Real Estate is the “King” of Collateral
In the banking credit ecosystem, real estate has long been the most popular and preferred type of collateral. It is no coincidence that banks favor real estate – a type of asset that is highly stable, difficult to damage, difficult to lose value, and even tends to increase in value over time.
With that characteristic, real estate is considered a "wall" to prevent risks for loans, when the value of the collateral is often valued higher than the principal balance, helping banks maintain a safe buffer in credit activities.
Surveys from financial reports of many banks show that real estate accounts for an overwhelming proportion in the mortgage portfolio, showing the system's great dependence on the real estate market.
At Agribank - one of the "giants" in the banking industry, the total value of customers' mortgaged and pledged assets in 2024 reached 3.19 million billion VND, an increase of more than 9% compared to 2023.
Of which, real estate alone accounted for 2.92 trillion VND, an increase of more than 10% compared to the end of last year, far surpassing other types of assets such as movable property (190,000 billion VND) or valuable papers (54,663 billion VND).
Not only Agribank, other big names such as BIDV or VietinBank also own a huge portfolio of mortgaged assets, mainly real estate. Specifically, at the end of 2024, BIDV recorded a total value of assets, valuable papers mortgaged, pledged, and discounted up to 3.32 million billion VND, while VietinBank reached nearly 3.29 million billion VND - showing a remarkable similarity between the state-owned "giants" in credit strategies closely linked to the real estate market.
However, behind that seemingly solid picture are cracks that are quietly spreading. According to SSI Research, in the first quarter of 2025, bad debt at banks has not improved significantly, especially for loans related to real estate projects that have not completed legal procedures - which are "clogged" in both liquidity and investor confidence.
As a result, a portion of home loans associated with these projects have been reclassified as bad debt, increasing the bad debt ratio at a number of joint stock commercial banks.
Not stopping there, the state-owned commercial banking sector is also under pressure from restructuring loans for businesses operating in the construction materials sector - an auxiliary industry that is suffering a chain reaction from real estate.
The average bad debt ratio at 24 banks monitored by SSI Research jumped to 2.46% in Q1/2025, approaching the peak of 2.58% in Q1/2023. Notably, overdue loans increased sharply by 11.6% in just one quarter, of which group 2 debt increased by 2.8% and bad debt increased by 20.4% compared to the previous quarter - a worrying sign showing that the risk spiral is penetrating deeper into the credit system.
In that context, it is worth noting that banks have not been very proactive in setting aside risk provisions. The bad debt coverage ratio has dropped to only 88.7% – the lowest level in the past 5 years, reflecting a certain degree of leniency in dealing with credit risks.
A report from VPBank Securities Company said that the provisioning costs of the 11 analyzed banks only reached 0.24% of outstanding loans in the first quarter of 2025 – down from 0.30% in the same period last year. This shows a paradox: bad debts increase but provisions decrease, while the pressure to implement international accounting standards IFRS – with more cautious requirements in provisioning – is getting closer.
Vietcombank, Sacombank , TPBank and VIB are the banks that recorded the sharpest decline in provisioning costs, partly due to expectations of market recovery and support policies from the State Bank.
However, experts warn that subjectivity during this period could put the banking system at risk of a "double burden" if the real estate market does not recover as expected.
In the short term, experts remain optimistic that the bad debt ratio will peak in the first half of 2025 before starting to cool down thanks to low interest rate policies and debt restructuring solutions being implemented.
However, in the long term, over-reliance on real estate as a “fulcrum” for credit can make the banking system vulnerable to unpredictable fluctuations in this market – where the value of collateral does not always reflect the real risk of the loan.
Real estate market flourishes, bank asset quality increases
As the real estate market gradually warms up after a long period of stagnation, the asset quality of commercial banks is showing clear signs of improvement.
Many financial experts and independent analysis organizations agree that this recovery not only supports cash flow for real estate businesses but also contributes positively to handling and recovering bad debts, thereby improving credit performance and improving the balance sheets of banks.
A recent banking industry analysis report published by VPBankS Securities Company shows that although the financial data for the first quarter of 2025 of banks are still under audit, "other income" items - especially from debt recovery - have recorded a significant increase, reflecting the positive impact from the real estate market.
In fiscal year 2024 alone, income from bad debt settlement activities accounted for a large proportion of other income structure of the three largest state-owned commercial banks: Vietcombank (84%), BIDV (88%) and VietinBank (79%). These are also the three banks with the highest total assets and credit scale among the group of 11 banks monitored by VPBankS.
In the first quarter of 2025, the bad debt recovery revenue of the three banks continued to increase sharply, up to 51% compared to the same period last year. If considered as a ratio of outstanding loans, this index also increased by 2 basis points - a sign of efficiency in recovering collateral and handling outstanding debts.
Adding more perspective, SSI Research believes that although the liquidity of the real estate market in the first quarter of 2025 has somewhat decreased compared to the last quarter of 2024, it still increased significantly compared to the same period last year - specifically an increase of about 70-72% in the Hanoi area.
This is an important basis for banks to accelerate the liquidation of collateral assets, thereby recovering bad debts that were handled in the previous period. Growth from this source of revenue is becoming an important support, compensating for the decline in service fee income as well as the flat profit of foreign exchange and bond trading activities in the context of many fluctuations in the global financial market.
Mr. Nguyen Xuan Binh - Director of Analysis Department of KB Securities Vietnam Company (KBSV) - commented that the reason for the high increase in bad debt ratio in previous years was due to the decline in profits of real estate enterprises, combined with difficulties in mobilizing capital through bond channels, causing the cash flow to repay debt to be blocked.
However, with the Government's synchronous measures to remove legal bottlenecks, promote public investment, and flexible monetary policies to unblock credit flows, many real estate projects have been restarted, thereby improving businesses' debt repayment capacity.
“The successful handling of many bad debts in the real estate sector not only helps banks reduce the bad debt ratio but can even reverse provisions, creating a strong driving force for profit growth in 2025,” Mr. Binh emphasized.
Obviously, the controlled recovery of the real estate market is creating a positive spillover effect, not only for businesses in the industry but also helping credit institutions improve asset quality, consolidate financial foundations and enhance resilience to potential macroeconomic risks in the coming time.
Source: https://baodaknong.vn/bat-dong-san-phuc-hoi-no-xau-ngan-hang-co-chuyen-bien-tich-cuc-252988.html
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