Vietnam banks to tighten real estate loans next year under new rules

Thanh Nien News

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Vietnam’s real estate sector currently depends heavily on loans from banks and funds from customers. Photo: Diep Duc Minh/Thanh Nien Vietnam’s real estate sector currently depends heavily on loans from banks and funds from customers. Photo: Diep Duc Minh/Thanh Nien

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Vietnam’s central bank has announced new restrictions on real estate lending in an attempt to prevent bubble risks in the property sector.
In a circular released on Friday, the State Bank of Vietnam said it will raise the risk weight of loans to real estate businesses from 150 to 200 percent on January 1, 2017.
According to the circular, commercial banks will also be prohibited from using more than 50 percent of short-term deposits for medium and long term loans from January 1, 2017. The current rate is 60 percent.
The ratio will be reduced to 40 percent from January 1, 2018.
These amendments are not as strict as the central bank’s original plan, which intended to raise the risk weight for real estate loans to 250 percent and prohibit banks from using more than 40 percent of short-term deposits for medium and long term loans.
Earlier, property companies and housing officials and experts requested the central bank to cut real estate lending “gradually,” otherwise the market will be badly affected.
Dr. Bui Quang Tin from Ho Chi Minh City Banking University in March urged the central bank to cooperate with other relevant agencies in creating favorable conditions for other funding channels, such as real estate trust funds and housing savings funds, to be established.
Vietnam’s real estate sector currently depends heavily on loans from banks and funds from customers. And with home prices remaining beyond the reach of most of the population, many homebuyers also need to take out large loans from banks.
Outstanding loans to the sector grew nearly 26 percent to VND393 trillion (US$17.42 billion) last year, according to the central bank.

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