Bad debts in real estate sector to climb?

Internal loans for big shareholders cum property investors have been found at many commercial banks.

Increasing bad debts in the real estate sector in the context of potentially frozen realty market have posed concerns for banking industry.

Currently, loans for real estate market account for 30pct-40pct of many banks’ total outstanding loans. Yet, what concerns Dr Le Xuan Nghia, vice Chair of the National Financial Supervisory Commission is internal loans financing big shareholders cum property investors at many commercial banks.

Also, property price hikes hindering transactions combined with the likelihood of market stagnancy have added further risks to real estate loans. The first half of the year saw a worrying 37 percent upsurge of non-performing loans in this sector.

The National Financial Supervisory Commission’s report suggests the intransparent realty market rather than speculation to be blame for the recent property price escalation

In addition, the overheated competition among banks has triggered lax collateral requirements, thus driving up the amount of bad debts in real estate sector, said Tran Dinh Thien, director of the Vietnam Economics Institute.

Another risk facing the banking industry is huge fluctuations in gold prices and foreign exchange rate making residents’ ample savings flow into such financial investment channels as gold, US dollar trading and stocks rather than destinations where wealth is created. As a consequence, risky investments are on the rise spurring property bubble.

 

Category: Business