Banks and Challenges in Real Estate Project Lending

In a complex economic context, providing credit for real estate projects has become a challenge for financial institutions, even when these projects are deemed feasible and have reliable repayment capabilities. Governor of the State Bank of Vietnam (SBV), Nguyễn Thị Hồng, explained that one reason for banks refusing to provide credit lies in the incompatibility between loan terms and the banks' capital balance. Funds mobilized from the public are usually short-term, while real estate companies often require long-term loans, leading to a significant mismatch between these two factors.

During a National Assembly discussion on October 28 about real estate market management and social housing development from 2015 to the end of 2023, Governor Nguyễn Thị Hồng highlighted the challenges financial institutions face in providing credit to the real estate sector. Real estate demands large and long-term capital, while banks can only supply a portion of these funds within the overall financial system.

Besides business considerations, financial institutions must also adhere to strict capital safety ratios set by the SBV. These regulations are vital mechanisms to mitigate financial risks, ensure the stability of the entire banking system, and contribute to the sustainability of the national economy. However, due to the mismatch between funding durations and the necessary terms for real estate projects, many projects may be denied loans even if they are assessed as viable.

In addition to considering loan term compatibility, banks must also account for other urgent objectives to ensure system safety. For instance, in the latter half of 2022, issues at SCB Bank negatively impacted the liquidity of the entire banking system, prompting financial institutions to exercise caution in lending, especially for long-term real estate projects. This approach helps safeguard the financial system’s stability and prevent the spread of potential risks.

By late December 2022, as liquidity stabilized, the SBV decided to relax credit room limits, increasing the capacity of banks to fund real estate projects, which supported a gradual recovery in the real estate market.

Challenges and Efforts of the Banking Sector

Responding to feedback about high lending rates, Governor Nguyễn Thị Hồng emphasized that while the demand for lower interest rates is understandable from businesses, the banking sector has made efforts to maintain rate stability. Despite rising global interest rates in recent years, Vietnam has achieved relative stability, with lending rates reduced by up to 3% compared to early 2022.

High-interest rates have put pressure on real estate companies, especially in the post-COVID-19 environment. However, the banking sector has sought to support businesses by offering credit solutions such as interest rate reductions, with an estimated VND 60 trillion allocated to ease interest burdens for businesses and citizens.

These credit support measures have increased the competitiveness and attractiveness of loan packages, especially for companies severely affected by the pandemic. According to the governor, releasing these credit packages plays a crucial role in enhancing business capital access, ensuring sustainability amid challenging conditions.

Amid limited budgets, the SBV implemented a VND 145 trillion credit package to support social housing. However, disbursement has been slow due to financial difficulties among low-income groups following the pandemic, indicating persistent liquidity challenges and borrower repayment capacity issues.

The SBV governor also expressed hope that as the economy improves, public borrowing demand will rise, aiding the real estate market's recovery and positive development. Nevertheless, ensuring financial safety for the banking system remains a priority, especially amidst complex economic fluctuations.

Sustaining a stable and resilient real estate market requires joint efforts from multiple parties, including improving project management efficiency and effective credit support policies. However, safeguarding the banking system’s safety must come first to ensure the economy's long-term and stable growth.