Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development

FOREWORD

1. Reason for choosing the topic

Around the world, lending in the real estate business or mortgage lending with real estate is a popular financial service of banks. However, the main source of capital for the real estate market is mobilized from financial sources such as insurance funds, pension funds, State funds and funds of financial companies in general. Not the banking industry.

In Vietnam, although the real estate market has only started to prosper since 2003, but because the financial market has not yet developed, the capital source for the real estate market depends entirely on banks. However, in the current conditions, with many different reasons, Vietnam’s real estate market is developing unsustainably, the legal environment is not tight, information about the market is still lacking… This will affect have certain effects on the operations of enterprises, especially real estate enterprises, thereby causing risks to credit activities in general and real estate credit of commercial banks in particular. On the other hand, real estate credit often has a large scale and long term, so the risk of liquidity during the lending process is very large.The real estate market since the beginning of 2011 has been facing many great challenges and has been strongly affected by macro policies, especially monetary policy. The fact that the cash flow is reduced sharply, causing the market to “shock” and quickly freeze is causing a great risk to the financial market. According to statistics, in the first 6 months of 2011, real estate credit balance was 245 trillion VND, equivalent to 10% of total outstanding loans. The rate is quite high compared to some countries in the region such as Thailand at 6%.

In which, real estate bad debt is at about 3%. By the end of 2012, the total outstanding loans for real estate loans accounted for 8.6%, bad debts in this sector are currently at 12,300 billion VND, equivalent to 5.4%, lower than the average bad debt ratio of other areas.

Joint Stock Commercial Bank for Investment and Development of Vietnam ( BIDV ) is one of the leading state-owned commercial banks today. BIDV has increasingly affirmed its prestige and quality in its credit activities. The bank currently has the leading loan balance in the commercial banking system in Vietnam. It can be said that this is one of the banks with the most loans secured by real estate in Vietnam today.

That’s why I decided to choose the topic: “Solutions to limit bad debt in real estate lending at Commercial Joint Stock Bank for Investment and Development of Vietnam – Quang Trung branch”. The topic systematizes the scientific theoretical basis related to the real estate market, real estate lending operations. Thereby, the topic focuses on researching and analyzing the situation of bad debt in real estate lending at Quang Trung branch and proposes some solutions to limit and manage it in the most effective way.

2. Research objective

Overview of the current situation and some measures to limit and manage bad debts in real estate lending at BIDV Quang Trung. From that analysis, the study proposes some recommendations, directions and solutions to minimize bad debts arising and better manage existing bad debts at the branch.

Maybe you are interested!

3. Research scope

The topic delves into the current situation and solutions to limit bad debts in real estate lending at Joint Stock Commercial Bank for Investment and Development of Vietnam, with a focus on solutions to limit debt. bad is being applied at BIDV Quang Trung. Besides, the topic also learns about the regulations, legal documents, the situation of real estate lending activities from 2011 to 2013.

4. Theme structure

In addition to the introduction, conclusion, list of references, the topic includes three chapters: Chapter 1: General theoretical basis for bad debt in real estate lending.

Chapter 2: Situation of bad debt in real estate lending at joint stock commercial bank for Investment and Development of Vietnam – Quang Trung branch.

Chapter 3: Solutions to limit bad debt in real estate lending at joint stock commercial bank for Investment and Development of Vietnam – Quang Trung branch.

Due to the limitation of time and research materials, the thesis still has many shortcomings, I would like to receive suggestions from the teachers.

Thank you sincerely.

CHAPTER 1: GENERAL Rationale About Bad Debts In Real Estate Lending

1.1 Some basic issues about real estate

1.1.1 Concepts

Until now, most countries in the world have classified property according to ancient Roman law, that is, property classification into “real estate” and “movable property”. Thus, real estate is not only land and wealth in the ground, but also all that is created by human labor associated with the land such as construction works, crops, crops… and everything related to the land or attached to the land in 3 dimensions (height, depth, width) to form a physical form with a defined structure and function. In our country, we also approach the same problem, so the 2005 Civil Code stipulates that “real estate is assets including: land; houses and construction works attached to land, including properties attached to such houses and construction works; other properties attached to the land; other properties prescribed by law” (Article 174).

1.1.2 Classification of real estate

Real estate is divided into many types, with very different characteristics and requirements for use. During the management process, it is necessary to classify real estate according to the characteristics of formation and the ability to participate in the market of each type to ensure the formulation of development policies and management of the real estate market in accordance with the actual situation. From the experience of many countries and research results in our country, real estate can be classified into three groups: real estate with construction investment, real estate without construction investment and special real estate.

+ Group 1: Real estate with construction investment includes: residential real estate, factory real estate and commercial – service works, infrastructure real estate (technical infrastructure, social infrastructure), office real estate, etc. …In the real estate group with construction investment, the real estate group (including land and assets attached to land) is the basic real estate group, accounting for a very large proportion, very complex nature and affected by the impact. influenced by many subjective and objective factors. This group has a great impact on the process of industrialization and modernization of the country as well as sustainable urban development. But more importantly, this group of real estate accounts for the vast majority of transactions on the real estate market in our country as well as in the world.

+ Group 2: Real estate without construction investment, real estate in this group is mainly agricultural land (in the form of means of production) including agricultural land, forest land, aquaculture land, land for salt production, rare earth, unused land…

+ Group 3: Real estate, especially real estate such as national conservation works, tangible cultural heritage, family churches, communal houses, temples, shrines, cemeteries, etc. The feature of this group is the ability to participate in the market. very low field.

The division of real estate into the above three groups is essential to ensure the development of appropriate policy mechanisms and determine the management model for the real estate market.

However, not all real estate is put into production and business. According to Article 2, Decree 153/2007/ND-CP dated October 15, 2007 of the Government detailing and guiding the implementation of the Law on Real Estate Business, the types of real estate that can be put into business include: The construction process in accordance with the construction law is put into business.

+ The land use right is allowed to participate in the real estate market in accordance with the law on land.

+ Real estate means houses, construction works and land use rights specified in the above two articles and must also satisfy the conditions specified in Article 7 of the Law on Real Estate Business before being put into business.

Based on the actual situation of socio-economic development and the real estate market, the Prime Minister will adjust and supplement the types of real estate put into business in accordance with the actual situation and in accordance with the law. .

1.1.3 Real estate market

1.1.3.1 Concept of real estate market

Since the transition from a centrally planned economy to a socialist-oriented market economy (1986), Vietnam has made efforts to build and develop synchronously the elements of the market economy. . Up to now, we have basically formed all parts of the market economy, in which some markets have developed quite well such as the market for output products, especially the market for goods and some products. service products. However, for input product markets that are important to the development of production and business, such as the capital market, the labor market, especially the real estate market, is only in the initial stage of formation. and develop.

It can be seen that the real estate market itself does not come about by accident, it depends on when the real estate is considered a commodity, exchanged, bought, sold, leased, transferred, etc. In general, it is an activity. real estate business. Currently, there are many different conceptions of the real estate market, based on theoretical research, domestic and international real estate researchers have come up with a number of concepts about the real estate market from many angles. different views. According to Vnexpress newspaper, the real estate market is the sum total of relationships on real estate transactions that take place in a certain geographical area, in a certain period of time, which can be understood simply or more specifically as the system of real estate transactions. system of relationships through which real estate transactions are carried out.

Author Tran Thi Hong Dao, lecturer at the University of Economics in Ho Chi Minh City, said that the real estate market is the process of real estate transactions between related parties, where buying and selling activities take place. concessions, leases, mortgages and services related to real estate such as intermediaries, brokers, consultants, etc., among actors in the market where the role of State management has a decisive impact on the promotion promote development or inhibit business activities in the real estate market. In other documents, it is also defined that the real estate market is the place where decisions are made about who has access to real estate and how and for what purposes it is used, as a focal point for implementation and price movement. value of real estate goods.

Thus, it is possible to generalize about the real estate market as the place where the activities of buying, selling, transferring, leasing, mortgage and related brokerage services such as brokerage, consulting, etc. market in which the role of State management over the real estate market has a decisive impact on promoting development or inhibiting business activities in the real estate market.

1.1.3.2 Classification of real estate market

There are many ways to classify the real estate market: + Based on goods in the market: land, housing market; service real estate market; office and rental real estate market; industrial real estate market; tourism real estate market.

+ In order to participate in the market: primary market, secondary market.

+ By investment level: real estate with construction investment; Real estate without construction investment; Special real estate.

+ According to the purpose of use: real estate for infrastructure construction, real estate for housing projects, real estate for housing projects, tourism real estate.

The division of real estate according to the above forms is very necessary to ensure the development of mechanisms and policies on the development and management of the real estate market in accordance with socio-economic conditions.

1.1.3.3 Characteristics of the real estate market

In most countries with market economies, the real estate market has formed and developed through four levels: initialization, centralization, monetization and financialization.

First, the beginner level: That is the stage where everyone can build their own home. At this stage, only a piece of land can be formed to form a house and be considered real estate. At this level, land policies, landowners and land management agencies play a decisive role.

Second, the level of centralization: It is the stage of construction enterprises.

During this period, due to limited land and limited construction capacity, not everyone can form and develop a building, a large real estate, or a real estate project. In this level, construction policies and enterprises and construction management agencies play a decisive role.

Third, the level of monetization: It is the stage of construction businesses. At this time, the boom of real estate developers, due to limited conditions for real estate sales, not all businesses have enough money to develop real estate until it is sold on the market. In this level, banks play a decisive role in participating in one project or another. Banking policies, banks and banking regulators play a decisive role.

Fourth, the level of financialization: When the size of the real estate market increases and the market develops strongly, due to the limitations of long-term capital sources to finance the real estate market, banks either cannot continue to finance the real estate market. loans for real estate or will face risks. At this time, banks have to finance loans, mortgages as well as grants to the market in order to mobilize and diversify sources of capital. At the level, financial institutions, financial policies, financial institutions and financial regulators are key players.

It can be seen that, not necessarily every economy, every real estate market goes through each step and level as above. Nor is it necessary that all levels of market development have the same time period. Nor is it necessary that the stages of market development must be the end of one stage before moving on to another. Economies, especially those that have developed through all four levels for a long time. For example, in Australia and New Zealand, real estate assets have been securitized at a very high rate. Countries with transition economies all apply mainly “shock” therapy, ie simultaneously applying all mechanisms and policies according to the standards of market economies, so at present, the real estate market already at the level of financialization. China is also preparing to transition to the financialization of the real estate market.

– In each level of development of the real estate market, the movement of the market has an oscillation cycle similar to many other markets.

The oscillation cycle of the real estate market consists of 4 phases: prosperity (exciting), recession (signs of slowing down), decline (freezing) and recovery (heating up can cause “fever”. ). For example, the US real estate market in about a century (1870-1973) experienced 6 cycles of oscillation, each cycle averaged about 18 years. The Japanese real estate market from 1956 to now has undergone 4 cycles, each cycle is about 10 years.

The Hong Kong real estate market since World War II has had 8 oscillation cycles, the short cycle is from 6-7 years, the long cycle is 9-10 years, the average is 8-9 years. Although China’s real estate market has not been established for a long time, from 1978 to now, there have been 4 oscillation cycles, notably a very short cycle (1992-1994), a “galloping” growth in 2 years. 1992-1993 and then collapsed very quickly in 1994.

– The real estate market is regional, deeply regional and not concentrated, spreading across all regions of the country.