Real estate business credit increased by 17.41%, bad debt tends to rise

	Foreign investors dominate real estate M&A market in Vietnam
	A suitable residual method for valuing land with development potential

Deputy Governor of the State Bank of Vietnam, Dao Minh Tu, speaking at the seminar. Photo: H.D

Real estate credit growth will pull up the entire credit system

At the seminar "Enhancing access and absorption of capital for enterprises: difficulties, challenges, and determination," organized by the Institute of Banking Strategy (State Bank of Vietnam - SBV) in collaboration with relevant units on August 22nd, Ha Thu Giang, Head of the Credit Department for Economic Sectors (SBV), stated that in the past time, the banking sector has timely implemented solutions to address credit difficulties in the real estate sector.

Therefore, real estate credit accounts for about 20% of the total credit, so when real estate credit increases, it will lead to an increase in the entire credit system. However, real estate credit growth is lower than the overall credit growth; in which, the outstanding balance of real estate business credit in the first six months of 2023 increased by 17.41%, exceeding the growth rate of the entire year 2022 (10.73%), but the consumer credit and self-use real estate credit accounted for 65% of the real estate credit, decreased by 1.12% (the first year of decrease in the last three years, after increasing by 31.01% at the end of 2022).

The representatives of the SBV believed that this showed that credit capital was currently focused on the supply side of the market, while the credit demand for real estate purchase for consumption and self-use purposes was decreasing. This development indicated that the solutions to overcome difficulties for the markets in the past have also begun to take effect. Difficulties in legal aspects of real estate projects have gradually been resolved, contributing to increasing the credit access ability of project investors.

However, according to Giang, in the context of common difficulties, the demand for home purchase is not a priority for customers at the moment; unreasonable product structure, product surplus, high-end segment, lack of affordable housing suitable for people's needs; real estate projects face difficulties in legal aspects, thus failing to meet credit conditions, leading to difficulties in accessing capital sources.

Furthermore, the Head of the Credit Department for Economic Sectors also emphasized the notes on the increasing tendency of bad debt ratio in the real estate sector compared to the end of the previous year. In June 2022, it was 1.53%, and in June 2023, it reached 2.47% of the total real estate credit balance.

Not creating conditions for credit will make growth difficult

As of the end of July 2023, the total credit in the system has grown at a slower pace compared to the same period in previous years, reaching around VND12.47 trillion, a 4.56% increase compared to the end of 2022. The credit growth in the first seven months of this year was also much lower than the same period in 2022 (about 9.54%), and it has not even achieved half of the growth rate of the previous year. Meanwhile, the credit growth target for this year is set at 14-15%.

According to the recent World Investment Report by the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment (FDI) has decreased by 12% in 2022, with developed countries experiencing a 37% decrease. Many of Vietnam's major export markets have contracted, with the US contracting by 20%, the EU by 11%, and China by 10%.

In Vietnam, according to the 2022 survey by Vietnam Report, 96.1% of businesses were facing price pressures from production input factors; 61.5% were struggling due to disruptions caused by the "aftermath" of the Covid-19 pandemic, 53.9% were impacted by supply chain disruptions, 48.1% believed that consumer purchasing power has decreased, markets have shrunk, and 40.4% faced difficulties due to labor shortages in production.

Therefore, Deputy Governor of the SBV, Dao Minh Tu, believed that resolving difficulties in business production, maintaining and restoring the health of the business sector was a top priority, in which the reduction of access and absorption of capital was a particularly concerned issue, requiring swift implementation of effective solutions and policies.

However, he acknowledged that at present, without facilitating credit, growth will be difficult. But if the conditions for credit growth are "removed," bad debt will increase, causing the recently treated "clot" of bad debt to return.

Therefore, the direction of the SBV in the remaining months of the year will be to continue managing credit in line with the set goals and directions, while implementing solutions to resolve difficulties and enhance the access and absorption of credit capital. Alongside the SBV's measures, Tu suggested the collaboration and coordination of ministries, sectors, and localities in promoting trade, expanding export markets, improving the business environment, stimulating the real estate market, and corporate bond market development.