SBV clamping down on credit risks

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