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Property

SBV asks banks to tighten high-end property credit

Released at: 11:07, 28/09/2016

SBV asks banks to tighten high-end property credit

Photo: Duc Anh

Central bank directs banks to restrict loans to large property companies and for high-end residential and hospitality projects.

by Huyen Thanh

The State Bank of Vietnam (SBV) has issued a document requiring commercial banks control credit growth to real estate projects, especially in project investment. Banks must review their credit to large investors and restrict it to reduce risks.

A Ministry of Construction report stated that supply of high-end residential projects is higher than for social and low-cost housing projects and is forecast to reach saturation point by the end of the year. “This requires bankers restrict and exercise caution in considering and verifying loans for new projects, in particular high-end residential and hospitality real estate projects and those that have low liquidity,” the report said.

The SBV also requires commercial banks review and reassess the status of their loans, supervise capital use and examine the finances, revenue and other debts of customers in order to enhance risk management and ensure repayments are made as scheduled.

In July the SBV said it believes that banks have focused too much capital in real estate projects and suggested they adjust their lending in the sector. The SBV also asked banks to focus on loans for investment in preferred industries.  

Amendments to Circular No. 36/2014/TT-NHNN regulating prudential ratios for the operations of credit institutions and foreign bank branches were issued in late May, surprising real estate insiders.

Under the new circular from the SBV, the risk index of receivable lending for real estate and securities is raised from 150 per cent (the lowest level) as stipulated in Circular No. 36 to 200 per cent.

This is lower than the cap of 250 per cent proposed earlier by the SBV, which has made property investors concerned about capital shortages.

The increase will come into effect on January 1, 2017.

The new Circular No. 6 specifies a roadmap for the maximum ratio of short-term funds used for medium and long-term loans to be reduced from 60 per cent to 40 per cent.

Under the newly-issued decision, the 60 per cent ratio will be kept until December 31 this year and then lowered to 50 per cent from January 1, 2017 to December 31, 2017 and 40 per cent from the beginning of 2018.

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