Banks may face many risks in 2006 due to a prolonged “frozen” property market – was the forecast given by representatives from banks at the closing conference of HCM City’s bank sector held on January 1st.
Mr. Tran Ngoc Minh – Director of HCM City-based State Bank of Vietnam said: In the coming time, there would be an increase of medium and long-term capital that is hard to be mobilised, while the collection of medium-term loans would be more difficult because part of them had been invested in property by borrowers. Currently, investors’ outstanding loans in property projects stands at VND29,000 billion (US$1.823 billion), accounting for 15 per cent of the total . Meanwhile, the property market has been frozen for a long time.
Mr. Hoang Van Toan – Director-General of Nam A Joint Stock Commercial Bank warned that “apart from direct loans, the total number including indirect loans is larger. In my opinion, possible risks to banks in 2006 have emerged in which the biggest one is the property market frozen since 2005. Documents in relation to the property market issued continually have made great impacts on it as well as on banks”.
Mr. Tran Van Vinh – Director of HCM City-based Investment and Development Bank is also worried, he claims that, “Banks will deal with risks of loans invested in property. The property market is facing major difficulties that will affect enterprises operating in the construction material sector”.
Meeting on the sidelines of the conference, the Director-General of a joint stock bank said that property appeared to be the major security for loans. If the property market collapsed, it would bring about the collapse of a variety of banks. In a situation where the price of property decreased sharply, the loan appraisal of banks would be higher than the market’s price, and then banks would also face risks.
To defrost the icy situation of the property market, Mr. Tran Ngoc Minh proposed some measures such as allowing enterprises to pay fee for land use rights according to the speed of licensing certificates of land use rights, and giving investors permission to transfer land use rights after the completion of technical infrastructure and issue certificates of property. In addition, the Government should provide flexible solutions and suitable steps to reorder the land and housing sectors. Warnings about credit investments into property is an issue to which HCM City-based State Bank of Vietnam requires banks in the district to pay great attention to in 2006.
Moreover, according to the SBV, there remain factors that carry huge potential risks and will cause price increases in 2006. These include the continual fluctuation of oil prices on the world’s market and avian flu.
Therefore, the development of the currency market in 2006 is still connected with that of the commodity market and is affected by factors of the world’s market such as FED interest rates, exchange rates and the price of gold.
The FED interest rate is likely to increase in the coming time, and along with the recovery of the US dollar, are objective factors causing an impact on the supply and demand relation of foreign currency capital. Accordingly, the domestic foreign currency rate will increase, resulting in the transfer of remittance from Vietnamese dong to foreign currency.
To solve this problem, banks will be forced to raise the VND interest rate, which will also force banks to choose such a rate to ensure a reasonable difference between the interest rates of VND and foreign currency (taking the possible increase of exchange rate into consideration), so that they may restrict the transfer of remittance from VND to foreign currency.
In 2005, credit institutions operating on the district of HCM City have gained profits, reaching VND5,076 billion (US$319 million) in total of which, profits of state-owned commercial banks, joint-stock commercial banks, foreign banks and joint-venture banks stood at VND2,085 billion (US$131 million), VND1,335 billion (US$83.9 million), VNDD1,456 billion (US$91.5 million) and VND200 billion (US$12.57 million), respectively.
P.V
Vietnamese
