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Central bank eyes tightening non-bank credit in corporate bonds, property

Update: June, 08/2020 - 17:30

 

A consumer speaks to a sales assistant about credit services. The State Bank of Việt Nam was looking to tighten credit in corporate bonds and real estate provided by non-bank financial institutions with an aim to ensure safety. — ndh.vn

HÀ NỘI — The State Bank of Việt Nam is looking to tighten credit in corporate bonds and the real estate sector provided by non-bank financial institutions with an aim to ensure the safety of the system.

Recently, the central bank made public for comments a draft circular about limits and safety ratios in the operation of non-bank credit institutions.

Under the draft, non-bank financial institutions must keep six ratios within limits to ensure safety in operations, including a minimum capital safety ratio, restrictions on providing credit for corporate bonds and shares, solvency ratio, maximum ratio of short-term capital sources used for medium and long-term loans, ratio of investing in Government bonds and Government-guaranteed bonds and limits on capital contribution and share purchase.

The minimum capital safety ratio aimed to enhance the financial institution’s resistance to market shocks.

Under the draft, the minimum capital safety ratio would be 9 per cent, the same as the current regulation. However, the risk coefficients were adjusted higher for risk-weighted sectors, such as the high-end property sector.

Accordingly, credit guaranteed by houses and land ownership rights provided for individuals to buy social housing units or worth below VNĐ1.5 billion each would have the risk coefficients of 50 per cent, same as the current one. However, the risk coefficient would be 120 per cent from January 1, 2021 to December 31, 2021 and 150 from January 1, 2022 for receivables from individuals worth VNĐ4 billion or higher.

The central bank said that this aimed to tighten credit for individuals into the high-end property segment.

With this regulation, non-bank financial institutions would be more cautious and stricter in controlling loans for real estate businesses, which would contribute to minimising risk when the property market moved and making the real estate market healthier and more stable, the central bank said.

The central bank said that this regulation would not affect the demand for loans for purchases of social housing units for homes worth below VNĐ1.5 billion, adding that it would also not affect non-bank financial institutions with good financial capacity and high capital safety ratio.

Regarding the regulation about restrictions on providing credit for investing in corporate bonds and shares, the central bank said that this aimed to limit loans which would be used to invest in corporate bonds and shares which had high potential risk recently.

The draft also added a regulation that non-bank credit institutions were not allowed to provide credit for customers to invest in bonds of companies which were their subsidiaries.

In 2019, the central bank issued Circular 22.2019/TT-NHNN about safety ratios for operation of credit institutions and foreign banks’ branches which also tightened credit for sectors with high risks, including the property sector. — VNS

 

 

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