Property firms forced to wean themselves off bank credit

Monday, Oct 22, 2018 08:50

The HCM City Real Estate Association has recently proposed that the central bank should allow lenders to use 45 per cent of their short-term deposits for long- and medium-term loans next year instead of 40 per cent as it has mandated. — Photo

The HCM City Real Estate Association has recently proposed that the central bank should allow lenders to use 45 per cent of their short-term deposits for long- and medium-term loans next year instead of 40 per cent as it has mandated.

The State Bank of Viet Nam (SBV) has been reducing this cap every year, and it will drop to 40 per cent in January 2019.

HOREA has now made this suggestion because the law allows property developers to invest only 15-20 per cent of a project’s cost and borrow the remaining amount, but banks are unable to meet this demand because short-term deposits account for a large proportion of their total deposits.

For instance, deposits with different terms at VPBank reduced from 73 per cent in 2014 to 60 per cent now, and at Techcombank from 84 per cent to 72 per cent.

Meanwhile, long- and medium-term deposits make up only 13-15 per cent.

The second reason the association wants the new cap to be delayed is the sharp decline in the property market in the first nine months of the year as credit to the sector fell to the lowest level in three years.

Figures from the SBV show that outstanding loans in the first half of 2018 increased by 6.16 per cent from the end of last year. Consumer lending grew at 6.86 per cent but loans to the property sector at just 2.19 per cent, a significant decline from the previous year.

Explaining the strong drop in bank loans to the real estate sector, analysts said having learnt its lessons from the real estate boom and bust in the 2008-13 period, which resulted in a huge volume of bad debts in the banking sector, the SBV had instructed credit institutions to closely monitor growth by limiting loans to property and securities and ensure consumer loan borrowers do not invest in real estate and securities.

Consumer loans at banks that are used for buying and repairing houses now account for over 50 per cent of the total.

It has also adopted a number of measures this year to exercise strict control over lending to the property sector including limiting loans to 70 per cent of a property’s value instead of the previous 80-90 per cent.

The central bank attributed this to its concerns about risk after having increased the risk weighting of real estate loans from 150 to 250 per cent in the past few months.

This means that for every new real estate loan extended, the risk-weighted assets increase by 2.5 times the amount of the loan.

Most banks are trying to increase their capital adequacy ratio (CAR) to meet competitiveness and integration requirements.

CAR is the ratio of capital to risk-weighted assets.

In this scenario, HoREA is afraid that funding from banks will not meet the needs of the market.

Meanwhile, it expects the property sector to grow strongly especially with the great interest among many foreign investors in the Vietnamese market.

But some analysts rejected HOREA’s proposal saying it is time for property companies to end their reliance on bank credit and think about ways to raise capital from other sources.

Nguyen Khac Quoc Bao of the HCM City Economics University said the central bank’s decision to reduce the use of short-term deposits for long- and medium-term loans is a necessary and appropriate step to prevent a real estate bubble.

Senior economist Nguyen Tri Hieu said reducing the use of short-term deposits for long- and medium-term loans would help minimise real-estate speculation.

Inflation has already almost reached the targeted level for the full year, making it necessary to reduce credit to the property sector, he said.

Figures from the General Statistics Office show the consumer price index (CPI) rose by 3.57 percent year-on-year in the first nine months.

Do Thien Anh Tuan of Fulbright University Viet Nam said the cap on the use of short-term deposits for long- and medium-term loans needed to be implemented on schedule to reduce risks for the banking sector and property companies needed to look around for other ways to raise long- and medium-term funds.

But many analysts have said the central bank’s policy of tightening lending to the property sector will not have a major impact and can even help companies in the industry develop more sustainably because most of them already made plans to adapt to this situation.

Additionally, direct lending to the real estate sector now makes up only 8.25 per cent of the banking sector’s total outstanding loans because banks have been cautious about lending to property projects since 2017.

This has meant property companies have already raised funds from other sources for their projects, with many issuing shares or seeking foreign investment.

Sacomreal, for instance, is set to issue more than 73 million shares for VND732 billion.

Novaland Investment Real Estate Joint stock Company has successfully raised US$310 million by issuing global convertible bonds and also made a private placement shares.

Nam Long Development Joint Stock Company has tied up with Japanese partners Anabuki Housing Service, Hankyu Realty and Nishi Nippon Railroad to develop projects.

Issue of bonds is also expected to become an important source of funding for real estate developers in future, according to the analysts.

Ministry proposes port charges hike

A recent draft circular from the Ministry of Transport has recommended increasing service charges at ports.

It suggests hiking container service charges by 10 per cent by ports in Area I.

It is now just $30 at ports in Hai Phong, $45 at ports in the central city of Da Nang and $41 at ports in HCM City.

These are significantly lower than in Cambodia ($65), Thailand ($59), Malaysia ($75), the Philippines ($98), Indonesia ($81), Singapore ($111), Myanmar ($165), and China ($97).

Most port operators voiced their agreement with the service charge hike.

Ministry of Trade experts said the hike in service charges would help ports improve their service quality by adopting advanced technologies and upgrading infrastructure and bring their rates closer to regional levels.

But the hikes would not directly affect Vietnamese shippers or have an impact on prices since ports collect the charge directly from shipping lines, they said.

But others, including the Viet Nam shippers Council and enterprises involved in exports and imports, have expressed concern about the imminent increase in logistics costs.

But companies in the sector are happy: Gemadept Corporation (GMD), for example, is expected to benefit hugely.

A company spokesperson said a hike in port service charges would have a big effect on the company’s business results next year, and so it would tweak its strategies already outlined for the 2018-22 period.

Viet Nam Containers Joint Stock Company was another of the companies that was sanguine.

The shares of port and related companies should be headed upward not too long from now.— VNS

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