The State Bank of Viet Nam (SBV) has been developing a draft amending Circular 39 on bank loans, to keep credit risks in check.

The draft bans bank loans to borrowers who use the loans to secure future transactions that are unqualified at the moment of the loans.

The ban is expected to prevent the use of bank loans to purchase future real estate properties, which have not been given carte blanche from the authorities due to the lack of construction permits and proof of land use rights.

The HCM City Real Estate Association (HoREA) believes that law-abiding real estate firms will remain unaffected by the ban since bank loans are still available to borrowers who aim for qualified real estate properties offered by the firms.

"Unqualified realty properties include illegitimate land slots and apartment blocks with not-yet-finished foundations under the Law on Real Estate Business 2014. The draft is expected to safeguard investors against illegal practices, improving the realty market," the HoREA added.

The association suggests credit institutions be allowed to make loans to help borrowers demonstrate their financial ability, as long as the borrowers can put up collateral for the loans.

It also suggests that collateral-backed loans be available to borrowers who want to use the money to contribute capital or invest in other firms.

"Loan control should be imposed only on borrowers who use bank loans to engage in prohibited activities and conditional business activities, or to service due debts and hide bad debts," HoREA said.

Regarding business activities that are eligible only for restricted bank loans, the association urges SBV to raise the bar on borrowers involved in those activities to reduce credit risk further.

Specifically, SBV is recommended to set caps on the borrowers' loan-related ratios, including loans to collateral ratio and loans to total debts ratio, to keep their loans in check. — VNS