The VND 120 trillion credit package from Vietnam's four state-owned banks can be thought of as "spiritual therapy" for the real estate industry. 

To access the VND 120 trillion credit package, real estate companies must either prioritize the government's preferred segment or develop projects in accordance with their guidelines.

The foundation for belief

The VND 120 trillion credit package from Vietnam's four state-owned banks can be thought of as "spiritual therapy" for the real estate industry. Because lending interest rates are lower than the market average of 1.5-2%, these businesses can access cheaper capital, as well as the ability to expand their capital from other commercial banks.

The Big-4 banks have lower capital costs than the market due to good liquidity and fundraising programs approved by the Ministry of Finance and the State Bank of Vietnam. As a result, they can direct credit toward restructured high-risk segments while concentrating on low-risk borrowers.

As a result, in Mr. Nguyen Le Ngoc Hoan, financial expert’s view, the viability of this credit package is very high. Furthermore, the spillover effect of directly lowering the interest rate on real estate loans will be very positive.

The SBV intends to broaden this package by involving other joint-stock commercial banks, with a promise to refinance these banks if they run out of liquidity.

Debt of Vietnam's real estate businesses. Chart by Ministry of Construction

Who will face challenges?

Mr. Nguyen Le Ngoc Hoan said real estate businesses or borrowers must ensure that they meet the aforementioned conditions in order to gain access to this credit package, which is primarily aimed at low-risk borrowers or real housing construction needs.

“This may be difficult for businesses with a large inventory of commercial real estate, as well as those who have previously used real estate projects as collateral for bank loans or issued corporate bonds with real estate as collateral. In such cases, these businesses may be unable to obtain new capital at low interest rates”, said Mr. Nguyen Le Ngoc Hoan.

Therefore, this credit package is appropriate for removing some of the liquidity from the real estate market and spreading it to other sectors of the economy. “Real estate companies with a high number of unfinished projects, incomplete legal documents, a high debt/equity ratio, or bad debt will not be able to benefit directly from this package”, said Mr. Nguyen Le Ngoc Hoan.