnamese credit institutions exceeded VND2,280 trillion ($98.33 billion) at the end of April, up 10.19% from the end of 2021. This amounts to around 20.44% of the country’s total outstanding debt, with real estate bad debt accounting for 1.62%, according to the State Bank of Vietnam.

The bank is closely monitoring outstanding debts' growth rate and credit quality in the securities and real estate sectors to detect possible risks and take appropriate steps to secure the system, Hong noted.

In the coming period, the central bank will strictly supervise loans in potentially risky areas including buying real estate for trading, while still encouraging lending for purchase of social housing, worker housing, or low-cost commercial property.

The report indicated an 8.04% increase in credit in the first five months of 2022, up 16.94% year-on-year. The bank attributed strong credit growth in 2022 to sluggish public investment disbursement, putting the weight of economic recovery capital demand on bank credit.

The execution of the VND40,000 billion ($1.7 billion) interest rate support package in the context of rising inflation and a high credit-to-gross domestic product ratio makes credit management challenging.

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