'Green light' for banks to do real estate business?

There are many loopholes that allow banks to engage in real estate business.

According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, Clause 2, Article 90 of the 2010 Law on Credit Institutions and Clause 2, Article 98 of the draft Law on Credit Institutions both stipulate that credit institutions are not allowed to conduct any business activities other than banking activities; and other business activities specified in the license granted to the credit institution by the State Bank of Vietnam.

“Bật đèn xanh” cho ngân hàng kinh doanh bất động sản? - Ảnh 1. — Many argue that credit institutions should not invest in real estate.

However, Article 138 of the draft Law on Credit Institutions regarding real estate business stipulates that credit institutions are not allowed to engage in real estate business, except in the following cases: Purchasing, investing in, or owning real estate for use as business headquarters, workplaces, or warehouses directly serving the operational activities of the credit institution; Leasing a portion of the business headquarters owned by the credit institution that is not fully utilized; Holding real estate resulting from the settlement of loan debts. Within 5 years from the date of the decision to dispose of the real estate collateral, the credit institution must sell, transfer, or repurchase this real estate to ensure the investment ratio in fixed assets and the purpose of using fixed assets as stipulated in this law.

"Credit institutions are given the 'green light' thanks to regulations that allow them to buy, invest in, and own real estate for use as business headquarters and workplaces, and to lease out a portion of their unused business premises. This regulation has led to a situation where credit institutions tend to expand their network of branches, workplaces, and warehouses, especially building grandiose office buildings to serve as both headquarters and to allocate a significant portion for real estate leasing," Mr. Chau analyzed.

Similarly, the current regulation allowing "holding of real estate due to debt restructuring" for a period of 3 years from the date of the decision to dispose of the collateral has created "room" for credit institutions to conduct real estate business activities no different from a professional real estate business. "Now, the draft law on credit institutions increases the permitted period for holding real estate due to debt restructuring to 5 years, further broadening the scope for conducting real estate business activities. Therefore, it is more reasonable to retain the regulation that only allows credit institutions to hold real estate due to debt restructuring for a period of 3 years as before," Mr. Chau pointed out.

Mr. Chau stated that regulations allowing credit institutions to engage in real estate business activities are inconsistent with the spirit of the regulation prohibiting credit institutions from conducting any business activities other than banking and real estate business. "Therefore, I propose that regulations prohibit credit institutions from conducting any business activities other than banking, except for other business activities specified in the license granted by the State Bank of Vietnam. At the same time, the State Bank of Vietnam should carefully consider allowing other business activities specified in the license granted to credit institutions, especially real estate business activities such as office leasing, depending on the capacity of each credit institution," Mr. Le Hoang Chau suggested.

LIMITING RISKS FOR BANKS

According to lawyer Pham Lien of HTC Vietnam Law Firm, current law stipulates that commercial banks are not allowed to engage in real estate business because real estate assets are inherently fixed and do not have the same liquidity as cash, even though commercial banks are also businesses with the goal of seeking profit. When a commercial bank uses mobilized capital to invest in a real estate project, it will be very difficult to recover this capital in a short period of time.

Therefore, the likelihood of insolvency is very high, affecting the legitimate rights and interests of customers and the public. Not only that, it also impacts and poses risks to the system. For these reasons, the law strictly prohibits commercial banks from investing in real estate (except for investments in business premises serving the bank's operations; debt settlement; subleasing premises, etc.) to ensure the interests of depositors and maintain the management order of the State Bank.

Mr. Huynh Phuoc Nghia, Deputy Director of the Institute for Innovation (Ho Chi Minh City University of Economics ), also shared the view that it is not yet appropriate to raise the issue of credit institutions being allowed to engage in real estate business. Therefore, the current regulations should be maintained. The main function of credit institutions is to conduct money business, mobilizing savings to "inject" money into businesses and the economy. Creating loopholes for banks to engage in real estate business would negatively impact their credit business role, and many banks rushing into real estate business would endanger monetary security. The real estate sector is high-risk and frequently experiences crises. If mobilized funds are used to invest in projects and real estate, and the properties cannot be sold, the money will be tied up in real estate. This would affect the rights of depositors and even pose risks to credit institutions.

"The main task of credit institutions is to prioritize providing capital to the economy. Looking at the situation with SCB Bank, we can see that capital tied up in real estate reduces the efficiency of capital utilization. When banks have problems, the state has to participate in restructuring," Mr. Nghia said, adding that in other countries, credit institutions are not encouraged to engage in real estate business.

Therefore, amendments and additions are needed to strictly regulate the cases in which credit institutions are allowed to "conduct other business activities" or "conduct real estate business activities," and consideration should be given to regulating the ceiling ratio of "real estate business revenue not exceeding... % of the credit institution's revenue" (perhaps not exceeding approximately 15% of the credit institution's revenue).

Mr. Le Hoang Chau , Chairman of the Ho Chi Minh City Real Estate Association

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