NSFC warns of low credit flow to property

                                                         Photo: Duc Anh

Credit for property purchases on decline, November 10 seminar hears.

The National Financial Supervisory Commission (NSFC) has issued a warning about the low levels of credit flowing into the real estate sector, which fell short of targets in 2016 compared to last year and eroded into growth of consumer loans.

Real estate credit recorded 12 per cent growth in the third quarter of 2016, much lower than the 28 per cent growth recorded in 2015, while consumer credit increased 40 per cent, with more than half related to the purchase of housing, Mr. Truong Van Phuoc, Deputy Chairman of the NFSC, told the Financial Markets Overview 2016 seminar on November 10.

Profits in the entire banking system are estimated at VND120 trillion ($5.45 billion) this year, he added. Banks, however, must set aside VND70 trillion ($3.1 billion) in bad debt provisions, bringing down profit to VND40 trillion ($1.8 billion). “With other expenses taking two-thirds of profits, bad debts remain a heavy burden on banks,” he added.

Vietnam’s banking system is expected to handle about VND100 trillion ($4.54 billion) in bad debts this year, with fewer debts moving to the Vietnam Asset Management Company (VAMC) than last year, at about 20 per cent. Banks must handle the remainder through reclaiming debts or selling collateral.

The NFSC will also release a Financial Market Overview 2016 report this month. Economic growth was positively supported by funding provided to the economy in 2016, representing 170 per cent of GDP.

The stock market rose nearly 20 per cent and market capitalization reached 38 per cent of GDP compared with 32.4 per cent last year.

Former Minister of Industry and Trade Truong Dinh Tuyen told the seminar that the saying “bad debts are treated positively” is not accurate because they remain a major problem that limits the ability to cut interest rates.

Meanwhile, Mr. Le Duc Thuy, former Governor of the State Bank of Vietnam (SBV), said the manner in which bad debts are handled needs to be reconsidered. “The State budget should not be used to deal with the bad debts of State-owned enterprises or State-owned commercial banks,” he said.

The bad debt ratio in Vietnam’s banking system as at June 30 had fallen to 2.58 per cent from 2.78 per cent at the end of May, according to an SBV report released on August 11.

Total bad debts handled stood at VND59.71 trillion ($2.7 billion) in the first half, 14.55 per cent lower year-on-year, the SBV reported, based on final figures from the VAMC and financial institutions.

VND8.88 trillion ($394.68 million) in bad debts were moved to the VAMC in the first half. Financial institutions used VND7.24 trillion ($324.71 million) in risk provision to handle bad debts.

by Ngoc Lan / VET