Banks to face stricter rule on real estate loans

Circular 13/2010/TT-NHNN issued by the State Bank of Vietnam requires the risk reserve ratio for real estate and stock loans to rise to 250% of the loans from the current 100%. This means a higher proportion of risk reserve for property loans will affect the capital adequacy ratio (CAR) of banks, at 9% or higher.

Those banks acting as retail ones are in the position of boosting real estate loans given strong demand. To meet the CAR requirement, lenders will have no choice but to either reduce real estate and stock loans, or increase their capital.

The general director of a joint-stock bank said that if giving out a property loan of VND40, the total amount must be set at VND100 to keep the CAR unchanged. Meanwhile, he added, for other sectors where a risk reserve ratio below 250% applies, banks can lend more than VND40 given the same amount of VND100.

Making loans for customers in sectors where the possibility of loan defaults is high will affect profits, so lender banks must consider limiting real estate and stock loans, and boosting credit for clients in the manufacturing and trading sectors, he noted.

That explains why in recent weeks, banks have launched incentives to corporate enterprises. For example, An Binh Commercial Bank last week opened a center for supporting small and medium enterprises, Asia Commercial Bank has doubled the credit line for import and export firms to US$100 million, and Vietnam International Bank gives a credit line of VND1.5 trillion for wood processors.

The head of the individual customers division of a joint-stock bank said banks would restrict real estate loans. “The new regulation will lead banks’ capital cost to increase, so interest rates for real estate loans should be hiked,” he added.

The Vietnam Banks Association acting on behalf of 14 institutions has written to the central bank asking for a reconsideration of unreasonable points in Circular 13, including the higher risk requirement for real estate and stock loans. The association has even suggested postponing this circular.

The Prime Minister last week asked the central bank to reconsider the circular following the Vietnam Banks Association’s proposal. The central bank has told banks to clarify the difficulties they might face when adhering to the new circular. Reports must be sent to the central bank by late this month.