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Banking & Finance

SBV Governor: Tighten credit for high-end property developments

Released at: 18:08, 18/11/2017

SBV Governor: Tighten credit for high-end property developments

Illustrative image (Photo: VNA)

Draft circular directs banks to prioritize lending for low-cost and social housing.

by Quang Huy

The State Bank of Vietnam (SBV) plans to issue a circular to the country’s commercial banks instructing them to prioritize credit for low-cost housing and social housing projects while slashing lending for high-end and mid-level developments.

SBV Governor Le Minh Hung made the remarks at a National Assembly (NA) Q&A session on November 17.

Banks will be limited to using 50 per cent of their short-term funds for medium- to long-term purposes, including mortgages, until the end of this year. The ratio will then be cut to 45 per cent in 2018 and 40 per cent in 2019, according to the draft circular released by the central bank.

Long and medium-term credit accounts for 53-55 per cent of all loans offered by commercial banks while long and medium-term funds make up only 13-15 per cent of total mobilized capital. The imbalance in using short-term funds for medium-to long-term purposes could pose huge risks to banks, experts have said.

The central bank has also raised the risk ratio of property loans at commercial banks to 200 per cent from 150 per cent.

Property loans have reached VND400 trillion ($176.12 million), accounting for 6.5 per cent of all outstanding loans in the country, Governor Hung said.

Some legislators have expressed concern that banks could offer more property loans in a bid to reach credit growth targets for the year. Governor Hung spoke against such remarks, saying the target was set by the government and banks are not under pressure to reach it at all costs.

Credit growth stood at 10.6 per cent in the first nine months of this year, leaving the annual growth target of 18-20 per cent seemingly out of reach.

The official bad debt ratio stood at a low 2.34 per cent at end-September. Taking into account potential non-performing loans and those sold to the Vietnam Asset Management Company, however, NPLs total VND556 trillion ($24.5 billion), or 8.61 per cent of all outstanding loans.

The central bank has bought more than $7 billion in foreign exchange since the beginning of this year, bringing reserves to a record high of over $46 billion. “With this scale of foreign exchange reserves and current management policies, keeping the exchange rate steady is definitely possible,” Governor Hung said.

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