German bank introduces housing savings model

VIR’s Chau Anh spoke with the BSH’s Rolf Stadel about how this type of bank will operate in Vietnam.

We know that the Bausparkasse Schwabisch Hall (BSH) operates very well in China, do you think that you can find a suitable framework for the bank to operate in Vietnam?

The Bauspar Bank in China was established in 2004 and needed a certain amount of time to develop the legal framework. So in our opinion the economic situation in Vietnam is comparable with the economic situation in China around about 15 years ago. We think Vietnam will experience similar economic development during the coming years.

What advantages and disadvantages does such a bank offer?

The main product of housing saving banks are mid- to long-term combinations of savings and housing loans: Housing saving banks collect savings from their customers and grant home loans based on the accumulated savings for mortgages. The savings and interest rates are fixed and remain unchanged over the entire contract term. Interest rates on the savings and loans are usually below usual market rates. Business scope is limited to financing the construction of residential buildings, the purchase of homes and apartments as well as financing the repair and modernisation of such objects.

People who save on a regular basis learn to curtail their consumption and, generally speaking, it is easier for them to repay their loans later. Housing savings therefore also have an educational effect and housing saving customers are more reliable in repaying their loans. The default rates for loans issued by housing saving banks are much lower when compared to other banks, due to the fact that a significant proportion of clients’ own capital is involved in the overall financing of the real estate.

Housing savings also help to reduce the ‘grey’ element of the construction sector. Housing saving loans are only issued upon presentation of the specific types of legal documents. Not only does this requirement guarantee the residential use of the loan, but also regular taxation on investments.

Housing savings are a closed system that is independent of the fluctuations in capital markets. The savings are only disbursed to other customers as loans. Housing saving banks are prohibited by law from investing in risky financial products. These limitations on the business scope for housing saving banks proved an advantage during the last financial crisis.

History has proven that the implementation of housing saving banks has a positive influence on the local banking sector. Local credit institutions normally support and participate in the system because housing saving customers are low risk customers.

The housing saving system supports medium-income earners and their wish to acquire residential property because it supports the savings process and accumulation of capital.

Additionally, the continual flow of housing saving funds has a stabilising effect on the entire economy. Housing construction creates revenues and jobs for the construction industry, small firms, medium-sized companies in the construction industry, as well as independent contractors such as architects, engineers and structural engineers.

What structure would Vietnam’s BSH’s bank take?

Like in other countries the Vietnamese Bauspar Bank should be a joint-venture institution with one more local partner which would operate in local currency and help people to realise their housing dreams.