Therefore, the coordination between the money market – capital market, banking – real estate needs the right view and appropriate management.
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| Dr. Nguyễn Quốc Hùng |
How do you assess the influence of the capital market on the operation of the banking industry?
First, we need to clearly define the role of each sector in the current financial market. Accordingly, the banking industry plays a role in developing short- and medium-term capital in the money market, while medium and long-term capital must be corporate bonds and securities in the capital market.
The banking industry does not have a function to manage the capital market, but fluctuations of this market have a great influence on banking activities. For example, the policy mechanism for corporate bonds is not issued by the banking industry, but will affect banks when they carry out bond issuance, underwriting or collateral management.
With the instability in the capital market, we need the bank to properly perform its functions and duties. Not only that, but the banking industry in Vietnam is also different from many countries in the world, that is, it has to play both roles: stabilizing the macro-economy and controlling inflation. Therefore, how to inject capital into the market with a dose so as not to create inflation pressure is a problem for the banking industry.
These notes must be paid more attention to in the context that by October 2022, banks must bring the ratio of short-term capital for medium and long-term loans to 30% according to the roadmap of Circular 22/2019/TT that stipulates the limits and ratios to ensure safety in banking activities. This roadmap to tighten the ratio of short-term capital for medium-term and long-term loans has been extended and revised many times, so it must be implemented.
Along with the above problems, how is also the real estate sector creating pressure on the banking industry?
Currently, up to 70% of the collateral for loans at banks is real estate. Thus, the number of collateral assets on the total loan balance is quite large.
In addition, the real estate industry is said to be very difficult, so why are real estate prices still increasing many times? Is there any pricing phenomenon? How can people buy houses? These are questions that the market has asked for a long time and require satisfactory answers.
Therefore, at this time, banks need to be very cautious and anticipate all cases when lending real estate. With a loan rate of 50% of the property value, when real estate prices drop, even the market “freezes”, what do you think about this risk?
Currently, the State Bank (SBV) is operating the monetary policy for the real estate sector very flexibly. The State Bank of Vietnam has not yet issued a document directing the tightening of real estate credit or any content related to the directive on not lending to the real estate sector. However, the State Bank has seen the risks with areas such as real estate and securities, so this agency has issued many documents to strictly control credit in these areas.
In addition, credit institutions should also review these lending activities, if there is a “mismatch” between housing loans and real estate business loans, the safety of the credit institution will drop, because the risk coefficient for real estate credit is very high, up to 200-250%. However, real estate is still a very important industry of the economy, so it is necessary to have the right recognition, and have appropriate management, so it should not be “squeezed” as in the 2009-2010 period.
In your opinion, how should banks have defensive solutions?
Currently, all credit institutions have innovation and self-defense when they have made adequate provisions for bad debts and potential debts that become bad debts.
Even some credit institutions with a current healthy financial situation have a bad debt coverage ratio much higher than the actual bad debt ratio. Therefore, many credit institutions have raised the issue of increasing charter capital in 2022, thereby helping to improve financial capacity and expand risk provisioning to ensure operational safety.
However, if only the bank’s efforts are not enough, it is necessary to have a strong legal corridor. On the side of the Vietnam Banks Association, we will review all relevant legal documents and will make a written recommendation to the Government for consideration in the process of amending the Law on Credit Institutions, adjusting relevant laws such as the Civil Code and the Law on Real Estate Business, to ensure the rights and responsibilities of banks and borrowers and the coordination of ministries, branches and local authorities in debt settlement.
Regarding risk prevention when implementing the 2% interest rate support package according to the policy of the Government and the State Bank of Vietnam, the SBV has issued a circular guiding the accounting, with more open mechanisms, creating favorable conditions for the banks. One of the principles of interest rate support is not to lower the loan standard, only enterprises that meet the conditions prescribed by law can access this capital. Therefore, banks must appraise the project’s effectiveness, in the spirit of high determination, responsibility, synchronicity, and seriousness.
Thanks Sir!