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|SBV clamping down on credit risks, illustration photo|
Last week, the State Bank of Vietnam’s (SBV) Supervision Agency cautioned that potential risks might arise from credit institutions that provide loans in specific areas, such as real estate, securities, and transportation.
To ensure the safety of banking operations and limit risks, the SBV asked credit institutions to strictly follow Directive No.01/CT-NHNN from January 3 on organising the implementation of the key tasks of the banking sector.
“The central bank has paid special attention to banks’ appraisal and supervision of loan purposes and valuation of real estate collaterals at some areas that experienced land fever,” said Yen Tran, analyst at KIS Securities.
The SBV highlighted potentially risky sectors, including real estate, securities, and build-operate-transfer (BOT) and build-transfer (BT) projects as usual but with more specific notices.
Furthermore, the SBV would also keep a firm hand in promoting capital contributions into manufacturing and for supporting customers vulnerable due to the pandemic, natural disasters, and climate change.
Tran explained, “For real estate, banks must concentrate on alleviating risks arising from large clients, the land fever phenomenon, and the trade of real estate. For BOT and BT projects, credit institutions must balance their capital flow and use loans for medium- and long-term projects to limit liquidity risks and continue to strictly comply with the instructions of the SBV.”
For consumer loans, she added, banks must improve appraisal and supervision processes to control credit quality for consumption purposes.
In terms of securities, the SBV also reminded both local and foreign credit institutions to tighten their regulations about investment, trading equity, and corporate bonds.
The SBV cautioned banks about provisions and bad debt recollection on debt classification and accrued interest recognition – for example, pandemic-induced restructured loans and debt recovery – to ensure the government and shareholders’ interests are kept.
“These are official messages for banking operation in 2021 to maintain system stability amid the unpredictable pandemic. We believe the entire banking system will revise its credit policies, risk management, and supervision to be compatible with the SBV’s guidance and sustain healthy assets,” Tran noted. “However, we do not expect these to stamp down credit growth in the coming quarters given the favourable interest rate environment and dynamic local economy.”
Particularly, the margin loan balance of securities companies is in an upward trajectory. In Q1 of 2021, it increased by 53 per cent compared to the same period last year. At some securities companies, the total outstanding loans for margin loans have almost exceeded the ceiling, twice as much as their equity. Last month, a number of securities companies have approved plans to increase capital, such as MBS, VNDIRECT, and HSC. Thus, margin loans are anticipated to rise considerably.
Experts at VNDIRECT Securities also believed that the current risk management of the banking and brokerage system has been much improved.
According to Circular No.36/2014/TT-NHNN on limits and prudential ratios in operations of credit institutions and foreign bank branches, the total outstanding credit that commercial banks and branches of foreign banks extend to clients for stock investments and business is not allowed to exceed 5 per cent of their charter and allocated capital.
As investors are more aware of financial leverage-related risks, bad debt ratio arising from securities loans is relatively low.
Economist Vo Tri Thanh said, “The SBV has urged credit institutions to strictly control credit in some risky sectors, but actually, no specific measure has been taken so far.”
Likewise, economist Le Xuan Nghia emphasised, “The SBV does not need to take any further actions to tighten real estate credit. In fact, real estate credit has long been managed in a prudent fashion.”n
The State Bank of Vietnam has sent document to credit institutions warning about the 10 signs of potential risks appearing in the sector last year and asked them to follow Directive No.01/CT-NHNN on key tasks in 2021 as follows:
- On balance sheets, the non-performing loans (NPL) ratio in 2020 increased versus 2019.
- Some consumer finance companies witnessed strong increase in NPLs and ratios.
- Accrued interest from credit activities increased versus 2019.
- Real estate credit increased robustly and still has strong weight in the country’s credit.
- Investment into corporate bonds of development and real estate trade has a high weight in the total corporate bond investment portfolio. Some banks accelerated corporate bond investment, particularly focusing on development and trading real estate.
- Credit for investment and trading securities skyrocketed versus 2019.
- Credit quality of loans to real estate, consumer, and card decreased heavily compared to 2019.
- NPLs of the large corporate segment with a total balance of over VND500 billion ($21.7 million) per client has shown signs of increase.
- The rise in accrued interests may lead to the fact that reported income in 2020 has yet to reflect the true outcome.
- Some credit institutions have not yet tried their best in recollecting bad debts and off-balance-sheet debts.