Bao Viet Securities believes weak property investors would face difficulties obtaining capital under amendments to Circular 36.
Bao Viet Securities (BVS) has commented on the draft amendments to Circular No. 36 on banks and foreign bank branches reducing the maximum ratio of short-term funds used for medium and long term loans from 60 to 40 per cent.
It said that as the proportion of short-term lending to medium- and long-term lending as at December was 31 per cent the amended Circular 36 would not affect the market to any great extent.
BVS also said, however, there many small and medium-sized banks have a high ratio of short-term loans, of roughly 60 per cent, and if the new regulation was to take effect there would be consequences for this group of banks.
It noted that the new regulation will take effect on January 1, 2017 if the entire amendment is approved. This will present difficulties for these banks in adjusting their lending to adapt for the new requirements on time.
Another consequence is that average interest rates of medium- and long-term loans may increase as banks adjust the deposit rate on terms of over 12 months to reorganize their short-term capital.
From a real estate perspective, demand will be affected as all home loans are long term. Regarding the granting of credit to investors, the negative effects would be less because project cycles are normally three or four years and in the meantime investors sell off-plan and ensure cash flow.
Banks, meanwhile, can disburse working capital for terms of less than one year and then extend it to avoid the effects of the regulation.
As for increasing for risk ratio for receivables from real estate from 150 to 250 per cent, BVS said it would have a significant impact on supply to the market because investors would face difficult requirements from bank on obtaining credit. Small investors would have a problem approaching credit and may therefore be forced to withdraw from the market.