Vietnam banks chary of low-income housing lending program

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No mortgages yet as lenders worry about possible bad debts when they lend to poor, losses, and rules that are still work in progress


These old deteriorating apartment blocks in Ho Chi Minh City downtown are home to some dozens of low income households

A fear of bad debts and vague regulations for lending are making banks reluctant to participate in the government's VND30 trillion (US$1.43 billion) loan program for low-cost housing meant to revive the property market and address the housing shortage.

Under the program, which took effect June 1, the central bank plans to inject the money into the banking system to offer soft loans to buyers and developers of low-cost homes.

Though the program's focus is more on home buyers, with 70 percent set aside for mortgages, banks are prioritizing lending to firms, especially large state-owned ones, because of lesser risk.

They are expected to lend at 6 percent interest to low-income people, government workers, and military personnel for buying houses of up to 70 sq.m and costing no more than VND15 million per square meter.

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The central bank will refinance Agribank, BIDV, Vietcombank, VietinBank, and Mekong Housing Bank at 4.5 percent for the program.

Nguyen Tri Hieu, an independent director of Ocean Bank, brought up another important issue-bank's profitability.

The spread between the lending and refinancing rates is only 1.5 percent, while banks have a 1 percent operation cost and need 0.75 percent for risk provision.

But their protests to the government were overruled and they have been told it is their "duty" as public banks, bank sources said.

Besides, lending to low-income buyers posed a severe risk of bad debts to the banks, Hieu said, pointing out they would have to make a risk provision of 5 percent within 10-90 days after a loan matures.

"No bank wants high risk provision."

Ten days after the program took effect banks have yet to lend under it to buyers.

Agribank has agreed to lend VND3.3 trillion ($156.9 million) for 13 housing projects by 10 construction firms. BIDV has agreed to finance three projects in Da Nang and Hue, and has disbursed VND101 billion ($4.8 million) out of an agreed VND231 billion.

Tran Xuan Hoang, deputy general director of BIDV, said loans cannot be given within 10 days and the bank is still orienting its staff on the program, while home buyers are also mulling over their ability to obtain and repay the loan.

Banks need more time to lend, he added.

Vague regulations

Hieu also blamed the complex but vague requirements for banks' reluctance to lend.

The central bank and the Ministry of Construction have not announced specific criteria, causing difficulties for both the banks and local people.

Deputy Minister of Construction Nguyen Tran Nam said a monthly income of VND9 million or less is considered "low."

Hieu said a person buying a house costing VND600 million can borrow VND500 million from banks.

They have to repay VND4.2 million a month on average over 10 years, meaning they should have an income of almost VND15 million to meet the borrowing criterion, which prohibits monthly repayment of more than 30 percent of income.

But the average monthly income in Hanoi was only VND3.84 million last year according to a report made to the city People's Council, Hieu said.

Nguyen Viet Manh, head of the central bank's Credit Department, said the government subsidizes the banks but they themselves have to take responsibility for debt collection, so should lend carefully.

Hieu said the program is not suitable for people with low incomes. To enable them to borrow, the central bank should allow them to repay the loan in 30 rather than 10 years.

An economist, who asked not to be named, said the mortgage conditions are also a factor in the banks' reluctance.

If a borrower defaults on repayment, the bank can resell the mortgaged house only to another person with low income.

The economist said: "[This] makes the mortgage have low liquidity. So no bank wants it."

Hieu said: "It is good to lend to developers because it will increase [housing] supply for low-income earners. But they cannot buy if they cannot get loans.

"So, the policy will not succeed."

To ensure banks overcome their reluctance and take part in the program, the central bank should closely monitor them, he said.

He dismissed inflationary fears saying the amount meant for the program is too small.

Deputy Minister of Construction Nguyen Tran Nam said the program would not cause an oversupply in the property market either since the supply of low-priced housing is way lower than demand.

Only in the medium- and high-priced segments is there an oversupply, he said.

Some 1.7 urban residents have less than 5 sq.m of housing per capita while two million workers lack housing, he pointed out.

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