Vietnam Central Bank to Inject Capital Into Banking System

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Mar. 18 – The Central Bank of Vietnam plans to infuse an additional VND30 trillion into Vietnam’s banking system in order to make further soft loans available for home-buyers. This move hopes to revive the struggling property market and resolve bad debt.

The central bank issued a circular late last week in which it clarified that banks will be providing loans at 6 percent a year to low-income home buyers, state employees and the military for at least 10 years, and to low-price property developers for five years. The circular also added that soft loans would be reserved for low-price property projects.

This plan is to take effect starting April 15, 2013.

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Vietnam’s property market has slowed down dramatically over the past two years after a long period of growth fueled by the liberal lending policies of its local banks, as robust demand allowed an additional number of developers to invest in higher-end housing projects.

However, thanks to Vietnam’s economic slowdown and soaring inflation rates, Vietnam’s banks have encountered problems with non-performing loans. As a result, the banks have dramatically cut lending, which has directly impacted property sales across the country while also resulting in many lost construction jobs. Vietnam’s construction industry accounts for about 3.3 million people, or 6.4 percent of Vietnam’s labor force.

The State Bank of Vietnam will inject refinancing capital into five state-run and state-controlled banks, including Agribank, BIDV, Vietcombank, VietinBank and Mekong Housing Bank.

In the aftermath of the Central Banks announcement, most property stocks remained the same. However, shares in Thu Duc Housing Development Corp. increased by 6.5 percent, while shares of Song Da Urban & Industrial Zone Investment and Development Co. rose by approximately 1 percent.

Total real estate-related loans amounted to 1,000 trillion dong ($47.8 billion) at the end of August 2012, or 57 percent of the banking system’s total lending.

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