In a report on the banking industry recently released by the SSI Securities Analysis Center – SSI Research, researchers said that the indicators reflecting credit quality for 2023 may be under greater pressure than in 2022 as risks related to the real estate sector and corporate bond market may gradually emerge.

SSI Research believes that credit risks related to the real estate sector and the corporate bond market should be closely monitored because banks may not have made much provision for this sector in advance.

It was said that credit quality indicators may remain under control in the second half of 2022, although the rate of bad debt formation is forecast to increase in the second half of the year due to the expiration of the restructuring loans.

Delinquency from home loans needs to be monitored in 2023

With the growth of real estate developers, homebuyers have enjoyed a 2-year grace period without paying interest and/or principal. However, from 2023, these buyers will start paying interest and principal. If inflation accelerates and economic growth slows, disposable income will decrease.

This can make it more difficult for homebuyers to arrange monthly payments. Therefore, the delinquency rate from home loans should be closely watched in 2023.

It is estimated that the proportion of outstanding loans with grace period in the Vietnamese banking system ranges from 1% to 18%. On average, it accounts for about 5% of total outstanding loans.

However, this is not considered a risk for 2023 as individual customers often prioritize fulfilling their banking obligations over other expenditures (travel, entertainment, etc.). Normally, people will reduce their monthly expenses to cover their debt obligations. According to international market survey company Business Monitor International (BMI), entertainment, restaurant and hotel activities and personal expenditures account for about 6%, 10% and 12.5% of total monthly expenditure, respectively. Meanwhile, the cost of housing and household utilities accounts for about 16% of total spending.

Also, the high home valuation is not an issue because the bargaining power of individual customers when borrowing from banks is not large. However, risks will arise if housing prices fall compared to the past two years.

Bad debt risk may gradually appear when real estate bonds mature

Credit for real estate developers is the biggest concern regarding the credit quality of banks in 2023. It is thought that if the final version of the Government’s Decree 153 on private placement and trading of corporate bonds is revised according to the 5th version of the draft, the number of new private corporate bond issues will decrease.

In addition, stricter regulations on bank lending as well as conditions for foreign loans can also affect capital turnover and liquidity of investors.

In the first 6 months of 2022, bond issuance from real estate and construction companies decreased by 53% YoY. As bond issues typically have maturities of 1-3 years, it is estimated that the majority of corporate real estate bonds will mature between 2023 and 2024, and if the situation remains unresolved, the risk of bad debt may gradually appear.

For banks under the research scope of SSI Research, the loan balance for enterprises in the field of construction, real estate investment and corporate bonds issued by real estate investors is estimated at around 9% and 2% of total credit at the end of 2021, respectively. Meanwhile, banks may not have made much provision for these loans in advance.

Bonny Le – VietnamCredit