State supervision. On that basis, actively promote the market development to create conditions for the majority of urban people to access capital sources for housing.
Due to the nature of housing finance, which uses long-term capital sources, while the capital sources of banks are deposits (from 3 months to 1 year). This is one of the risk factors when banks finance housing loans. As a result, most housing loans have terms of 3-7 years. Short loan terms have a serious impact on housing loans because the monthly income required to repay the obligations of a 12-year loan is only half of that required for a 5-year loan.
Therefore, for housing finance to develop, credit institutions need to provide and develop new savings products. The requirements of these products are to be linked to loans and must be structured more complexly than simply relying on interest rates. There are many types of instruments used by credit institutions to mobilize savings. The purpose of credit institutions is to ensure capital for the longest possible term at the lowest possible cost. Deposits mobilized by credit institutions still have quite high liquidity although the State Bank has encouraged not to apply compulsory reserves to deposits over 24 months.
Hanoi in particular and Vietnam in general are facing the situation of “dollarization” of the economy due to people using foreign currencies for exchange and as a reserve tool. The main motivation is to protect their savings from the impact of inflation and exchange rate risks. The fact that urban people prefer to use foreign currencies reflects the fact that there are too few savings tools provided by the banking system for them to choose from.
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Orientations for Perfecting Housing Finance Policy in Hanoi Urban Area -
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The involvement of insurance companies in mortgage lending is in its early stages due to lack of statistics. On the other hand, when insuring a mortgage the borrower has to pay an additional fee (in addition to the interest rate) for
This field has not really developed. Mortgage insurance is one of the tools to share risks for both borrowers and lenders. In the coming time, the State needs to encourage these organizations to participate in the market to diversify service types and minimize credit risks.
At the same time, credit institutions need to research and develop tools and products of the housing finance market such as: housing savings products and programs; mortgage loan guarantees; mortgage insurance, to mobilize capital from the people for housing development and create access to this capital for the majority of urban residents. These solutions facilitate access to housing credit for all low-income households, even households with difficult incomes below the poverty line in urban areas.
3.3. Some solutions to improve housing finance policy in Hanoi urban area
As analyzed in practice in Chapter 2, it can be seen that in Vietnam in general and Hanoi in particular, housing finance is currently developing in the stage of the primary mortgage market. The process of building the primary mortgage market is slow due to the lack of many factors to create a healthy housing finance market. Moreover, Vietnam has become an official member of the WTO, so the development of the financial market in general and the housing finance market in particular must develop synchronously and deeply, this is an urgent requirement. We need a certain amount of time to create these factors. In the immediate future, the following specific solutions need to be implemented:
3.3.1. Perfecting housing finance policies to integrate with the regional and world economies
“Propaganda and dissemination to help all people deeply understand the Party's viewpoints on international economic integration, WTO accession, and Vietnam's opportunities and challenges” is one of the 12 major solutions for economic development that have been approved.
The Government approved it in early 2007. Based on popular propaganda to make the whole population aware of the viewpoint of international economic integration, Vietnam must focus on building and perfecting laws and institutions, promulgating clear and specific legal documents to ensure freedom of trading in goods and services for all market participants.
Vietnam has achieved the goal of rapid and sustainable economic development in recent times. The housing finance sector has received funding from many international organizations through official development assistance funds. In 2004, donors committed to supporting ODA capital worth 3.440 billion USD for Vietnam, and in 2005 this commitment reached 3.747 billion USD. Among the ODA projects being implemented in Vietnam, there are many projects to finance urban development and housing renovation for low-income people such as: the project to renovate and upgrade infrastructure for low-income residential areas in Hai Phong urban area of the World Bank (WB), the project to develop Nam Dinh urban area and Dong Hoi urban area of Switzerland, the project to finance housing for low-income people of the Asian Development Bank (ADB)... Non-refundable aid capital and budget support from foreign governments and organizations for Vietnam are also of considerable value (accounting for nearly 2% of total state budget revenue).
In addition to receiving the above-mentioned international support funds, Vietnam has proactively participated in the international integration process. International integration will increase the prestige and position of the Vietnamese financial market, create opportunities to improve the capacity and effectiveness of the State Bank's policy management, promote reform and force domestic credit institutions to operate according to market principles, overcome shortcomings, enhance competitiveness to improve management and diversify products. Participating in integration, domestic credit institutions will access the international financial market more easily, capital mobilization efficiency will increase, contributing to improving the quality of operations.
On the other hand, when participating in integration, the number of credit institutions with financial potential, management level and technology will increase, competitive pressure will also gradually increase according to the roadmap, loosening regulations for foreign financial institutions. In this new "playground", domestic financial institutions and the stock market will also have to face economic shocks, international finance and the risk of crisis. In particular, the banking sector is a very sensitive sector and must be opened almost completely according to commitments to join the World Trade Organization WTO, the Vietnamese banking system is classified as a key sector, needing to be restructured to improve competitiveness. To take the initiative in the integration process, Vietnam needs to build a reputable banking system, with sufficient competitiveness, operating effectively, safely, with the ability to better mobilize capital sources in society and expand investment. To do this, it is necessary to first improve the legal system and policy mechanisms on banking and finance, speed up the promulgation of the Law on Competition and Monopoly Control, and turn this law into a tool for the Government to control competition activities. Then, it is necessary to unify viewpoints, clearly and specifically define the roadmap for financial opening. Financial liberalization must be implemented last, after implementing structural reforms and trade liberalization. If there is a suitable financial integration roadmap, it will ensure the effective integration of the financial system, increase competitiveness without getting caught up in various forms of financial-banking crises. Finally, urgently complete the operations of the money market and improve the operations of the stock market, and specifically define the roadmap for opening the financial-banking market.
In the process of joining the WTO, with liberalization commitments, Vietnam will be required to allow capital movement. This means that Vietnam must open its doors for international investors and financiers to participate or withdraw capital from the financial market without any obstacles, if we only regulate the flow of capital.
International capital entering the territory and restricting capital transfers abroad are contrary to the above commitments. Therefore, to ensure the safety of the domestic financial market, there should be specific regulations on the minimum period for foreign capital to invest in Vietnam within a certain period (for example, from 3 to 5 years) to avoid the phenomenon of massive capital withdrawal from the domestic market.
The issue of information disclosure and financial transparency in Vietnam is one of the current prominent issues when participating in the international community. One of the most typical examples is the recent stock market fever: almost the majority of investors do not have knowledge about securities, financial analysis and reading prospectuses... As a result, investors cannot protect themselves and only buy and sell based on personal feelings and rumors ("herd mentality"), which greatly affects the safety of the entire national system. Therefore, in the coming time, in order to develop a stable and safe secondary mortgage market and protect potential domestic investors, the State needs to have unified regulations in accordance with international practices on issues related to information disclosure, personal freedom, and transparency...
Along with information disclosure is transparency in policy development and implementation. Before proposing a new policy or amending an old policy, the State should publish it on the mass media so that people can access and contribute their opinions. At the same time, develop and promulgate regulations related to the process of receiving, processing and responding to feedback.
In addition, it is necessary to build an effective monitoring system because if the monitoring mechanism is not good, the issuance of the above regulations will no longer have much meaning. The Government needs to review and issue legal documents, supplement and amend laws as well as establish an information system between financial market participants, ensuring the development and operation of the financial market in general and housing finance in particular in the integration process.
Financial liberalization in general and housing finance in particular is an inevitable process in integration with the regional and world economy. This process brings many benefits to the economy, but if documents, policies and control mechanisms are lacking, overlapping, inadequate and not synchronized, this is a risk that can lead to a collapse of the financial system like the countries in the region in the period of 1997-1998. However, we still have to promote international economic integration in a "proactive and positive" manner while "continuing to innovate economic institutions, reviewing legal documents, amending, supplementing and completing the system of legal documents to a relatively sufficient quantity, ensuring consistency, consistency, stability and transparency". [4; p. 247]
3.3.2. Perfecting policies and policy tools affecting capital formation in housing finance
In the current development conditions of the real estate market in general and the housing market in particular, policies affecting capital formation for housing finance are playing an increasingly important role.
In recent times, the development of the stock market is a testament to the abundance, availability and internal source of capital in the population, the total capitalization of the stock market reached 221,156 billion VND, there were nearly 400 types of government bonds, municipal bonds and listed bank bonds with a total value of over 70,000 billion VND. However, although the market size increased, the relationship between supply and demand of securities was sometimes unbalanced, causing fluctuations in the market, so the stock market's operations were not really stable and solid. Although the market capitalization increased rapidly, in general, the market size of Vietnam is still small compared to other countries. The system of legal documents regulating market activities needs to be further improved. The transparency of the stock market through information disclosure of listed companies has been gradually improved, however, the content, quality and time limit for information disclosure
Information has not met the requirements for management. The infrastructure system, especially the information technology system of the Stock Exchange Centers and securities companies, shows shortcomings in the face of the rapid development of the market, requiring investment and system upgrading.
To create the premise for mortgage securities on the stock market to attract capital for housing finance in the coming time, the State needs to perfect the legal framework, institutions and policies, promote the implementation of the Securities Law through the issuance and implementation of guiding documents, perfect the auction regulations in the direction of 2 levels and increasingly more transparency. Increase the quantity and quality of supply and demand for the market. Develop the Hanoi Stock Exchange Center into a market for trading stocks of small and medium enterprises. Build a specialized government bond market at the Hanoi Stock Exchange Center. Improve the operational capacity of intermediary organizations. Narrow the free market to manage public companies according to the provisions of the Enterprise Law, the Securities Law and implement the reporting, information and corporate governance regime. Through centralized securities depository and payment activities, minimize risks in the free market. Standardize the operations of the Securities Trading Center and depository members.
An effective stock market with management sanctions is a basic condition for the development of the secondary mortgage market, especially in the securitization of mortgage loans and the issuance of mortgage bonds. The issuance of mortgage securities is an effective form of capital mobilization, contributing to the creation of an exploitation channel in urban residents. It also demonstrates the connection between the financial market and the real estate market, the secondary mortgage market and the capital market. First of all, the issuance of mortgage securities will be tested and focused on professional customers such as credit institutions, insurance companies.
insurance, securities, investment funds... will then expand to private investor customers.
A very important issue when mobilizing capital through the capital market is transparency. Therefore, the State Bank, the Securities Commission and the Ministry of Finance need to build a credit rating system. In countries with developed financial markets, credit ratings of organizations participating in the market are carried out by independent rating companies, and this information is publicly disclosed to investors and market participants.
When there is no commercial bank to buy back all mortgage loans of credit institutions, the State considers allowing some commercial banks to issue mortgage bonds to have capital for long-term housing loans. The State has specific regulations on bond terms, bond interest rates, bond issuance procedures, payment procedures when due, handling of violations... In this work, inspection and examination are very necessary to ensure that all capital collected from issuing mortgage bonds must be used for housing loans. Therefore, to develop the stock market in general and the secondary mortgage market in particular, it is necessary to build an independent and effective credit rating mechanism.
At the same time, the State also needs to continue to allow commercial banks to be autonomous in mobilizing savings. The current policy of the State Bank towards commercial banks is based on market principles. Commercial banks are free to set interest rates for deposits. The State Bank operates interest rates according to the basic interest rate mechanism, which is suitable for current conditions. This is a step forward in the State Bank's interest rate management policy towards interest rate liberalization when conditions permit. The problem is that the State Bank needs to perfect the principle of determining a reasonable basic interest rate, in accordance with the domestic capital supply-demand relationship, international market interest rates, ensuring the interests of borrowers and lenders. Because the lending interest rate is calculated on the margin of the mobilization interest rate, the State Bank must improve the principle of determining a reasonable basic interest rate, in accordance with the domestic capital supply-demand relationship, international market interest rates, ensuring the interests of borrowers and lenders. Because the lending interest rate is calculated on the margin of the mobilization interest rate, the State Bank must improve the principle of determining a reasonable basic interest rate, in accordance with the domestic capital supply-demand relationship, international market interest rates, and ensuring the interests of borrowers and lenders.