Vietnam's central bank imposes more control on property loans

By An Hong   May 28, 2016 | 11:40 am GMT+7

The Vietnamese central bank has adjusted restrictions on property loans to keep the real estate market from overheating.

The State Bank of Vietnam (SBV) said in its circular released on Friday that it will raise the risk weight of property loans at commercial banks to 200 percent from 150 percent. The new restriction will take effect on January 1, 2017.

In addition, the central bank has also set new restrictions on how banks use their funds. Accordingly, banks will be allowed to use no more than 60 percent of their short-term funds for medium- to long-term purposes including mortgages until the end of this year.

The ratio will then be adjusted to 50 percent in 2017 and 40 percent by 2018.

The central bank at first planned to hike up the risk weight of loans to property sector to 250 percent instead of 200 percent. Also in early draft, the rule that requires banks to use no more than 40 percent of their short-term funds to make medium and long-term loans was intended to take effect immediately, not until 2018.

The new rule is expected to prevent a property bubble by causing banks to curb real estate loans.

The property market gained steam last year as economic growth resulted in rising incomes and after the government allowed foreign buyers to own property for up to 100 years last July.