Vietnam's bad property debt surges amid market slump

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The amount of bad debt in the real estate sector increased by 37 percent from the end of last year until June due to an ongoing slump in the market, an official said.

Bank loans made against property reached VND245 trillion in June, accounting for 10 percent of total credit in Vietnam, said Le Xuan Nghia, vice-chairman of the National Financial Supervisory Commission.

Property loans in trouble represented 3 percent of total outstanding debt in the sector, he said. Around 40 percent of the bad property debt was loans likely to default, Nghia said at a meeting Thursday.

"It's a concern that property lending accounted for 30-40 percent, or even 50 percent of total credit at many small banks, whose risk management is weak," he said.

More attention should be paid to credit activities at small banks, especially those with property developers as major shareholders, Nghia said.

However, he said the government needs to be flexible when restricting lending to the real estate sector. Many people are in need of loans to buy or repair homes, he said.

Bad debt in Vietnam's banking system could rise to 5 percent of total loans by the end of this year under a worst-case scenario, the Vietnam Economic Times newspaper reported in late July, citing a central bank official.

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