New rules aim to reduce risks in property credit: SBV

The amendments to Circular No 36 are meant to urge commercial banks to strengthen the risk management of lending activities, rather than tighten the credit sources for the real estate sector, said Pham Huyen Anh, Deputy Chief Inspector of the State Bank of Vietnam

Apartment buildings (Photo: VNA)

He made the statement to reassure real estate insiders amidst fears that the new regulations will have negative impacts on the real estate market which has seen signs of recovery.

In a draft document from the central bank circulated for public opinions, the risk index of receivable lending for real estate and securities will be raised from 150 percent (the lowest level) as stipulated in Circular No 36 to 250 percent.

The maximum ratio of short- term funds used for medium and long term loans will be reduced from 60 percent to 40 percent.

Chairman of the Vietnam Real Estate Association Nguyen Tran Nam said that since Circular No 36 came into effect a year ago, the number of transactions in the housing market has increased, proving that there is considerable demand for houses.

Outstanding loans in the housing sector are still under control, Nam added, and suggested that the circular be unchanged at the moment.

Pham Duc Toan, general director of the EZ Vietnam Real Estate Development and Investment Company, said that the amendments will make it difficult for property investors and traders to get loans, which could increase house prices.

Good sentiments

Contrary to the opinions of real estate developers, the amendments received praise from experts and commercial banks.

Nguyen Thi Kim Thanh, member of the Board of Director of the Bank for Investment and Development of Vietnam (BIDV) and former head of the SBV's Monetary Policy Department, said that the new policy is an indirect method that the SBV could apply to prevent a bubble in the real estate market.

"I think that the market now is over supplied as too many projects are underway while people who have real demand for a house cannot afford one due to their low income.

"Housing enterprises must find ways to adapt themselves to new economic and policy conditions," Thanh said.

HSBC Vietnam General Director Pham Hong Hai said to Thoi bao Kinh te Vietnam (Vietnam Economic Times) that this is a signal to housing enterprises that they should be more cautious.

"The change in risk index of receivable lending for real estate (250 percent) is suitable, because a large amount of capital has been poured in the real estate sector."

Enterprises should look at both the supply and demand sides of the market to ensure efficient performance, Hai added.

Chau Dinh Linh, a lecturer at the Banking University of HCM City, said that implementing the amendments would be a good decision.

"The new regulations will help not only prevent risks from the property market but also redirect the capital flow in the financial market. We have relied too much on the monetary market as a capital supplying channel while the capital market including bonds and securities is underdeveloped.

"The country's economic development does not depend only on the real estate sector, but on the real production and consumption," Linh said.

"If real estate developers want to have sustainable businesses, they should not count on short-term capital sources to do medium- and long-term investment projects," he added.

Anh said that the amendments were drafted to ensure the banking system's health. If the banking system is not exposed to excessive risks, then enterprises will find it easier to access loans, he explained.

Fire rekindled

According to Anh, monetary policy is not the only way to boost the real estate market's development. He said that the market has got out of the worst situation and real estate companies should not count on bank capital.

Banks have completed their role in "rekindling the fire" and it is necessary to have policies to lure capital from other sources such as foreign investment or remittances into this sector.

A long-term and stable property market needs the consistent implementation of many policies such as fiscal, tax and land.

The SBV official said that they have predicted the response of stakeholders when issuing the draft amendments. However, the SBV will do further research before a final decision and draw a roadmap for the market to have time to adapt, Anh stressed.

Source: VNA

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