SINGAPORE (S&P Global Ratings) July 25, 2023--Vietnam's property market is still feeling the pain from a real estate correction that began almost a year ago. This will likely spill over to banks, which are exposed both directly and through holdings of property-related corporate bonds. That's according a report we published today, titled "Vietnam's Property Strain Could Spill Over To Banks."
"We believe the strains will be manageable for the banks," said S&P Global Ratings analyst Ivan Tan.
By our estimates, aggregate residential sales will contract by 15%-20% in 2023; this follows growth of 25%-30% in 2022. These factors have weakened the debt-servicing capacity of real estate developers, particularly the highly leveraged ones with corporate bonds maturing in 2023 and 2024.
In terms of the spillover to banks, we think mortgage loans look manageable. Banks are more likely to suffer nonpayment from commercial real estate loans, which make up 7% of loan books for Vietnam banks. In a worse-case scenario, sector-wide nonperforming loans (NPLs) would rise to about 4.5%, by our rough estimates.
"Property dynamics in emerging markets like Vietnam are inherently volatile," said Mr. Tan. "However we believe the fundamentals favor a recovery. This will be underpinned by supply and demand fundamentals reflecting the country's favorable demographics, a young workforce and a growing middle class."
Key Takeaways
- Vietnam's property developers are still struggling to repay debt after the government cracked down on rapidly the expanding sector in 2022.
- The resultant property downturn and price correction could spill over to the banking sector.
- Recent interest rate cuts and forbearance measures will mitigate the impact.
This report does not constitute a rating action.
The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
| Primary Credit Analyst: | Ivan Tan, Singapore + 65 6239 6335; ivan.tan@spglobal.com |
| Secondary Contact: | Sue Ong, Singapore 62161082; sue.ong@spglobal.com |
| Media Contacts: | Richard J Noonan, Melbourne + 61 3 9631 2152; richard.noonan@spglobal.com |
| Ning Ma, Hong Kong (852) 2912-3029; ning.ma@spglobal.com |
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