Mortgage Market and Its Effect on Bad Debt in Vietnam

In August 2012, central bank governor Nguyen Van Binh admitted that bad debt in the banking system was around 10 %. On September 28th, Moody's downgraded Vietnam's sovereign credit rating because of bad debts. Within 10% bad debt reported there are 60% is bad debt from mortgages. On this paper, I will focus attention on business ethics in the perspective of bad debts which are come in from mortgage market through two particular cases in Vietnam recently.

Mortgage is a long-term loan secured by real estate. As doing business on real estate, which orientates on selling and renting apartment, office building, investors need a big invested capital not only for initial cost when raising a project but also for longer along progresses until the end, hence it is normal to loan capital on banks... The collaterals for those mortgages are usually the building which will be built in the future. Or we can say the secured properties mortgaged for making loans are the property which will be built by using exactly those loads.

The first case: "One Real Estate , mortgaged two times"

In this case, the building was mortgaged for making loans, after completion of the project, the investors ask banks to associate with them to promote sales, which is benefit for both. Firstly, investor introduces their customers who interested in buying their apartment, to come and borrow money in Bank. The Bank just needs to respond by a few discount interest percentages for these customers. Then, the investor can sell their apartment quickly and bank can increase their assets by increase loans. For making loans customers can mortgage their "new" apartment as secured properties too. From that we can see value of that property is doubled, tripled mistakenly.