State Bank deputy governor Nguyen Dong Tien said property sector bank loans totalled VND100,000 billion ($5.9 billion) as of late September 2008, accounting for around 9.15 per cent of the total banking system’s outstanding loans, lower than the 12 per cent in late 2007.

“These figures are under management and will be reduced over the coming months,” Tien said on the State Bank website. Tien added that the property bad debt ratio in Ho Chi Minh City and Hanoi, the country’s two biggest real estate markets, was just below 2 per cent, lower than the average level.

Tien said that the total bad debts for the whole banking system were at around VND35,000 billion ($2.1 billion), accounting for 2.92 per cent of the total outstanding loans as of late September. With international rules, this ratio was relatively safe, said Tien.

Analysts, however, said commercial banks’ lending ratios to the real estate market remained risky as no one know exactly how much loans banks had given to the property sector.

“I think that bank lending to property is higher than the [State Bank’s] announced number and solutions to property loans are more complicated to be successfully solved,” economist Vo Tri Thanh, head of the Central Institute of Economic Management’s (CIEM) International Economic Studies Department, said.

Le Xuan Nghia, head of the State Bank’s Banking Development Strategy Department, said the government would not let the property market collapse. “The property market is very important to economic stability. If it falls, it will cause a domino effect to other economic sectors,” Nghia said, adding that government funds have been available to buy back some property bad debts.

Vietnamese banking research has revealed huge amount of loans, especially real-estate loans in late 2007 and the first quarter of 2008. By late August, among 41 banks in Vietnam, two banks’ real-estate-related loans accounted for over 50 per cent of their total outstanding loans, nine banks at over 30 per cent and nine other banks 20 per cent.

“Although we have not yet been able to confirm it, it is likely that these figures do not exactly reflect how big the problem is because some banks have wrongly categorised real-estate loans in a bid to hide their high risks in this market,” said the research.

The fast changes in real estate prices are one reason why banks were too enthusiastic to offer real estate loans.
Real estate prices hit a peak in January, only one month after the peak of loan disbursement. This indirectly demonstrates the possibility that many speculators borrowed huge amount of loans to acquire real estate at the time when the real estate fever was raging, according to the research.