Vietnam orders banks to tighten lending in stock, real estate markets

By Le Chi, Ha Thanh   January 25, 2018 | 01:50 am PT
Vietnam orders banks to tighten lending in stock, real estate markets
A high-end apartment project in Ho Chi Minh City which is in crisis after its main contractor quit. The real estate slowdown in the early 2010s was the main cause of bad debt in Vietnam. Photo by VnExpress/Ha Thanh
Lenders should avoid 'risky areas' and instead prioritize the manufacturing sector, the State Bank said.

Vietnam’s central bank has ordered lenders to tighten control of investment loans intended for the stock and real estate markets, warning risks of bad debt.

A new statement issued by the State Bank of Vietnam said lenders should avoid focusing on stock and real estate customers and maintain credit growth in these sectors within safe limits.

They have to keep track of their debtors' finances and the progress of their projects, it said.

“Credit expansion should go hand in hand with strict supervision to ensure loans are used for the purposes they are intended for and do not add to bad debt,” the statement said.

The bank’s warning comes in the wake of a property development crisis in Ho Chi Minh City, where the main contractor American General Construction Inc. halted all operations in the city earlier this month claiming it had only been paid 60 percent of its fee for a high-end apartment project. Concerned parties are still trying to deal with the crisis.

The central bank said lenders should divert their focus from “risky areas” to the manufacturing sector, and give priority to agriculture, exports, supporting industries and high-tech investments.

Nguyen Quoc Hung, a senior official at the bank’s Credit Department, said at a press briefing on Thursday that credit growth in risky areas had been successfully controlled in 2017. The real estate sector reported 8.56 percent in credit growth last year, compared to 12.86 percent in 2016, he said.

Nguyen Thi Hong, the bank’s deputy governor, said it will maintain strict control this year as Vietnam's economy has become more open and vulnerable to fluctuations on the global market.

Bad debt in Vietnam's banking sector, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.34 percent by the end of September 2017, down from 2.46 percent at the end of 2016, according to the State Bank. The central bank set up an institution to deal with toxic loans, the Vietnam Asset Management Corp., in late 2013.

Credit ratings agency Moody’s in October upgraded its outlook for Vietnam’s banking system from stable to positive for the next 12-18 months, reflecting the country’s strong economic prospects and positive outlooks for most rated banks.

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