Vietnam banks cautious of mortgages as debtors fail to pay

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Customers make transactions at a Sacombank branch in Ho Chi Minh City

Local lenders have tightened mortgage loans as enterprises are failing to pay and banks have to use risk provisions to make up the losses, news website thoibaokinhtesaigon reported.

The unnamed director of a Ho Chi Minh City branch of Dong A bank said his bank now only gives mortgage loans -- a loan secured by real property through the use of a mortgage note which evidences the existence of the loan -- to enterprises that do not own any overdue debts and have  high credit ratings as well as enough capital to pay in time.

The borrowing limit is also lower than before as the bank worries that the loans could turn out to be non-performing, he said.

Lending for mortgages, banks do not keep any real property so they can do nothing but use their provisions and accept the loss of those loans when debtors can not pay them back, he said.

Chairman of another bank in HCMC said many banks used to be willing to hand out mortgage loans to enterprises, especially export companies, as they had previously been able to get back their capital quickly.

But now that the export market is going through an economic slump and some companies' owners have even fled abroad, banks cannot risk lending to those firms anymore, the unnamed chairman said.

Nguyen Phuoc Thanh, deputy governor of the State Bank of Vietnam, said even when companies can present an effective process for operating, banks will still have to take careful consideration before giving them mortgage loans as the lenders have been having too much trouble dealing with bad debts.

Thanh said the banks will continue to operate cautiously next year.

When banks still have to deal with their bad debts, they won't happily give out many mortgages, he said.

According to the latest statistics from the central bank, the banking sector's bad debts at the end of November were worth VND142 trillion (US$6.73 billion), or 4.55 percent of outstanding loans, compared to the rate of 4.73 percent at the end of the previous month.

The state lender's chief Inspector Nguyen Huu Nghia said if it was not for local banks who used their provisions to deal with bad debts last month, the rate may be up to 8.02 percent. 

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