Difficulties in real estate and bonds "threaten" the quality of bank assets

According to VNDirect 's latest Banking Industry Report, banking is an industry that depends heavily on macroeconomic fluctuations, and when macro indicators become more optimistic, it will also help improve the asset quality of banks.

However, the current difficulties in the real estate industry and corporate bond market have not been resolved and this will directly impact the quality of banks' assets as bad debt risks are gradually becoming apparent...

Although there is no "official regulation/document" related to tightening credit flow into the real estate market, lending in this sector has slowed down with the aim of curbing the overheating of this market since 2021.

According to Circular 08/2020, the maximum ratio of short-term capital used for medium and long-term loans will decrease from 37% to 34% from October 1, 2022 onwards and to 30% from October 1, 2023.

VNDirect experts said that because real estate loans are usually medium and long-term loans, banks will not let real estate loan balances increase too strongly in their credit portfolio.

However, since the second quarter of 2022, the Government has begun to closely monitor the corporate bond market, especially by issuing Decree 65 amending Decree 153. In the short term, the market has witnessed a series of investigations, including many cases of issuance for the wrong purpose/in violation of regulations and the arrest of a number of senior leaders.

This has caused investors to lose confidence in issuers and led to a "boycott" of the corporate bond market.

Finance - Banking - Difficulties of real estate and bonds 'threaten' the quality of bank assets — Real estate lending ratio of banks (Source: VnDirect).

As a result, investors have had real difficulty in raising capital through corporate bonds. The total value of corporate bonds issued has dropped sharply by 63% over the same period and this figure is 78% over the same period for real estate corporate bonds.

On the other hand, according to VNDirect, lending interest rates have increased sharply in the context of difficult macro-economy, especially in the second half of 2022. Along with high housing prices, demand for home purchases has decreased significantly and is expected to continue in the coming time.

The supply of new apartments in Ho Chi Minh City and Hanoi in the fourth quarter of 2022 decreased by 81%/38% respectively compared to the same period, leading to a sharp decrease in consumption of 80%/63% compared to the same period (according to CBRE).

"The difficulties of corporate bonds and the weakening sales have caused investors to fall into a serious cash flow shortage, affecting their ability to repay debts and thereby negatively impacting the asset quality as well as credit risks of banks this year," VNDirect's report said.

Experts reiterated that although banks have restricted real estate lending, this is still one of the important capital channels for the real estate industry as real estate lending accounts for about 21% of system credit by the end of 2022.

Finance - Banking - Difficulties in real estate and bonds 'threaten' the quality of bank assets (Figure 2). — Corporate bond holding ratio of banks (Source: VnDirect).

In addition to the real estate market problem, VNDirect sees another problem related to the liquidity difficulties of Vietnamese enterprises, especially small and medium enterprises. Vietnamese enterprises are facing high interest costs and this will affect the ability of enterprises to repay debts.

On the other hand, businesses are facing many difficulties in accessing capital, as the bank credit channel remains limited while the corporate bond market has almost frozen. Difficulties in businesses accessing capital and declining debt repayment capacity will again be a factor negatively affecting the quality of banks' assets in 2023.

“The newly issued Decree 08/2023 is expected to partially alleviate the above difficulties, as the law allows issued bonds to be negotiated for an extension and loosens some issuance conditions. We believe that if these policies are implemented, they will help reduce liquidity pressure for real estate businesses in the short term,” VNDirect experts said .

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