Looks difficult for banks to avoid bad debts in the housing sector
At the same time in 2007, people were eager to buy houses. But at present, the property market is gloomy and the number of successful transactions has come down.
According to the statistics, up till now the total property loans provided by domestic commercial banks and credit institutions have reached over 115 trillion dong, accounting for 9.5% of the total outstanding loans.
The property loans are mainly in Hanoi and HCM City, making up 75% of the country’s property outstanding loans, amounting to 18.5 trillion dong in Hanoi and over 68 trillion dong in HCM City.
Particularly, in HCM City where the real estate market developed strongly one-year ago, bad debts of banks are forecasted to increase sharply from now to the end of the year.
In 2008, HCM City had 151 real estate projects in need of large capital. Commercial banks also committed to lend 14.3 trillion dong. Until the end of October, 9.3 trillion dong had been disbursed for the real estate projects.
HCM City’s registered projects are mainly to build infrastructure to serve production and business (5.647 trillion dong), export processing and industrial zones (1.380 trillion dong), urban areas (6.093 trillion dong), offices for lease (5.773 trillion dong), trade centres (2,439 trillion dong), build and repair houses (18 trillion dong), build and repair houses for sales (9.587 trillion dong), mortgage land using right (5.571 trillion dong), and other real estate business (6.237 trillion dong).
Particularly for building houses and repair houses for sales, mortgaging land using rights and other real estate business, total outstanding loans till date have been committed at 21.4 trillion dong by banks. If only one third of the amount is not paid maturely, about 7.5 trillion dong will be converted to overdue debts. Due to this, HCM City’s total bad debts will increase to nearly 5% of the total outstanding loans, closer to the alarming bad debt ratio in the banking operation under international norms. This will easily happen because late 2008 is the deadline for many borrowers to pay banks’ one-year property debts while the real estate market now witnesses a fall of 30-40% in prices. If borrowers cannot pay their debts, banks will have to seize the mortgaged property.
Possibly, the majority of the commercial banks will have to sell customers’ secured property (land, house, or apartment) to withdraw capital, which will result in another fall in property prices due to the high gap between demand and supply. This is the effect of the property credit market.
Up till now, total deposits of the commercial banks and credit institutions in HCM City have gained 588 trillion dong, up 15% from the previous year, total outstanding loans have gained 446 trillion dong, growing by 19.6%. The outstanding loans provided to SMEs were 207.500 trillion dong, accounting for 42% of total figure. Securities backed loans were down from 3% to 1% of the total figure and property loans down from 26.59% to 15.48% at the moment. The city based banks’ bad debt ratio now is recorded at 2.14% of total outstanding loans.
Category: Finance
