Squeezing dry (16/8)
16/08/2011 - 10 Lượt xem
Early last month Mr Than Van Dinh, a retiree in Hanoi, still thought that his dream of owning a new house was guaranteed. He had found the perfect place and wanted to use the money from selling his current house and also take out a bank loan.
However, just before the transaction went ahead, the bank said it was no longer lending to home buyers due to the credit limits imposed by the central bank. “I feel so frustrated,” he said. “The house I want is still on sale as nobody is buying now, and I have since had three people look at my current house. But there haven’t been any official offers because they also can’t access bank finance.”
However, just before the transaction went ahead, the bank said it was no longer lending to home buyers due to the credit limits imposed by the central bank. “I feel so frustrated,” he said. “The house I want is still on sale as nobody is buying now, and I have since had three people look at my current house. But there haven’t been any official offers because they also can’t access bank finance.”
Mr Dinh’s predicament partly reflects the problems now besetting the real estate sector. High inflation has damaged sentiment about Vietnam’s economy and some industries and sectors have been particularly affected. The real estate sector was already reeling from falling sales and high interest rates before coming face-to-face with the credit crunch.
Crunch time
Since early March the State Bank of Vietnam (SBV) has adopted measures designed to control inflation, and it was perfectly understandable why it had to introduce stricter rules or even stop lending to property developers and house purchasers. Seen as one of the major reasons behind inflation, the large hike in property prices over recent years needed to be harnessed.
Statistically, the SBV is trying to keep credit growth at below 20 per cent this year in an attempt to curb inflation, and commercial banks have been instructed to cut lending for non-production sectors, most notably the stock market and real estate market. The SBV also set a deadline for commercial banks to limit credit to the sectors to 22 per cent by the end of June and to 16 per cent by the end of the year.
According to SBV Governor Nguyen Van Giau, the regulation to reduce credit in non- production sectors was promulgated in March, so commercial banks have had sufficient time to bring their credit growth to below 22 per cent by the June 30 deadline. “There will be no time extension for banks that fail to comply with the regulation, and the SBV will issue sanctions,” Governor Giau said.
In reality, though, commercial banks are struggling to reduce their lending. As at May there were 18 commercial banks with outstanding loans to non-production sectors standing higher than 22 per cent, and at least nine have outstanding loans accounting for more than 30 per cent. Mr Ha Van Tham, Chairman of Ocean Bank, said that his bank has readjusted its assets since earlier in the year, so credit growth hasn’t expanded dramatically. “Credit for non-production sectors now accounts for around 23 per cent of all outstanding loans and it will be cut to 22 per cent by the end of June,” he told local media.
While large banks, especially State-owned banks, claim they will meet the target, some smaller banks find themselves in major trouble. CEO of Kien Long Bank, Mr Truong Hoang Luong, is of the opinion that it will be very difficult for his bank to bring its credit to below 22 percent before the deadline. “Banks offer medium- or long-term credit, ranging from five to ten years, to property developers,” he said. “So forcing customers to pay before scheduled is simply impossible.”
What developers say
Whatever the timing, it seems that the government’s policy to tighten credit will never sit well with property developers. According to Mr Tran Minh Hoang, Chairman of the Vietnam Land Investment Corporation (VNI), property developers truly are in trouble. “Many developers have been hit hard and been forced to delay the launch of their projects,” he said. “Capital is a very important source of funding for a realty company. If interest rates remain high for the time to come, we will find it very hard to survive.”
Credit for the real estate sector has been severely tightened but has not completely disappeared. Major developers can still seek funds but at a very high interest rate, currently at around 25 per cent. In order to make the most of this difficult situation, some major players are simply trying to complete outstanding projects in order to deliver to customers within the stipulated time period.
Despite facing difficulties, Mr Hoang said that his company is planning to launch a new project at the end of the year. “We are negotiating with our partners to identify funding for the project,” he said. “We still believe that we can overcome the existing difficulties.” Sharing Mr Hoang’s opinion, Mr Le Chi Hieu, Chairman of the Thu Duc Housing Development Joint Stock Company House, emphasised that the current difficulties are only temporary.
In the long run he believes that the real estate market will recover once the macro economy begins to turn around. “The best possible way at the moment is to review business plans based on capital resources,” he said. “We only focus on projects with high rates of return.”
Floating bubble
Concerns have risen among commercial banks following the sharp slump in the real estate market, who are said to have two-thirds of their assets guaranteed by real estate. Although there is yet to be any official figures on bank loans made against property or for investment in the real estate market, it appears that bad property debts could weigh down commercial banks and present a risk to the economy in the medium and long term.
Banks often step up their efforts to lend to property developers despite knowing the potential risks from heavy property losses on their loans book. The reason is quite simple: profit. While the central bank urges commercial banks to lend money to assist manufacturing, it is worth noting that businesses in the production sector often complain about high interest rates of 17 per cent. On the other hand, if banks grant loans to property developers and investors in non-production sectors, they can seek interest rates from 23 to 25 per cent.
In general, it is the divergence of aims between the central bank and commercial banks that have led to the problems. The SBV wants to limit potential risks for the economy by reducing credit in non-production sectors, but commercial banks also want to limit the possibility of borrowers being unable to repay their loans.
In reality, property developers or investors often put up their assets as security for their loans and more often than not get the nod from banks. If they can’t afford to settle their debts, the banks can at least foreclose on their property.
Meanwhile, given the current economic conditions, with a number of enterprises on the verge of collapse, it is understandable that banks are not interested in lending money to such enterprises because of the risk.
In fact, the risk of a bubble in the real estate market has been mentioned several times by analysts and the only reason why it is yet to burst is because of the support from the banking sector. “It is dangerous for the country’s real estate market, which is driven by internal and external finances, to be creating banking sector risks, which could in turn damage the entire economy,” warned Mr Nguyen Duc Thanh, Director and Chief Economist at the Vietnam Centre for Economics and Policy Research.
Source: VNEconomy.
