Social housing lending a pillar of welfare activities

VBSP deputy general director Nguyen Van Ly

The prime minister has just approved the preferential lending rate of 4.8 per cent per year for your bank’s social housing programme in 2019. How could VBSP offer such a competitive interest rate?

From April 1, 2019 our bank (VBSP) was approved to offer a preferential interest rate of 4.8 per cent per year to loans earmarked for buying and leasing-to-buy social houses, building or repairing houses as per regulations at governmental Decree No.100/2015/ND-CP dated October 20, 2015 on the development and management of social houses.

In fact, borrowers always want low interest rates. Regarding VBSP’s preferential lending and social housing lending programmes, the lower the interest rate is, the more the state budget needs to cover. High levels of state subsidy could, in turn, put pressure on the state budget and a lower portion of the budget might be set aside to cover such lending, leaving fewer beneficiaries.

Social housing lending is a long-term programme. The government has approved an interest rate framework to social housing lending programmes at VBSP until the end of next year that will not exceed the lending interest rate of credit institutions who were assigned by the state to provide such loans in light of Decree 100.

As of now, the interest rate at credit institutions entrusted with lending for social housing programmes is set at 5 per cent per year. On this basis, our bank has proposed the ministries and sectors to submit to the prime minister our proposal on setting the lending rate to social housing at 4.8 per cent per year. The government enacts this rate on an annual basis. In general, we think this 4.8 per cent rate is suitable for this year.

What is the difference between your bank’s social housing lending programme for this year and the previous ones?

VBSP has applied diverse housing-related credit programmes such as lending to poor households to build houses or lending to support people in the flood areas of the Mekong Delta and the central regions to build or renovate houses.

The difference in this social housing lending programme in light of Decree 100 is that this is not a credit package, but a long-term lending scheme, without a cap on capital sources. Each year, the government will allocate a certain capital volume to lend the programme after balancing the budget. We expect the social housing lending programme will grow into one of the major pillars of the government’s social welfare programmes in the upcoming time.

What kind of support will poor and low-income people get from VBSP to feed their abundant housing needs?

The first advantage is that the beneficiaries of this lending programme will enjoy a lower interest rate compared to those at local credit institutions that were tasked by the state to provide social housing lending.

Second, the loan duration is set at 16-25 years to allow people enough time to pay off their debts. With a more favourable lending rate, after 16 to 25 years, customers will have the potential to become the real owners of these social housing units.

Third are the incentives to borrowers accessing this lending programme. Besides transparent policies, borrowers will receive active support and guidance from related associations and local governments in the lending process.

Like with other credit programmes, concerns over risks are inevitable. How has VBSP tackled these concerns?

As credit activities often carry risks, our bank has taken into account the situation and has been periodically setting aside provisioning to preserve the government’s capital sources. At present, the overdue debts of lending programmes in the whole VBSP system only account for about 0.42 per cent of our total outstanding balance. We have also made provisioning to social housing lending credit. In case borrowers incur risks, VBSP will follow procedures to preserve state capital sources.

How has VBSP managed the lending supervisory process to ensure the loans go to the right people?

VBSP is doing its utmost to ensure a transparent lending process right at the grassroots level in the whole system, with the active engagement of relevant parties such as local governments, authorised social and political organisations, and local saving units. The ultimate goal is to ensure the loans will go to the right beneficiaries and to improve credit quality.

In case of loans to build or repair houses, before disbursing capital based on the project’s progress, our bank will pay a field visit to inspect the project. In respect to loans for buying or leasing-to-buy social housing units, we will sign tri-party contracts involving the project developers and borrowers to ensure the responsibilities and rights of each side. Social housing units cannot be transferred for five years, ensuring that the loans go to the right people and for the right purposes.