Set to be enforced from July 1 this year, Circular 22/2023/TT-NHNN introduces a significant change in credit risk management in the country’s financial system.
|An apartment complex in District 10, HCM City. VNA/
HCM CITY In a bid to address potential setbacks to the real estate market, the HCM City Real Estate Association (HoREA) is advocating for changes, particularly to the restriction on banks from using future commercially developed houses as collateral for individual home purchases.
Set to be effective from July 1, 2024, Circular 22/2023/TT-NHNN of the State Bank of Vietnam (SBV) introduces a significant change in credit risk management in the country’s financial system.
Under the proposed amendments, credit risk coefficients for loans tied to social housing, home purchases and construction within government-backed initiatives will be capped at 50 per cent. The loan-to-value ratio (LTV) will see an upward adjustment from 100 per cent, and the debt-service coverage ratio (DSC) is set to exceed 35 per cent. The minimum credit risk coefficient stands at 20 per cent, aligning with a guarantee ratio below 40 per cent and an income ratio below 35 per cent.
In addition, Circular 22 also revises the credit risk coefficient for assets in the form of specialised credit for real estate business projects in industrial zones, reducing it from 200 per cent to 160 per cent.
These proposed amendments encourage credit institutions to actively extend loans for social housing projects, homes covered by various programs, and government-supported projects. Simultaneously, they must address challenges and foster a secure and sustainable real estate market.
Regarding these proposed changes, HoREA voiced concerns that certain provisions in Circular 22 could have adverse implications for the real estate market’s short-term and long-term recovery and development.
In particular, HoREA raised concerns about regulations in Circular 22 related to loans secured by real estate for individuals looking to purchase commercial houses, including those still under development. According to the circular, commercial banks and foreign bank branches are restricted to lending for houses that are “completed and ready for handover,” signifying “existing houses.”
HoREA chairman Lê Hoàng Châu said: “Circular 22/2023/TT-NHNN does not permit commercial banks and foreign bank branches to lend to individuals for the purchase of commercially developed houses that are not yet completed for handover (meaning commercially developed houses formed in the future) to be secured (mortgaged) by the house itself.
“Therefore, individuals wishing to obtain credit to purchase commercially developed houses in the future must explore alternative security measures or secure them with other assets.”
HoREA emphasised the need for immediate amendments to avoid potential adverse consequences when Circular 22 takes effect on July 1, 2024. The association said the prohibition on credit institutions from lending to individuals for the purchase of commercially developed houses in the future, secured by the house itself, is inconsistent with related legal regulations. HoREA, in turn, proposed amendments to permit credit institutions to lend to individuals for credit to purchase “commercial houses formed in the future,” with the house itself serving as collateral.
In response to HoREA’s concerns, an SBV representative said home mortgage loans, designed for individuals purchasing houses, are contingent upon specific conditions. These include the source of repayment not being rental income from the loan, the completion of the house following the purchase contract, and the legal authority of the bank or foreign bank branch to handle mortgaged property if the customer fails to repay the debt under secured transaction laws.
The SBV outlined that home mortgage loans cover purchases meeting specified conditions, encompassing completion requirements for handover. This includes loans for social housing and government-supported housing programs. Risk factors for these loans vary between 20 per cent and 100 per cent, depending on the loan-to-value ratio (LTV) and debt service coverage ratio (DSC).
For loans related to social housing and government programs, where the completion condition for handover is not met and the risk factor is lower than other home mortgage loans, it stands between 20-50 per cent, in line with the government’s policy to promote the social housing sector. The central bank emphasised that the completion condition in the house purchase contract applies exclusively to home mortgage loans, and this condition carries a lower risk factor compared to loans secured by other property estates.