Rising Risks from Cross-ownership between Real Estate Developers and Banks in Vietnam

Abstract

China’s economic stability has recently been threatened by the debt problem of major real estate developers, with Evergrande being the most notable case. This has led to concerns that similar problems may happen to other countries in the region. In Vietnam, debates about this risk among policy makers and industry experts have intensified, as several real estate developers have recently emerged as major shareholders or key decision-makers in local banks. This paper analyses the risks that this phenomenon poses to Vietnam’s banking system and discusses how Vietnam can handle this issue. We first review Vietnam’s banking reforms since 2011, focusing on the cross-holdings issue. We then link this to the risks posed by local real estate developers’ investment in banks, and discuss possible consequences. Finally, we recommend some policies and best practices that Vietnam can adopt to mitigate the risks.