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State Bank housing plan may revive market

Update: October, 06/2014 - 08:05

The loans will have a maximum term of 10 years and a fixed interest rate ranging from 6 to 7.5 per cent, depending on the lender. The property to be bought can be offered as collateral for the loan.— Photo vietnamnet

by Thien Ly

The State Bank of Viet Nam's stated intention of instituting a new home loan programme has sparked a public debate in recent days.

According to the plan, said to originate from the bank's credit department, the new package will allow public officials, civil servants, and members of the armed forces to borrow up to VND2 billion (US$94,100) at low interest rates to buy condominiums and terraced houses.

The loans will have a maximum term of 10 years and a fixed interest rate ranging from 6 to 7.5 per cent, depending on the lender. The property to be bought can be offered as collateral for the loan.

Hailed by developers

The plan has been hailed by housing developers and high income earners who believe that it could revive the market.

For home buyers the prog-ramme is very attractive since many people have been paying loan interest rates of 17-18 per cent.

Apartment developers are heartened since most of their inventories are priced at VND1.5-3 billion, and the programme could help sell them.

Analysts say the market has recently seen clear signs of recovery but only in the low-cost segment. The medium- and high-cost apartment segments continue to be plagued by large unsold stocks.

Thus, if middle- and high-income earners can borrow at low rates from banks to buy homes, the market is likely to recover rapidly. But many people are sceptical about the feasibility of the new programme, and point to another similar programme that has barely gotten off the ground.

A VND30 trillion (US$1.4 billion) home loan package was launched with fanfare in June 2013 to assist low-income people buy social housing. It offers buyers loans at 5 per cent interest and was scheduled to wind down in 36 months.

But more than 15 months after its launch only 10 per cent of the earmarked amount has been disbursed to home buyers and housing developers.

The Government and authorities in provinces and cities have made much effort to speed up its disbursement, but to little avail.

The feasibility of the programme is also suspected due to some of its provisions that are being drafted by the central bank.

One of them requires borrowers to have a family income of around VND25 million ($1,177) per month. The average income of a couple who are both public servants is VND13-14 million.

Besides, the central bank plans to fix the interest rate for 10 years, which is also highly impracticable in an economy like Viet Nam where inflation is often high and interest rates are volatile.

Banks can only predict interest rate movements for a certain period of time and not 10 years. But they will be stuck with interest rates of 6-7.5 per cent under the programme regardless of the rate they have to offer to attract deposits.

Despite all the naysaying, however, analysts are hopeful the lending programme would restore liquidity to the housing market, benefiting both developers and buyers.

Small banks

While some major banks are faced with negative credit growth, many small lenders are seeking an increase in their credit growth cap in the hope of expanding their lending activities at the end of the year when there is often a spike in demand from companies.

According to the State Bank of Viet Nam (SBV)'s credit department, as of late August banking credit growth was only 5.8 per cent for the year.

Many major banks have not even reached the halfway mark of their year's target of 12-14 per cent. But many smaller banks have already achieved their target of 9-12 per cent.

Not wanting to miss any opportunity that might arise for lending at the end of the year, many of them have asked the central bank to allow them more leeway.

Viet Capital Bank is one such. By late August its credit growth had topped 30 per cent though its outstanding loans were a mere VND10 trillion (US$980 million), or equivalent to that of a single branch of a major bank.

Viet Capital Bank has asked the central bank to double its limit to enable it to lend more.

Nam A Bank has asked for a 30 per cent increase after it achieved credit growth of 30 per cent in the first eight months.

Executives at Orient Commercial Joint Stock Bank (OCB) said the bank has already reached its full-year growth cap of 9-12 per cent and hoped the central bank would allow them to lend further.

The situation at major banks is quite different, with credit activities plodding along due to reasons like high bad debts and slow recovery by businesses.

At Eximbank for instance, credit growth in June was a negative 3.69 per cent. Its potentially irrecoverable debts are valued at nearly VND1.46 trillion ($66.7 million) or 61.7 per cent of its total bad debts.

Its managers expect to more than achieve half the credit growth target for the year.

The Asia Commercial Bank (ACB) has offered the lending interest rate of only 7 and 8 per cent but it has not been attractive enough to customers. Consequently, its credit growth rate reached only 3.32 per cent in the first six months of the year.

Banking sector insiders said that to push up their credit growth the banks should pay more attention to rating enterprises' prestige in order to be able to offer more non-collateral loans.

SOEs to enter IPO season

The race to make initial public offerings (IPOs) is expected to heat up this year when many State-owned enterprises will have to issue shares under the Government's equitisation plan.

The plan envisages equitising some 432 companies in 2014-15, but only 65 have got approval to go public.

Finance ministry experts believe the equitisation plan is set for imminent acceleration since most eligible SOEs have completed preparations for their IPO.

According to a recent report from the ministry as of early September 360 SOEs had set up equitisation steering boards. Of them 100 have completed their valuation while 253 others are in the process.

Recently a slew of major SOEs successfully completed their IPOs, encouraging more to join them.

On Sept 18 the Southern Airports Services Company Limited (SASCO) sold more than 31 million shares in its IPO at the HCM City Stock Exchange.

SASCO, which has a chartered capital of VND1.315 trillion (US$62.6 million), auctioned more than 31 million shares, representing a 23.65 per cent stake.

Twelve local investors successfully bid for them at an average price of VND19,330, enabling SASCO to raise more than VND601 billion ($28.6 million).

Earlier the Viet Nam Vegetable Oils Industry Corporation (Vocarimex) raised more than VND500 billion from its IPO in late July 28 after selling 37.9 million shares at an average price of VND13,428.

The Government's stake in the company has fallen to 36 per cent.

Viet Nam Airlines eyes a November IPO, which is sure to be one of the most eagerly anticipated ones by a large corporation.

The carrier plans to sell 5 per cent of its shares and hopes to raise VND1.5 trillion ($71 million). It plans to sell another 20 per cent to one or more strategic investors.

Several potential Japanese investors have expressed interest. — VNS

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