Bank lending to property sector surges despite tight money

September 05, 2022 - 15:02
Amid the central bank’s tight money policy and with the bond market screeching to a halt, many real estate companies thus find themselves cut off from sources of funds.


Customers look for housing projects in HCM City. — Photo

 Compiled by Thiên Lý

According to the State Bank of Việt Nam, outstanding loans to the property sector as of June 30 were up 14.07 per cent year-on-year to VNĐ 2.36 million billion (US$102.71 billion), a much higher rate than the average banking credit growth. 

A central bank executive, who did not want to be named, said the sharp increase in credit has helped the property sector cope with the shortage of liquidity caused by the stock market slump.

Market observers concurred with him, saying a large amount of money from banks has flowed into property projects this year.

Banking expert Đinh Thế Hiển said the property sector had attracted much greater funds from banks than many others.

However, analysts pointed out that not all property businesses could get easy access to bank credit, only big companies and those in which banks themselves owned stakes.

The rest found it very difficult to access funds due to a lack of liquidity amid the central bank’s tight money policy, they said.

The corporate bond market has yet to recover after the scandal involving property company Tân Hoàng Minh Group since stringent regulatory measures to preclude any repeat of such occurrences in future continue to be rolled out by various government agencies.

Statistics from the Việt Nam Bond Market Association clearly show this. In July only one property company managed to issue bonds and raise VNĐ210 billion ($8.6 million), a year-on-year decrease of 98 per cent.

With the bond market screeching to a halt, many real estate companies thus find themselves cut off from another source of funds too.

Central bank gets tough

In January this year the State Bank of Vietnam issued Directive No 01/CT-NHNN on improving credit quality and tightly controlling loans to potentially risky industries.

It requires banks to take measures to control credit size and growth, focus on manufacturing and other priority fields to support the Government's economic recovery and growth policies.

It especially requires strict control of lending to potentially risky areas such as real estate, securities and build-operate-transfer (BOT) and build-transfer (BT) transport projects.

It followed the rapid increase in lending to the real estate market at the start of this year, triggering concerns about speculation pushing up property prices.

The central bank’s move to tighten credit flows into real estate was meant to limit speculation, ensure market transparency and prevent a bubble from forming, according to general secretary of the Việt Nam Banking Association, Nguyễn Quốc Hùng.

He said the credit tightening became necessary to ensure a healthy market and reduce threats to the economy, especially with the overheating of the market in recent years as most investors used financial leverage.

Following the central bank’s directive, banks have begun to stop lending to risky sectors, especially property.

Nevertheless, data from FiinGroup shows that 58 listed property businesses saw their outstanding loans rise by 25.1 per cent in the first half of this year.

This arguably explains why the central bank has been steadfast about not increasing credit quotas for banks despite their clamour for it.

Lê Hoàng Châu, chairman of the HCM City Real Estate Association, said for the last few months many property companies had been unable to issue bonds or approach banks.

Analysts have pointed out there is more pain in the offing for the real estate sector this year unless the central bank eases the market or the bond market recovers since many companies’ bonds, totally estimated to be worth VNĐ270 trillion, are set to mature.

Except for those companies backed by banks, others have to struggle to redeem their bonds and pay bank interest while also developing new projects.

They said the ideal solution now would be the recovery of the corporate bond market.

Dr Võ Trí Thành, director of the Institute for Brand and Competitiveness Strategy, concurred with them saying business would face huge difficulties in raising funds in the long and medium terms if they could not issue bonds.

The analysts said in recent years the bond market had been a bottomless source of long- and medium-term capital for businesses in various industries including property.

They expected that in the next 10 years the bond market would match the banking sector in providing companies with long- and medium-term funds.

They saw reviving the bond market as non-negotiable.    

Cross-border tax collection increases steadily as big boys pay up

The General Department of Taxation reported it collected around US$20 million from cross-border service providers through the e-tax payment portal it set up in March this year.

The platform enables foreign service providers who are not present in Việt Nam but earn an income in the country to register, declare and pay tax from anywhere in the world.

In the three months since its setting up 26 entities have declared and paid taxes, many of them big names such as Microsoft, Facebook, Netflix, TikTok, and Ebay.

Việt Nam is the fourth Southeast Asian country to manage to collect taxes from cross-border digital business platforms.

Data from the taxation department also shows that between 2018 and June this year it collected taxes worth a total of VNĐ5.49trillion ($228.5 million) in this manner.

Facebook paid VNĐ2.08trillion, Google paid VNĐ2.04 trillion and Microsoft paid VNĐ699 billion.

The Ministry of Industry and Trade said e-commerce was expected to grow by 17-20 per cent this year and retail revenues were likely to top US$16 billion. —VNS