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Banks urge real estate developers to pay debts   2011-11-17 - NLD

Commercial banks are applying strong measures to demand payment of debts, because they have to run against time to reduce the outstanding loans to non-production sectors to 16 percent by the end of 2011 as requested by the State Bank of Vietnam.


The fact that PVL in late October 2011 announced the sale off of 85 apartments at PetroVietnam Landmark project to get money to pay debts can partially shows the current situation of real estate developers.

PVL borrowed 100 billion dong from Lien Viet Bank to develop the project and has to pay debt on November 23. If PVL cannot pay debt on schedule, the interest rate will increase to 25 percent per annum. Besides, PVL will also have to bear the overdue debt interest rate of 150 percent, which means that the interest rate will be 35 percent, and the accumulative interest rate PVL has to pay will be 40 percent per annum.

Borrowers told to pay debts as soon as possible

Commercial banks, which are now under a hard pressure of reducing the outstanding loans to 16 percent by the end of 2011, are urging borrowers to pay debts on schedule or pay before the debts become due. The loans provided to the real estate sector are considered the worst debts because the real estate market keeps gloomy, which means that investors cannot sell products for money to pay debts.

Nguyen Thanh Toai, Deputy General Director of Asia Commercial Bank ACB, said the bank is applying drastic measures to quickly reduce the outstanding loans to non-production sectors to 16 percent.

Tran Thanh Hoa, General Director of An Binh Bank, also said that since the State Bank instructed banks to tighten the lending to non-production sectors, the bank has been restricting to disburse money to the sectors and have stopped funding big real estate projects. Therefore, Hoa believes that reducing the outstanding loans to non-production sector proves to be within reach.

Meanwhile, other bankers prove to be less optimistic than Hoa about the possibility of reducing outstanding loans. Director of a joint stock bank said that banks themselves also injected money in real estate projects, which has made them suffer as the market keeps gloomy.

“Only the banks which do not get involved in real estate projects can fulfill the instruction by the State Bank,” he said.

Do it, though it’s difficult

According to the HCM City branch of the State Bank of Vietnam, by the end of July 2011, the real estate outstanding loans of commercial banks in the city had reached 89,350 billion dong.

“Banks have not updated information regularly since August 2011; therefore, we still do not have new figures. However, it is clear that the gloomy stock market has been badly affecting the debt collection of commercial banks,” an official of the central bank said.

The State Bank of Vietnam’s Instruction No 01 stipulates that commercial banks must reduce the outstanding loans to non-production sectors to 22 percent by June 30, and to 16 percent by December 31. The banks, which cannot fulfill the instruction, will be punished: they will have to pay the compulsory reserve ratio which is double the currently applied level, and will face the business restrictions in 2012.

The State Bank recently has, once again, urged commercial banks to reduce the outstanding loans to non-production sectors to 16 percent.

All these activities have made banks understand that they have to fulfill the central bank’s instruction, though it is really a difficult task.

Dr Dinh The Hien, a well known economist in Vietnam, said that if banks plead difficulties and do not fulfill the instruction, this will badly affect the government’s policy to fight against the inflation. “Besides, the bank restructuring process also needs to be started by the commercial banks’ behavior of obeying the instruction by the central bank,” he commented.

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