The important factors supporting the operation of the real estate market such as real estate brokerage services, consulting, real estate valuation, real estate management services … have not been regulated by law and have not had management measures to affect them. bad for the healthy development of the real estate market. The participation of financial institutions, credit institutions, and banks in transactions and the real estate market is still limited in terms of both quantity and professionalism.
The current freezing situation of the real estate market can be seen as an inevitable reaction of the market to the inadequacies in selling prices and product structure. Economic difficulties are just one factor that stimulates buyers to react more strongly to the absurdity of the real estate business. In other words, if the buyer’s resources do not decrease, this reaction of the market will happen sooner or later. And also undeniably, the selling price of any goods also increases when the economy develops and people have high incomes. On the contrary, when the economy is difficult and the income is low, people will reduce their consumption demand. In this case, the business will have to accept a discount in order to be able to sell goods and avoid high inventory.
In the general context of bad debt, the problem of bad debt and bad debt settlement in the real estate field of BIDV is currently receiving special attention, which is really a big problem. Because credit outstanding loans related to real estate, such as loans for real estate business, loans for production and business investment and mortgages with real estate… account for a significant proportion of the total outstanding loans. Although BIDV Quang Trung branch has a low proportion of bad debts in real estate lending /Total outstanding loans, this bad debt has partly affected the overall credit growth of the Branch. The above reasons have explained the arising of bad debt in real estate.
The main concern of banks today is how to most effectively deal with “huge” bad debts, strictly manage overdue debts that have arisen related to real estate. Whether the cause comes from the bank, customers or objective factors from the economy, the most important issue is still from the bank. With positive and correct measures, the bank will both be able to improve its own credit situation and provide good support for customers in debt recovery.
2.6 Impact of bad debt in real estate lending for joint stock commercial bank BIDV Vietnam – Quang Trung branch
Bad debt in general and bad debt in real estate lending in particular is a very hot issue of the whole society that requires banks to take the right and correct steps to be able to deal with growth barriers. credits mentioned above. In fact, commercial banks are still making great efforts to solve within their capabilities and powers. But when bad debt has reached an alarming level, if commercial banks and businesses are left to handle it themselves, the number of businesses that stop operating and go bankrupt will continue to increase because there are still bad debts at banks, goods and services. slow consumption. Thus, the economy will lose a large amount of capital, because the capital cannot be rotated, the cash flow in the economy cannot be circulated, and the banking system continues to face difficulties in liquidity. This will threaten the sustainable development of the financial system.When bad debt exceeds the allowable threshold (less than 5% of the total outstanding debt is normal), measures must be taken to handle bad debts from many sides, including measures from the State management agency.
For BIDV Quang Trung branch alone, when bad debt occurs, it will affect the credit growth of the branch. Although the branch still enjoyed a high level of credit growth, some indicators of the branch’s operational quality began to show bad signs.
– Impact on the overall credit quality of the branch.
The imbalance in credit term structure as well as the excessive use of short-term capital for long-term loans are potential causes of instability for the Branch.
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Although the branch has taken many mobilization methods, the ability to mobilize medium and long-term capital is still low compared to long-term investment capital for real estate credit.
Liquidity risk management is implemented within a liquidity risk management master plan and response to liquidity risk incidents.
In 2013, the State Bank of Vietnam will continue to implement monetary policy in the direction of tightening for the whole system. Therefore, BIDV Quang Trung needs to take measures to overcome obstacles caused by this policy to improve credit growth in the most sustainable and effective way. The credit growth rate of the branch in 2013 is expected to be at 15 – 17%, this is a relatively high rate in the BIDV system, but it is also not subjective about some outstanding debts. . Because when bad debt occurs, the branch has to step up the classification of bad debts, make a lot of provision for risks, which reduces the bank’s profit, so the credit growth rate also slows down.
– Impact on business results of the branch
The first factor that must be mentioned is the value of provision for credit risk. Although the value of provision for credit risks related to bad debts in the branch’s real estate lending is not large, this also shows that if the branch’s liquidity difficulty continues for a long time, the the number of provisions will increase more and more. According to the annual report of BIDV Quang Trung, the provision for bad debts in general in 2011 was VND 847.8 million, in 2012 increased 1.5 times to VND 1,322 million and up to the most recent time. June 30, 2013 decreased slightly to 1,317.2 million dong. If only for real estate debt group, the provisioning level accounted for over 30% of the total value set up in the years 2011 – 2013.
Not only that, if the bad debt ratio in real estate loans rises above the 0.02% threshold and the branch’s overall bad debt is at 0.07% of the total outstanding loans, higher than the 0.05 level. % at the end of 2011 and only a slight decrease compared to the end of 2012 of 0.01%.
In the situation that the whole economy’s growth is slowed down, lending risks increase, risks come from the general situation of the real estate market in the country and especially with limited credit growth, commercial banks, in including BIDV Quang Trung, has tended to increase lending interest rates for customers to offset risks. This makes the profit margin from credit activities when lending to customers tend to increase. It can be seen that, “the ratio of net interest income to customer loan value” in 2012 is much higher than 2011. This can also be one of the reasons for the profitability of the company. The banking system in 2012 continued to maintain its growth momentum.
However, the risks of increasing bad debt in business loans as well as the liquidity of real estate assets continue to be a big threat to the profitability of banks since the first quarter of 2012. Group 2 debt is on the increase, if customers continue to be late to repay their loans, the bank will be forced to change debt groups. This means that the provisioning rate will increase and the bank’s profit will decrease. Provision ratio for group 2 debt is 5%, group 3 debt is increased to 20%, group 4 is 50% and group 5 is 100%. The weak liquidity of many credit institutions also made interbank loans impossible to repay, which also made many credit institutions continue to increase provisioning expenses.
The reason is that the scale of interbank loans is usually large, many big banks such as BIDV and VCB have interbank loans accounting for 10-20% of total assets. By the end of the fourth quarter of 2012, according to the data of the State Bank of Vietnam, BIDV’s provision for loans to credit institutions nationwide was 26.1 billion (in 2011 was 13.7 billion), VCB was 18.9 billion (in 2011 was 9.8 billion)… – Impact on bank customers
In 2013, the real estate market is forecasted to continue to face difficulties. Many real estate businesses estimate that the market may have to “hibernate” for the first 6 months of the year and now the real estate market is continuing to decline without seeing a bright signal, it is forecasted that many businesses will have to sell off their projects. To recover capital, continue to invest or sell shares to banks, foreign investors… Most real estate enterprises believe that the market is likely to be brighter from mid-2012 if lending interest rates are reduced.
The lending interest rate is still above 20%/year, making both businesses, investors and people who want to buy a house do not dare to borrow. For BIDV Quang Trung alone, the current interest rate is 22%, which is still quite a high number compared to the general financial situation of current borrowing companies and even small investors in the market. current real estate market.
In fact, many projects have dropped in price, sold off…but still sluggish. Real estate prices are pushed up 4 times higher than the real value. Poor liquidity, backlog projects cannot be sold… making investors not have the money to turn around to repay banks and bad debts in this market will be difficult to recover overnight. The above factors really had a negative impact on the overall situation of the whole banking system as well as of BIDV’s branches. This is a difficult problem to solve overnight, requiring bank administrators to work together with the SBV to create the most effective policies to overcome the above situation.
Many economic experts believe that if calculated correctly and sufficiently according to international standards, the bad debt of the banking industry is not only more than 3% but will exceed 10%. According to international standards, for example, a bank has 100 dong, lends 10 dong but cannot recover it, the whole amount is considered bad debt and must make a risk provision of 100 dong. Many domestic commercial banks consider only 10 unrecovered dong as bad debt and make provision for this number. Currently, there are only a few commercial banks that classify bad debts according to international standards such as VCB, BIDV… Therefore, the most important thing is to determine the size and nature of bad debts to classify and zone them. processing direction.
For example, if a group 5 debt must make a provision for 100% of the risk, or even public investment projects need to be classified as bad debt. Many construction projects of basic infrastructure, public investment, etc. have been financed by banks but have not been disbursed or have no capital yet. The investor cannot repay the bank loan at this time, so this is also a bad debt that needs to be counted.
2.7 Some solutions are currently being applied in limiting bad debt in real estate lending at BIDV Quang Trung branch
– Change of loan portfolio structure
Currently, in the structure of the branch’s loan portfolio, the proportion of medium and long-term loans is too large, mainly for production and business loans, and for real estate investment, so there are many potential risks. In order to hedge against high-risk debts, since the third quarter of 2012, the Branch has reduced lending for medium and long-term loans, expanded consumer lending with short-term loans, and made its ability to quick recovery of capital while creating favorable conditions for credit officers to monitor and supervise.
– Diversify credit activities
One of the main measures to prevent risk is to diversify credit products to spread risks. Along with traditional lending services such as short-, medium- and long-term loans, VND loans, and foreign currency loans, banks should have many other forms of lending to encourage credit expansion such as:
Loans with increasing interest rates have the option of capitalizing loans in enterprises:
This loan product is applicable to businesses that lack working capital and the bank predicts that the financial situation of the business will tend to develop. The interest rate of the loan increases gradually in 3 years from the date of lending and the Bank has the right to convert the loan into contributed capital or convertible bonds of the borrowing enterprise.
Network lending: On the basis of payment commitments, banks will lend to a group of people or corporations and they will monitor each other in the process of using capital and repaying loans.
Loans secured by receivables from businesses: Businesses sell goods but have not been paid by buyers, leading to a lack of working capital. In this case, the bank can help the business with a temporary shortage of capital by lending a certain percentage of the amount to be collected. This ratio is high or low depending on the quality of the loans, which are rigorously appraised by the bank.
– Implement flexible interest rate policy
The branch has combined credit expansion with limiting credit risk with flexible interest rates. A flexible interest rate policy must ensure that lending interest is sufficient to cover the marginal cost of capital, loan administration costs, risk premium, and reasonable profit for the bank. Because one of the concerns of businesses when coming to a bank loan is the interest rate because the interest rate directly affects the profit brought to the business. Therefore, the interest rate must be reasonable, formed on the basis of agreements with customers, and harmonize the interests of banks and businesses.
The Bank may decide to lend with a loan size suitable to the borrowing needs on the basis of careful consideration of the loan plan/project as well as the loan guarantee conditions.
2.8 General assessment of bad debt limitation in real estate lending at BIDV Quang Trung branch
BIDV Vietnam in general and BIDV Quang Trung Branch in particular have paid due attention and are aware of the importance of debt classification and provisioning in risk management, ensuring secure credit operations throughout the system. Many guiding documents, processes and regulations have been issued in a timely manner for understanding and uniform application. The branch has well applied the process and implemented debt classification with quite accurate results thanks to the support from the computer program suitable for customer management. The Bank is in the process of applying a modern risk management model towards international standards with the separation of functional departments towards high specialization. This is a fairly common organizational model of banks in the world. Especially,The bank has been paying great attention to applying information technology to support branches in debt classification to ensure accurate results of debt classification and risk provisioning. The internal credit information system has been increasingly improved, providing regular industry analysis and information for branches to increase their ability to capture information and serve management. risks and debt classification for customers.for risk management and debt classification for customers.for risk management and debt classification for customers.
Currently, BIDV Quang Trung is one of the most efficient branches in the BIDV system in Vietnam. To achieve that success, BIDV Quang Trung has always focused on the most effective activities, which is credit activities. And limiting bad debt in real estate lending is a top concern. BIDV Quang Trung always organizes a review of its past activities and lessons learned from other banks to draw experience in its operations.
Analysis of the data shows that bad debt in real estate loans BIDV Quang Trung has been well limited. Expression is that the bad debt ratio over the years has almost no fluctuation. In the period from 2011 to the second quarter of 2013, bad debts in this sector fluctuated only within 0.02% of total outstanding loans. This is a really ideal number for commercial banks today.