The State Bank of Vietnam (SBV) should continue its restriction on loans to real estate projects next year in order to reduce financial risks, said an official.
After the State Bank of Vietnam has applied policies to curb credit growth in the non-production sector, the real estate market slowed significantly.
Unstable property market causes difficulties for banks
Dr. Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Committee said that as much as 70-80% of capital for real estate projects comes from banks, and an unstable market has put pressure on them, especially smaller banks.
In many commercial banks, real estate projects account for 30-40% of their total outstanding loans. At some banks it is as high as 50%.
By the end of June, the real estate sector made up 8.3% of banks' bad debts.
Different rules for different banks
After the SBV has applied policies to curb credit growth in the non-production sector, the real estate market slowed significantly.
According to the National Financial Supervisory Committee, in the first six months of this year, bad debt in this sector increased by 37%, totalling VND1.766 trillion (USD84.9 million).
Nghia noted that the same lending restriction should not be applied to all banks. Even though the SBV needs to curb credit growth in real estate next year, it should lift the restrictions on banks that do not have liquidity problems.
These banks would be able to make real estate loans which do not surpass 10% of loan portfolio.
He added that another reason for flexibility on real estate lending restrictions is that there is a real need for housing.
“Construction of industrial parks, export processing zones and urban areas is of value to the economy. Credit restrictions for these activities has affected the construction material market, leaving steel and cement companies with high inventory,” Nghia emphasised.