Le Xuan Nghia, Director of the Banking Development Strategy Department under the State Bank of Vietnam, has called for commercial banks to have a ‘more friendly view’ on real estate loaning.
Most commercial banks have stopped loaning to real estate projects since they began applying tightened monetary policies, and especially since a series of financial institutions in the US collapsed because of subprime loans.
Nghia has warned that when the real estate market falls into decay because of capital shortage, the national economy will also suffer. He said that commercial banks should keep a more friendly view on real estate loans, and that real estate loans in Vietnam are less risky than in the US as Vietnam has a smaller scale.
The biggest worry now for investors is not the sharp fall of real estate prices, but lack of capital. Commercial banks all have stopped providing loans to fund real estate projects, including projects which are nearly completed. However, if investors can sell apartments, they can pay bank debts, while the real estate market can bounce back.
The State Bank of Vietnam said that it does not prohibit commercial banks from providing loans for real estate projects, but in fact, commercial banks have closed their doors to real estate developers. Do you think that banks have been overly cautious?
The State Bank does not have a document that says it prohibits real estate loans. In recent documents, the Government even announced it would try to help the real estate market recover, which I think is a good economic view.
However, commercial banks have limited loaning because they see real estate prices going down. They think the best solution to deal with the price decreases is to stop loaning. Some commercial banks have even released documents asking their branches to stop providing consumer and real estate credit. But I think this is not a positive thing.
I think that at this moment, while the financial crisis is taking place, consumer loaning, to some extent, would be safer than loaning to small- and medium-size enterprises. Banks can offer consumer loans at the interest rate as high as 21% (the basic interest rate is now 14%). And if banks can get high interest rates for real estate, securities and consumer loans, they can lower the lending interest rates of the loans given to businesses, to 16-17%, for example.
Experts say that real estate loans lack transparency and are risky. Do you agree?
I don’t think so. Banks always follow very strict regulations when providing credit for clients. For example, a real estate asset with the market value of VND100bil, would be appraised by banks at VND50bil only. Banks then would provide loans valued at 70% of the VND50bil. I mean, banks always are cautious when lending.
You have said that the sum of money banks have injected in banks proves to be very big. Is this really a worrying problem?
According to international practice, real estate loaning is really very risky. In the US, the ratio of real estate loans to total outstanding loans is 70%, much higher than Vietnam’s 9%.
The problem of the loans is that when real estate prices go down, the risks go up. Meanwhile, in Vietnam, banks do assess mortgaged assets monthly like in the US. Therefore, we still cannot know exactly how much the bad debt volume is. However, as I said above, banks always keep cautious when providing loans, so the risks prove to be low.
I have every reason to affirm that real estate loaning in Vietnam is less risky than in the US.