Central bank tightens lending for property sector

December 02, 2019 - 10:37

To take effect on January 1, the new Circular No 22 issued by the State Bank of Việt Nam focuses on two changes that will tighten banks’ lending to the property sector.

The central bank said limiting loans to the real estate sector is aimed at ensuring its sustainable development and the safety of the banking sector. — Photo vneconomy.vn

On November 15 the State Bank of Việt Nam replaced its previous circular on operational safety ratios for the banking sector with Circular No 22.

To take effect on January 1 it focuses on two changes that will tighten banks’ lending to the property sector.

They are a reduction of the ratio of short-term funds that can be used for medium and long-term loans from the current 40 per cent to 30 per cent by September 2022 in four phases, and the increase in the risk ratios of mortgages from the current 50 per cent to up to 150 per cent and loans for commercial real estate to 200 per cent.

Analysts said the central bank’s moves are aimed at cutting off credit to high-risk sectors, especially property.

The central bank said limiting loans to the real estate sector is aimed at ensuring its sustainable development and the safety of the banking sector.

Market observers said the tightening could rock the property market.

The tripling of the credit risk ratio for loans to buy homes worth VNĐ1.5 billion (US$126,000) and more to 150 per cent would push up lending interest rates, which would hit market liquidity, they said.

The market has already undergone many difficulties since the beginning of the year.

In the period many banks have hiked interest rates on medium- and long-term loans to buy properties to 10 per cent. 

But with the real estate market not witnessing any unusual developments, experts said it is not necessary to tighten credit policy at this time.

So what is the central bank’s rationale?

Bank loans to the property sector in the first half of this year accounted for 7-8 per cent of overall credit. But according to the National Financial Supervision Committee (NFSC), this would rise to 40 per cent if it includes loans for buying homes.

This rate is too high since the property sector is always considered high-risk.  

In light of the new circular, many experts said, while the credit tightening could have some impact on property developers and the market, it would help banks better control money flows, reducing risks and ensuring economic stability.

Banking expert Dr Cấn Văn Lực said not only developers but also homebuyers who need to borrow money need long-term loans, and so the central bank’s decision to reduce the ratio of short-term funds used for long- and medium-term loans would help lenders minimise risks possibly arising from stretching themselves too thin.

SBV Governor Lê Minh Hưng has ordered a strengthening of inspection of credit activities, particularly of lending to developers and homebuyers, to ensure safety and proper used in line with regulations.

Experts believe that the new credit policies would encourage banks to shift lending to individual homebuyers to hedge risks while at the same time not losing interest income. 

For many banks, mortgages are key credit products.

Lenders have to carefully assess property projects before providing loans to homebuyers and take the initiative to work with developers to better manage risks, they said.

Foreign businesses eye VN furniture market

Thai furnishing retailer Index Living Mall has entered into a strategic tie-up with VI Furniture Joint Stock Company, and they have opened a 1,000sq.m store on Hồ Chí Minh City’s Nguyễn Thị Minh Khai Street.

VI Furniture, backed by the Vietnam Investment Fund, and the Thai company, are all set to open a second store in the city’s District 2.

Index Living Mall came to do business in the Vietnamese market eight years ago, but had to quit.

With its return this time, Thailand’s most favourite brand -- with more than 30 years of experience -- hopes to bring to the Vietnamese market quality products at reasonable prices.

The $4.5 -5 billion a year Vietnamese furniture market has also been attracting many other foreign furniture brands.

The market is in fact flooded by foreign furniture products including famous brands like the US’s Ashley, Denmark’s JYSK and South Korea’s Kimsfullhouse.

Việt Nam is generally considered one of the region’s most attractive markets for foreign investors with its steadily increasing GDP and FDI boom.

According to the 2018 Furniture & Home Décor report released by the EU-Vietnam Business Network (EVBN), as the country’s economy continues to grow, the home décor and furniture industry can expect to grow along with it.

Rising household incomes lead to improving living standards as local consumers become more able and willing to spend on high-quality goods.

So a preference for western-style products is expected to put pressure on local manufacturers to come up with innovative designs to compete.

Experts said consumers in the past were only looking for functional items but are now looking for products to match their personal style and way of life while also offering better quality.

Another reason is a growing trend among the younger generations to move out of their parents’ home, and the youngsters place greater emphasis on new and stylish furniture at affordable prices, the report said.

The westernisation of the younger generation is the key driver of success for foreign furniture companies, according to the EVBN.

Ký Quí Trung, CEO of AKA Furniture Group, a leading furniture retailer, said demand for high-class furniture is increasing sharply, especially in Hà Nội and HCM City.

Last year the country spent $500 million importing foreign furniture, and the trend is expected to continue in the coming years.

Plywood imports suspended on re-export fraud

The Ministry of Industry and Trade has decided to suspend the import of plywood products for re-export to the US from December 27 this year to prevent possible origin frauds and unauthorised transshipments.

It has issued Circular 22, which will take effect on December 17, to strengthen efforts to prevent the circumvention of trade remedies and origin fraud.

One of its measures is to gain greater control over plywood exports to the US since failure to do so could prompt the world’s largest economy to take drastic measures against Vietnamese plywood products.

According to scoutAsia Research, a corporate data and news service provider backed by the Financial Times and Nikkei Inc., the US-Việt Nam bilateral trade gap is also caused by goods originating in China and other countries and rerouted through Việt Nam to take advantage of the country’s friendlier tariff treatment.

The true scope of this origin fraud is unknown, but surging imports from China and exports from Việt Nam of key products such as wood, furniture and computer and parts have rung alarm bells, forcing the Vietnamese Government to act. VNS