Commercial banks have been anxious to collect property debts in an attempt to meet the prescribed ratio of property debts to the total outstanding debts. Still, many projects have been given as debt payment due to their failure to manage interest payment as a result of the market stagnancy.
The increasingly aggressive race for bringing down outstanding loans to non-production sectors to 16pct on December 31 has added to property firms’ burden of debt payment.
The general director of a commercial bank that is well known for house purchase loans revealed that debt collection rather than granting new loans has been their target over the past ten months.
Outstanding property loans to plunge
Outstanding property loans as of July 31 of HCM City-based banks reportedly fell 8.88pct over the end of 2010 to 89,530 billion dong, accounting for 11.96pct of the total outstanding loans, according to the State Bank of Vietnam (SBV), HCM City branch. Bad debts in real estate sector made up 3.8pct of the total outstanding property loans, of which commercial joint stock banks constituted the most.
Despite hectic attempts, the majority of recovered debts come from personal loans and instalment home loans whereas what concerns lenders most are investors rather than individual customers, said this general director.
Consequently, it is commercial banks that join hands with investors by assisting in finalising incomplete projects with a view save themselves. Those who default on such loans, otherwise, would be forced to release all existing projects to banks. The recent months have seen plenty of land transfer agreements with the transferees being lenders at a tax branch in a central district of HCM City.
No way back
The majority of real estate firms fail to make debt repayment due to huge losses and the gloomy and illiquid market. The Q3 financial reports that have recently been released indicate widespread losses at almost all property enterprises.
For instance, Investment and Trading of Real Estate JSC (ITC) posted additional losses of nearly 38 billion dong in Q3 (cumulative losses of 81 billion dong from early year), Phat Dat Real Estate Development JSC (PDR) 7.17 billion dong, Van Phat Hung JSC (VPH) 3 billion dong, PetroVietnam Power Land (PVL) 4.4 billion dong. It is assumed that the burden of debt payment and stagnant demand are to blame for such losses.
The prolonged property market downturn along with credit tightening has sparked considerable concerns over interest payment of many real estate enterprises, let alone the principal.
PDR’s bank loans as of September, for instance, totalled 538 billion dong at the prevailing interest rate of 21.6pct, which means monthly interest payment of roughly 9.9 billion dong
Similarly, given the interest rate of 20pct, the short-term and long-term loans of 420 billion dong cost ITC around 8 billion dong for monthly interest payment.
In all likelihood, the credit squeeze in property sector would lead to widespread defaults on bank loans unless real estate projects are bargained away, according to a banking expert. Yet, selling out such projects would a puzzle for the time being as most of the property giants are deep in the red.
Recently, the central bank has asked commercial banks to report the outstanding loans in real estate sector by November 9 underlying the accuracy of such statistics.