The Need For Solutions To Limit Bad Debts In Real Estate Lending

The relationship between bank credit and housing prices is relatively close and bidirectional. On the one hand, a continuous increase in housing prices for a long enough time will form a psychological anchorage at high prices in the population, which is supported by certain stimulating factors that can triggering a round of rampant real estate speculation, causing the demand for housing credit to increase.

On the other hand, the increasing inflow of credit capital into the market will contribute to supporting housing demand and thereby contributing to further increase in housing prices. When the housing market declines, product liquidity freezes, real estate businesses and borrowers face difficulties, resulting in huge bad debts in commercial banks.

The nature of the bank’s bad debt is that borrowers use loans inefficiently. Bad debt often arises after a loan cycle, even after a long time. Currently, bad debt actually falls into a number of fields of production, industry and construction. These are the areas that are greatly affected by the frozen real estate market. Specifically, the outstanding loans for real estate loans at the end of May 2012 were about VND 197,000 billion, accounting for 13% of the total outstanding loans of 2.6 million trillion in all fields of the system.

In which, the bad debt of the real estate sector was determined at VND 12,000 billion, accounting for 6.5% of real estate loans. In the current difficult context, the pressure on capital for real estate is still the problem that both management agencies and businesses complain about the most. A large amount of bank credit is in real estate, and real estate lending also accounts for a large proportion of bad debt.

The State Bank’s opening to real estate is also a way to remove difficulties for banks and remove capital for real estate. In the past time, when the State Bank continuously lowered the lending interest rate to the floor level of 15%, it was thought that the real estate market would “revive” but it did not seem to be as expected when real estate investors were still unable to do so. “join”. For real estate investors, the current interest rate reduction news for them is not attractive enough to pull investors back to the market. The effect from that interest rate reduction has not actually stimulated the recovery, because the market is gloomy.

1.3.4 Limiting bad debt in real estate lending

1.3.4.1 The need for solutions to limit bad debts in real estate lending

The real estate market and bank credit have a close relationship with each other, but cannot rely on the “finance” of commercial banks to save the current real estate market.

Bank credit in the integration trend needs to be learned from experience in the past time, appropriate adjustments are needed to contribute to ensuring the healthy development of the real estate market, meeting safety needs. efficiency of investors, traders, legitimate needs of consumers and the sustainable development of the system of credit institutions in our country in the current period. Real estate investors themselves need to have strategies and solutions for themselves in business activities.

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An effective solution to the “problem” of bad debt is a problem not only for the current Vietnamese economy but also for the entire financial-monetary system. In order to effectively handle bad debts in real estate lending in particular and bad debts of commercial banks in general, it is very important and necessary to take resolute and appropriate measures from the State and the banks themselves. set. How to mobilize capital from credit institutions and idle capital from the people, thereby creating conditions to accelerate the project progress is a problem that needs to be solved for real estate investors today. This seemingly impossible story doesn’t seem too difficult if the investors can look back before it’s too late.

Vietnam’s real estate market has fallen into a stalemate in recent years, especially in 2012. The problem of the current real estate market is that many people are pessimistic about the market, losing confidence in this investment channel. , leading to the possibility that investment capital here will decrease. Meanwhile, the real estate market needs a lot of capital, but this capital depends heavily on trust. If the circumstances are favorable, people and investors may be willing to spend money to buy houses. Besides, the current real estate price is considered paradoxical because there are still many stocks in the high-priced area – the market’s supply is still very strong, while the demand is still a lot of people who want to buy a house but haven’t bought it yet. yes, or still hesitating. Supply and demand are both great but do not meet. This is the point that needs to be removed. As for real estate, the main problem here is dealing with bad debts.A large proportion of bad debt is currently in the real estate market along with the state-owned enterprise sector.

At the same time, it is necessary to continue to maintain macroeconomic stability and deal with shortcomings in the banking system. When restructuring some weak banks and improving liquidity, interest rates will be lowered. Lower interest rates and bad debt settlement are two good conditions for the real estate market to recover and for the economy in general.

1.3.4.2. Solutions are often applied to limit bad debt in real estate lending

Bad debt is a burden not only for the banking system, but also for the whole economy. There is a need for stronger measures against the causes of cross-risk in the banking system. Only then will bad debts be resolved quickly.

The increase in bad debt in the banking system is not only considered a challenge for regulators but also a challenge for the whole economy. Bad debt in the banking system is a huge obstacle to the development of the economy. Recognizing that problem, timely solutions to limit the increase in bad debt ratio have been implemented. The real estate market has started to decline since 2011. According to many experts, 2013 the market will continue to be difficult. Therefore, supporting solutions to reduce difficulties in the market and improve liquidity need the synchronous participation of ministries, branches, functional agencies and especially investors.

– The real estate market is a very sensitive market, when there is a big change, immediate intervention of the Government is required. Thus, the sooner the Government’s intervention, the sooner the market will be restored. A number of solutions are being applied to limit bad debts in real estate lending that are often used by the Government: + Monetary policy

Monetary policy is the intervention measures by the Government or the State Bank on the money supply in order to achieve its objectives by means of monetary policy such as basic interest rate, discount rate, refinancing. capital, open market operations, regulation of reserve requirements, etc.

One of the characteristics of the real estate market is that it is governed by legal factors. Real estate is a great asset of each country, a special commodity, and real estate transactions have a strong impact on most socio-economic activities. Therefore, real estate issues are closely governed and regulated by the system of specific legal documents on real estate, especially the system of legal documents on land and housing. This feature is especially true in our country because the tier 1 land market (primary market – land allocation and land lease) is most affected by decisions of the State.

Governments around the world are interested in real estate and the real estate market, always adjusting policies on real estate and the real estate market in order to mobilize resources in real estate to serve socio-economic development goals. Therefore, when the Government or the State Bank of Vietnam promulgates a number of documents affecting real estate lending rates or interest rates to support homebuyers, it will have a great influence on the real estate market, affecting liquidity. inventory in the market. Specifically, with low interest rates, both investors and homebuyers tend to need capital for investment or buy houses faster, which can increase the liquidity of the real estate market.

On the contrary, when interest rates are high, both investors and homebuyers will have limited loan opportunities or apathy to wait for interest rates to decrease, which will have a negative impact on the liquidity of the market, etc. + Fiscal policy Governments around the world often use fiscal policy as a regular, effective and simplest measure to influence the real estate market such as reducing financial costs arising from taxes/ Fees for investors and enterprises doing business in the real estate sector through the following measures: tax reduction/tax extension, tax deferral.

In principle, there are many fiscal tools (transfer tax, real estate tax …) that directly affect people’s decision to invest in real estate. Some tools can adjust against the market cycle to affect real estate prices while ensuring investment trends in the market. However, the reality is completely different.

For example, if the net present value of future taxes is already included in the property price, adjusting the tax rate in the frame of the average annual expected market return will have no effect. greatly affect housing prices. Homebuyers won’t react much to this adjustment if they find it to be an acceptable cost, based on investment benefits and living benefits, unless the tax agency proceeds to raise the rate. impose taxes in excess of the above bracket. Therefore, it can be said that tax is not the main tool to determine the price of real estate during the boom period.

+ Macroprudential supervision policy

Authorities can issue macro-prudential supervision regulations with specific goals to prevent risks associated with real estate bubbles. They can have a direct impact and at a much lower cost than monetary and fiscal policy. However, these regulations also have two disadvantages: first, one can find loopholes to bypass because they only focus on a certain group of objects or a specific type of contract, and when this happens. then they become void; the second is that in a market economy, their application would somewhat infringe on the functioning of the market.

+ Establishment of asset management companies

Not only countries in Asia have established asset management companies, but even developed countries such as the US and Latin American countries have companies specializing in handling bad debts of banks. In countries around the world, there are many types of debt trading companies: state-owned companies or privately-owned companies. For private debt trading companies, some operate independently, others are subsidiaries of banks or operating units directly under banks.

State-owned debt settlement companies often operate quite effectively when the problem of bad debt is systemic and the legal framework for debt settlement is still weak. There are times in the market when there is no buyer for bad debts, the State debt settlement company can be the consumer of the aforementioned bad debts, and when the legal framework for bad debt settlement has not been established. If “healthy”, the State debt settlement company can help shorten the debt settlement process. Moreover, the Government’s acquisition of bad debts of banks through state-owned debt settlement companies may create opportunities for the Government to impose conditions to help banks restructure the problem. its finances and operating structure.

– Commercial banks are the key factors to support the Government or the State Bank to implement measures related to the real estate market, but when commercial banks also fall into the vortex of negative fluctuations of the real estate market, commercial banks cannot wait for the change. Government’s rescue, which often soon introduces measures to limit the bad effects of the real estate market, specifically: + Higher capital requirements regulations

Capital regulations often have a direct impact on the supply of credit.

During periods of economic growth, good economic conditions will reduce credit risk, improve capital adequacy ratios and expand assets. During an economic downturn, the opposite is true. Therefore, forcing commercial banks to increase their capital to a minimum level during economic growth will help provide provision for losses that may arise in the future; At the same time, it significantly increases the cost of credit, makes investors scrutinize real estate prices and leads to a decrease in investment demand.

+ Flexible redundancy

The mechanism and benefits of this regulation are similar to those mentioned above, that is, requiring commercial banks to make additional provisions during economic growth, which can help cover losses for credits. use losses when the business cycle changes. However, this regulation did not increase the cost of credit and, therefore, did not stop the real estate bubble. But its advantage is that it does not depend on a fixed margin (minimum level) that can still be applied at any time even when the capital ratio of commercial banks is quite high.

This regulation is mainly aimed at protecting the banking system against possible consequences of a real estate market crash, rather than affecting credit activities and controlling damage to the economy. Its disadvantage is that if it is only applied to domestic commercial banks, it will affect the competitiveness of these banks, causing credit activities to fall into the hands of foreign banks, causing problems. supervision issues with those organizations.

In short, making the right policy to prevent real estate bubbles requires careful research. Macroprudential monitoring policy seems to be the best choice because it focuses on the source of the problem, is appropriate for each specific case in each country and at different times, and more importantly. both strengthen the capacity of the banking system.

CONCLUSION CHAPTER 1

The contents of Chapter 1 have briefly presented the general theoretical bases related to real estate, the real estate market and real estate lending. It mainly focuses on the main content related to the concept of real estate, classification of real estate, factors affecting the value of real estate and types of real estate put into business. Besides, this chapter also mentions the concepts, classification and characteristics of the real estate market; the impact of bad debt in real estate lending and the need for solutions and some commonly used solutions to limit bad debt in real estate lending. Through the theoretical issues just presented, the author will analyze specifically the situation of bad debts in real estate lending of BIDV Quang Trung Branch in the content of chapter 2.

CHAPTER 2: NEGATIVE SITUATION IN LOAN FOR REAL ESTATE BUSINESS AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM BIDV Quang Trung Branch

2.1 Overview of Bank for Investment and Development of Vietnam and Quang Trung branch

2.1.1 General introduction of Joint Stock Commercial Bank for Investment and Development of Vietnam BIDV

The 50-year history of construction and growth of the Bank for Investment and Development of Vietnam is a journey full of hardships and challenges, but also very heroic and associated with each historical period of struggle against invaders and invaders. nation building of the Vietnamese people…

On April 26, 1957, Vietnam Construction Bank (under the Ministry of Finance) – the predecessor of the Bank for Investment and Development of Vietnam – was established under Decision 177/TT dated April 26, 1957 of the Bank for Investment and Development of Vietnam. Prime Minister. Initial scale included 8 branches, 200 employees. The main task of the Construction Bank is to allocate and manage basic construction capital from the state budget for all economic and social fields.

On June 24, 1981, Vietnam Construction Bank was renamed Vietnam Construction and Investment Bank under the State Bank of Vietnam under Decision No. 259-CP of the Government Council. The main task of the Investment and Construction Bank is to allocate, lend and manage capital construction investment in all sectors of the economy under the State plan.

On November 14, 1990, the Bank for Investment and Construction of Vietnam was renamed Bank for Investment and Development of Vietnam according to Decision No. 401-CT of the Chairman of the Council of Ministers. This is the period of implementing the renewal policy of the Party and the State, transforming from a centralized subsidy mechanism to a market mechanism under the management of the State. Therefore, BIDV’s tasks have been fundamentally changed: to continue to receive capital from the state budget to lend to projects under the state plan; mobilize medium and long-term capital sources for development investment loans; currency, credit and banking services mainly in the field of construction and installation for investment and development.

From January 1, 1995 until now, BIDV is allowed to do general-purpose business as a commercial bank, serving mainly for investment and development of the country. This is recognized as the period of “transformation, renewal, growing up with the country”; prepare a solid foundation and create momentum for the “take-off” of BIDV.

Over 50 years of construction and growth, the Bank for Investment and Development of Vietnam has achieved very important achievements, effectively contributing to the entire banking industry in implementing the national monetary policy and developing the economy. society, confidently towards bigger goals and aspirations to become a reputable Banking and Finance Group in the country, in the region and reaching out to the world.

Joint Stock Commercial Bank for Investment and Development of Vietnam. International transaction name: Joint Stock Commercial Bank for Investment and Development of Vietnam Short name: BIDV – Main business activities:

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