Lenders struggling to auction assets of bad debt amid market slump

A branch of Agribank in HCM City. The fully state-owned lender will auction 28 apartments in the city to recover debt. — VNS Photo Bồ Xuân Hiệp

HCM CITY— State-owned Agribank is seeking to auction 28 apartments in HCM City with a starting price of VNĐ60 billion (US$2.35 million) to recover debt amid a sluggish property market.

The auction pertains to the non-performing debt owed by An Tâm Construction Investment Company Limited, which has not been able to make payments.

The outstanding debt amounts to over VNĐ93 billion as of May 30, inclusive of VNĐ62 billion in principal and over VNĐ31 billion in interest.

The debt is secured by apartments at the Cherry Apartment project in Thủ Đức City, developed by the Hoàng Quân group.

Costing VNĐ203 billion to build, the 12-story apartment building is comprised of 99 apartments and has a total floor area of 19,000 square metres.

Construction on the building began in 2010 with an expected completion date of 2013. But legal issues have caused delays to the project.

The auctioning could significantly impact numerous homeowners who have already made payments for their properties, thus placing them at risk of losing ownership to the lender.

This situation has raised a prevalent issue where homeowners unknowingly purchase apartments that are utilised as collateral by developers for bank loans.

City officials have identified at least 60 housing projects in the city that have been mortgaged to banks by developers, resulting in delays in the issuance of ownership certificates to buyers.

To protect the interests of homebuyers, analysts recommend banks assume the responsibility of managing mortgaged assets to prevent scenarios where homeowners are at risk of losing their properties due to debt recovery measures initiated by the bank.

Meanwhile, homeowners are recommended to carefully research the status of a property project, particularly its legal standing, before making a purchasing decision.

Sluggish market

New real estate developments in downtown HCM City. The banking industry is facing non-performing loans of VNĐ224.14 trillion, with 70 per cent backed by real estate. — VNS Photo Bồ Xuân Hiệp

Analysts warn that the property market slump has prevented banks from selling collateral to recover bad debts.

Potential buyers are hesitant to engage in such transactions due to concerns about legal issues and disputes with property owners.

Analysts say the failure to sell high-value assets to recover bad debt is often due to banks setting high prices so that they can fully recover their loan, interest and penalties, which is not working amid the sluggish market.

A regulation that prevents more than a 10 per cent reduction in asset prices from the previous auction poses a further challenge.

Adding to the challenges of the current market condition was the arrest in late 2022 of Trương Mỹ Lan, the chairwoman of Vạn Thịnh Phát, who is on death row for financial fraud.

Việt Nam is currently struggling with non-performing loans, which are in fact posing a threat to its banking system.

With 70 per cent of its collateral comprised of real estate, banks are grappling with non-performing loans worth VNĐ224 trillion as of the end of last March.

The Asian Development Bank has warned of potential risks to the banking system stemming from irregularities in corporate bond issuances and real estate markets. — VNS