The amendment of Circular 36 will overcome the financial imbalance

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The amendment of Circular 36 will help the bank control credit better.

In control

According to a draft circular announced by the State Bank, the maximum rate of short-term capital for medium and long-term loans is 30% with a roadmap of three periods up to 2022. This regulation applies to loans in all sectors of the economy.

In addition, the draft raises the risk coefficient. Specifically, the risk coefficient is 50% for loans guaranteed by houses (including houses in the future), land use rights, and construction works associated with the land use rights of borrowers who meet the prescribed conditions, in which, personal loans for customers to buy houses are worth less than VND 1.5 billion. The risk coefficient of 150% is for personal loans for living needs with the principal balance of VND 3 billion or more.

According to the SBV, the above adjustments are understood wrongly, causing concern.

The first concern is that the progress of reducing the rate of short-term capital for medium and long-term loans is probably too urgent. Meanwhile, the tightening of medium and long-term credit sources will push the real estate market into difficulties, negatively affecting the whole economy, like in 2009-2012.

The second concern is that the use of the loan scales for living needs to determine the risk coefficient are not accurate. It would be more reasonable if the classification of loans is based on their objectives rather than their scales

However, according to data published by the SBV, the rate of medium and long-term loans till the end of February 2019 of state-owned commercial banks is 31.12% and of joint stock commercial banks is 32.4. % (far from the current ceiling rate of 40%).

This shows the target of reducing to 30% in the next two or three years is achievable. Difficulties may occur for some banks offering large medium and long-term loans, but in the overall market, this is a feasible target, so the impact is forecasted as under control.

The draft also offers two options for revision with different roadmaps. The first option is 5% reduction each year. The second option is periodical reduction of 3% every year. Therefore, the SBV said the reduction according to the roadmap and the reduction of 3-5% per year is reasonable.

Experts said more limited bank credit will be the driving force for enterprises to seek capital sources on the stock market, from the private sector. Thereby, overcoming the imbalance in the financial system.

According to the SBV, the rate of medium and long-term loans of the credit institution system is still at 50.6% (end of 2018). Meanwhile, Vietnam's corporate bond sector accounts for a small rate with capitalisation value at the end of 2018 only reaching 8.57% GDP, much lower than Thailand's 21.33% GDP, Malaysia 46.3 % GDP. This imbalance makes Vietnam’s financial system devaluated on potential risks related to liquidation of the bank system.

Not affecting real estate

Regarding concerns about the impact of raising the risk coefficient on the real estate sector, Director of the SBV’s Department of Credit Department Nguyen Quoc Hung said the draft circular will not have negative impacts on the real estate market.

By the end of 2018, credit for the real estate sector (including trading or buying real estate for living) grew 31.76%. Therefore, credit growth for the real estate sector is in line with the Government's policy and the direction of the State Bank which are to strictly control real estate credit and to use credit for effective projects, social housing projects, cheap commercial houses and real needs of people.

In addition, Hung said in the first three months of 2019, credit for the real estate sector grew 3.29% compared to the end of 2018. This growth is higher than the general growth in the first quarter of 2019, so the statement of tightening the credit source for real estate is not accurate. Moreover, this change also motivates real estate enterprises to improve their capacity and prestige to mobilise capital in domestic and international capital markets, reducing dependence on credit capital and complying with the current international trend.

Financial and banking expert Nguyen Tri Hieu said the SBV has always warned of the risk of bad debts in real estate loans and notified banks be cautious, but this is a good "piece of cake" with valuable collaterals and interest rates, so banks still pour credit into real estate. Thus, in the past, 70% of bad debt was related to real estate credit. Therefore, banks must be vigilant, have reasonable credit policies not to hamper the economy.

Banks continuously make capital divestment VCN - Banks consecutively make capital divestment to fulfill the objective of reducing cross-ownership in the bank sector.

Accordingly, the SBV proposed that to complete the draft, ministries and sectors should pay attention to the threshold of outstanding principal balance of more VND 3 billion, applying the risk coefficient of 150% and the Ministry of Construction should study and promulgate regulations on criteria for classifying real estate products for the SBV to develop appropriate criteria for real estate credit.