Completion Report

Project Number: 35497 Loan Number: 1990 October 2013

Viet Nam: Housing Finance Project

CURRENCY EQUIVALENTS

Currency Unit – dong (D)

At Appraisal At Project Completion 15 November 2002 31 August 2011

D1.00 = $0.00007 $0.00005 $1.00 = D15,369.5 D20,628

ABBREVIATIONS

ADB – Asian Development Bank

CCF – Central People’s Credit Fund CFI – community-based financial institution HFF – housing finance facility ICPMU – International Credit Project Management Unit MIS – management information system MOF – Ministry of Finance MRA – mortgage refinance agency PCB – participating commercial bank PFI – participating financial institution SBV – State Bank of Viet Nam ULIH – urban low-income household ULIPH – urban low-income and poor household UPH – urban poor household

NOTE

In this report, “$” refers to US dollars.

Vice President S. Groff, Operations 2 Director General J. Nugent, Southeast Asia Department (SERD) Director S. Hattori, Public Management, Financial Sector, and Trade Division, SERD Team leader H. Aoki, Senior Financial Sector Specialist, SERD Team members M. Mina, Project Analyst, SERD

K.M. Sanchez, Operations Assistant, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 8 H. Related Technical Assistance 9 I. Consultant Recruitment and Procurement 10 J. Performance of Consultants, Contractors, and Suppliers 10 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 11

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13

A. Overall Assessment 13 B. Lessons 14 C. Recommendations 15

APPENDIXES

1. Project Framework 16 2. Gender Action Plan and Outputs 19 3. Status of Compliance with Loan Covenants 22 4. Policy and Institutional Action Plan 24

SUPPLEMENTARY APPENDIXES

A. Revisions of Project Criteria 30 B. Disbursement 32 C. Actual Financing and Disbursement 33 D. Project Financing Mechanism 36 E. Comparison of Costs (Original vs. Actual) 37

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Viet Nam 1990 Housing Finance Project The Socialist Republic of Viet Nam State Bank of Viet Nam

SDR22.438 million ($30.0 million) 1425

B. Loan Data 1. Fact-Finding – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years)

14 Oct 2002 18 Oct 2002 20 Nov 2002 22 Nov 2002 20 Dec 2002 31 Jul 2003 90 days after 31 Jul 2003 or 29 Oct 2003 6 Jan 2004 2 30 Jun 2008 31 Aug 2011 (physical completion) 3 May 2012 (financial closing) 3 1% p.a. during the grace period, and 1.5% per annum thereafter 32 8 Quarterly weighted average interest rate of all time deposits in the Viet Nam banking system 20 5

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9. Disbursements a. Dates

Initial Disbursement

30 Aug 2004

Final Disbursement

11 Jan 2012

Time Interval

88 months

Effective Date

6 Jan 2004

Original Closing Date

30 Jun 2008

Time Interval

54 months

b. Amount

Category or Subloan

Original

Allocation Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance

A. Credit

SDR 16,754,000.00

USD

22,400,000.00

SDR 16,115,122.78

USD

24,900,820.35

0 0 SDR 16,115,122.78

USD

24,900,820.35

0

B. Credit

SDR 3,740,000.00

USD

5,000,000.00

SDR 1,343,005.97

USD

2,010,518.68

0 0 SDR 1,343,005.97

USD

2,010,518.68

0

C. Non-credit SDR

1,944,000.00

USD 1,700,000.00

SDR 1,231,511.87

USD

1,831,595.04

0 0

SDR 1,231,511.87

USD

1,831,595.04

0

D. Interest on loan SDR

USD

900,000

Total SDR 22,438,000

USD

30,000,000

SDR 18,689,640.62

USD

28,742,934.07

SDR 3,748,359.38

USD

1,257,065.93

0

0

SDR 18,689,640.62

USD

28,742,934.07

SDR 3,748,359.38

USD

1,257,065.93

10. Local Costs (Financed) - Amount ($) 26.9 million - Percent of Local Costs - Percent of Total Cost 44.5

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C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 8.6 1.8 Local Currency Cost 43.2 60.5 Total 51.8 62.3

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed ADB Financed 29.1 28.2 Counterpart Funding (Beneficiaries) 15.4 27.2 Other External Financing 6.4 6.4

Total 50.9 61.8

IDC Costs Borrower Financed ADB Financed 0.9 0.5 Other External Financing

Total 51.8 62.3

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

Component A ADB 22.4 24.9 Counterpart 18.4 31.7 Component B ADB 5.0 2.0 Counterpart) 2.9 1.9 Component C ADB 1.7 1.3 Counterpart 0.5 0.03 Interest on Loan ADB 0.9 0.5 Counterpart Nil Nil

Total 51.8 62.3

4. Project Schedule

Item Appraisal Estimate Actual

Project physical completion date 30 Jun 2008 31 Aug 2011 Project financial closing date 3 May 2012 Date of contract with consultants 6 Apr 2004 8 Sep 2004 Completion of work by consultants 31 Dec 2006 31 May 2007

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5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From 1 Jan 2010 to 31 Dec 2010 S

PS

From 1 Jul 2009 to 31 Dec 2009 S

S

From 1 Jan 2007 to 30 Jun 2009 S

S

From 1 Jul 2004 to 31 Dec 2006 S

S

D. Data on Asian Development Bank Missions

Name of Missiona Dates

No. of Persons

No. of Person-Days

Specialization of Members

b

Review 1 Review 2

22-27 Nov 2004 25-29 Apr 2005

1 3

5 6

g b, d, g

Review 3 1-4 Mar 2006 3 13 d, g, h Midterm review 6-19 Sep 2006 3 12 d, g, h Review 4 19-21 Sep 2007 2 3 d, g Review 5 27-30 Jan 2008 1 2 g Review 6 10-16 Nov 2008 1 2 g Review 7 6-10 Jul 2009 2 5 d, g Review 8 10-12 Aug 2010 1 2 g Project completion 2-5 Jul 2013 2 4 g, h a Include identification, fact-finding, pre-appraisal, appraisal, project inception, review, special loan administration,

disbursement, project review mission. If more than one of each type of mission, number consecutively as review mission 1, 2, etc.

b May use reference letters in table, e.g., a = engineer, b = financial analyst, c = counsel, d = economist,

e = procurement consultant or specialist, f = control officer, g = programs officer, h=staff consultant

I. PROJECT DESCRIPTION

1. In December 2002, the Asian Development Bank (ADB) approved the Housing Finance Project. 1 The project aimed to improve the quality of life for urban low income and poor households (ULIPHs) through improved housing. The specific objective is to promote the establishment in Viet Nam of a sustainable housing finance market accessible to ULIPHs. The project aimed to provide approximately 27,500 housing loans for more than 137,000 people in the first round of lending, disbursing these through participating financial institutions (PFIs).

2. The project consists of three parts. Component A encompasses mortgage lending to urban low-income households (ULIHs) through participating commercial banks (PCBs). Component B involves housing microfinance for urban poor households (UPHs) via community-based financial institution (CFIs). Component C addresses institutional strengthening and capacity building. Component C aimed to support the establishment of a housing finance facility (HFF) to become the apex institution for the housing finance sector, as well as implementation of a policy and institutional reform action plan to facilitate development of the housing finance system and a sustainable and effective housing finance market in Viet Nam.

3. The project’s rationale rested on the assumptions that rapid population growth and rural–urban migration had made access to housing difficult in Viet Nam’s urban centers. In 2002, almost 40% of households in urban areas occupied usable housing space of less than 36 square meters (m2) each, with 16% of households occupying less than 24 m2. Urban LIPHs, in particular, lacked access to affordable options to finance house improvements or new housing in the absence of an efficient housing finance system. The lack of access to long-term credit funds prevented financial institutions from providing long-term loans for housing. The lack of long-term loans made access to housing finance unaffordable for almost 65% of the urban population. Short-term loans required high debt service payments. To make housing loans affordable to ULIPHs, it was deemed necessary to establish an efficient housing finance system that could provide long-term financing for purchase of housing and financing options for the poor to upgrade or build their own houses. The development of an efficient housing mortgage market in Viet Nam also required the establishment of an HFF that will refinance housing loans originated by qualified PFIs. The HFF is to become an independent mortgage refinance agency (MRA) serving as a conduit to attract additional funds to the sector through the issue of bonds or other securities.

4. The ADB loan was needed to (i) provide the HFF initial resources with which to start up its operations on a pilot basis, and (ii) provide capacity building for the HFF and PFIs with the objective of developing human resources in the national housing finance sector. The establishment of an HFF provided an opportunity to test mechanisms for loan disbursement to ULIPHs and acted as a catalyst to facilitate the progress of policy and legal reforms in the sector. ADB’s involvement in housing finance is justified to (i) develop an institutional and policy framework for housing finance that integrates housing and finance issues, (ii) make housing loans affordable to ULIPHs and so reduce poverty and enhance the quality of people’s lives, and (iii) create employment business opportunities in the construction and banking sectors.

1 ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Project Loan to the

Socialist Republic of Viet Nam for the Housing Finance Project. Manila.

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II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. At appraisal, the project design and objective appeared consistent with worldwide experience that a broad, market-based system is the most effective vehicle through which to provide financial resources to low-income and poor households in urban areas. Lessons learned from developing countries’ experience with ULIPHs indicate that interest rate subsidies on loans to ULIPHs often end up going to higher income groups, despite there being income-qualification criteria in place. The project’s design was also based on the premise that any housing solutions for lower income segments at a national level could not be addressed by the central government and/or financial institutions acting alone. It requires the active participation of several public and private actors, including relevant government agencies and bodies. There remains an open question whether the HFF should have been located within the State Bank of Vietnam (SBV), although in the long term it is intended for HFF to become an MRA (mortgage refinance agency) to draw additional funds to the sector. It is therefore important to have an appropriate exit strategy in place. As per the project design, it was appropriate to have the HFF act as a refinance facility (revolving fund) in charge of disbursement to the PFIs and repayments on a regular basis. The establishment of an HFF is justified to the extent that it (i) promotes common standards, procedures, documentation, and good practices among PFIs toward developing an efficient and transparent primary mortgage market accessible to ULIPHs; and (ii) builds up basic requirements for the emergence of a secondary mortgage market.

6. The country strategy and program 2002–2005 had suggested that ADB operations address dimensions to make growth and the structural transition pro-poor in its orientation and sustainable.2 To this end, ADB aimed to focus its operations selectively on three pillars: pro-poor, sustainable economic growth; social development; and good governance. Further, project preparatory technical assistance of $400,000 was included into the 2002 country programming and the related Housing Finance Project was included in the ADB lending program for Viet Nam for 2002. 3 The HFF was to be financed in the total amount of $30 million from Asian Development Fund Special Sources. The loan was classified under poverty intervention, as about 32% of the total beneficiaries are expected to be poor. Approximately 43,700 urban poor were expected to benefit from the project directly through the microfinance component.

7. However, given the significant weaknesses in Viet Nam’s housing policy, the legal framework with respect to land and property rights, the institutional framework for implementation and the banking sector, the implementation of the project as well as its long-term sustainability were indeed challenging. It is important to recognize that secondary mortgage markets are unsustainable unless a primary mortgage market has been developed on a sound foundation of land titling, valuation, and legal mortgage loan recovery provisions. The project preparatory technical assistance was completed in June 2002 and the project was processed between July and November 2002. Given its design the project could have benefited from more in-depth consultations with the stakeholders.

8. The disbursement under the ADB loan was slower than envisaged at appraisal, as there were significant delays in the loan becoming effective and in recruiting and mobilizing the consulting firm under component C. After a brief initial mobilization of the consulting team in late November through to 21 December 2004, the consultants resumed work from 16 January 2005. Amendments were required in the loan agreement to build more flexibility into the project scope

2 ADB. 2002. Country Strategy and Program: Socialist Republic of Viet Nam. 2002–2005. Manila.

3 ADB. 2002. Technical Assistance to the Socialist Republic of Viet Nam for Housing Finance. Manila.

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and implementation arrangements in order to reflect changes in both the policy environment and market reality. As described in Supplementary Appendix A, the changes made in the loan agreement (i) raised the subborrower income eligibility limit; (ii) increased the maximum subloan size; (iii) introduced an annual update mechanism for (i) and (ii); (iv) added flexibility to the accreditation criteria for PFIs to qualify for the HFF; (v) created flexibility to include any qualifying PFI without being limited to those PFIs identified in the loan agreement; and (vi) required that CFI loans of D14million and beyond be secured by land use rights certificates. An updating mechanism provided through the amendments to the loan agreement in 2006 recognized that future adjustments may be necessary due to inflation or other factors but stipulated that such adjustments be based on independent market data to ensure that only the intended sector (i.e., urban low-income and poor households) continue to be served. As the result of the aforementioned amendments providing for changes in the qualification criteria, 10 PFIs were accredited under the project.

9. Given the delay in project commencement and associated issues, the project’s completion date had to be extended three times: the first being from December 2007 to June 2009, the second to July 2010, and the final extension until August 2011. The disbursement picked up during 2010 and 2011. By the date of the loan’s physical completion, the project disbursement had exceeded $28 million, which was more than 95% of the disbursement plan.

B. Project Outputs

10. Of 17 output targets included in the project framework (see Appendix 1), 10 have been fully achieved as of the date of this completion report. There were accomplishment delays given the belated start of the project. Of those remaining, 3 output targets relating to the number of ULIPH and ULPH loans for ownership and home improvement could not be met as envisaged at appraisal due to cost escalation since appraisal, both for new housing units as well as for upgrading. Nevertheless, the disbursement under the two credit components (components A and B) was $26,911,338, equivalent to 98.2% of the funds allocated for these components. In particular, disbursement of the ADB loan for component A reached 111.2%. Disbursement under component B was only 40%, however, due to problems associated with identifying poor households and because only one of the two CFIs originally included at appraisal actually participated in the project. As a result, no loan was extended under component B to acquire new houses for the urban poor. In view of the above, the HFF proposed to ADB to increase the credit line for component A and correspondingly to decrease that under component B.

11. The project’s three components are discussed individually below.

1. Component A: Mortgage Lending to Urban Low-Income Households

12. Housing mortgage loans to ULIHs via PCBs were to be provided through two subprojects, as agreed at appraisal: (i) mortgage loans for housing purchase (costing up to D100 million per housing unit), and (ii) mortgage loans for housing upgrade (costing up to D20 million per housing unit). At appraisal, ULIHs with monthly household incomes in the range of D0.75 million to D3.5 million ($50–$233 equivalent) who could afford to finance a new or existing housing unit at a cost of D100 million ($6,666 equivalent) with 70% financing (30% to come from the borrower) or who could upgrade their housing at a cost of up to D20 million ($1,333 equivalent) at commercial interest rates and maturity of up to 20 years were to benefit from the project. The PCBs were to bear 20 percentage points of the 70% financing component from their own sources. Subsequent to periodic revision of the qualifying criteria based on agreed parameters laid out in the loan agreement as amended in 2006, disbursements under this component picked up considerably such that 11,761 sub-loans

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(999 for new homes and 10,762 for upgrades) were provided to 40,575 ULIH beneficiaries as of the date of the project’s physical completion in August 2011. If one takes into account the cost escalation since appraisal for new housing units or for upgrading, this compares favorably with the estimate at appraisal that approximately 4,100 ULIHs would receive loans to buy or build houses and about 14,600 ULIHs to upgrade or improve existing houses. Total disbursements under component A were $24.9 million, which is beyond the original allocation of $22 million. The additional allocation for component A was made at the request of the executing agency by reducing that for component B. In total, 10 PFIs participated under the project and availed themselves of the refinance from the HFF to onlend for subloans under component A. With the agreed periodic revisions, the qualifying average monthly income criteria for ULIHs adjusted to market realities as of the project’s closing date was D4 million to D10.9 million per household in Ho Chi Minh City and Hanoi and D3 million to D9.83 million in other urban centers. The maximum value of qualified household units at project completion was D708.9 million for units in Ho Chi Minh City and Hanoi while it was D600.6 million for other urban centers. Table 2 in Supplementary Appendix B details disbursements between the project completion date and the date of this report.

2. Component B: Housing Microfinance to Urban Poor Households

13. Through established community-based financial institutions (CFIs), microfinance housing loans to existing UPH depositors were to be provided through two subprojects: (i) loans for small home improvement (up to D15 million per housing unit), and (ii) building material loans for own-build housing. The CFIs were to focus on UPHs beneath the poverty line, which at appraisal meant in the monthly income range of D350,000 to D750,000 ($23–$50 equivalent). Affordable options for the poor consist of (i) a building materials loan for self-help housing, and (ii) smaller housing improvement at a cost of up to D15 million ($1,000 equivalent) at commercial interest rates but at maturities of 5–10 years. At least 6,700 UPHs were targeted to receive loans to upgrade or improve existing houses, and 2,100 were targeted to receive loans to own-build new houses. While the original allocation for component B had been $5 million, as of the project’s completion $1.20 million had been disbursed for home upgrades only through 1,324 sub-loans with 4,638 beneficiaries. No loan had been extended for new home acquisition. The low utilization was due to a lack of supply of suitable housing units for UPHs and to the fact that only one CFI (Central People’s Credit Fund [CCF], which has since converted into a cooperative bank) participated in the project. With periodic adjustments as provided under the loan amendments, the average monthly household income range as of project closing for UPHs was D1 million to D4.37 million in Hanoi and Ho Chi Minh City and D0.75 million to D3.28 million for other urban centers. This is consistent with the Ministry of Labor’s definition of urban poor based on income criteria. 14. There were a number of constraints upon meeting the demand for housing from low-income people in urban areas. The price of units in social housing projects is not affordable for the majority of low-income and poor people. A lack of transparency and information in the real estate market made it more difficult for buyers and sellers. During most of the project period, real estate businesses focused on luxury apartments as these were seen to be more profitable in the short term. This period also saw limited investment in building apartments for low-income and poor people, even though this is the segment with the largest demand. Land and housing prices became potentially unstable and unreasonably high in comparison with real incomes.

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3. Component C: Institutional Strengthening and Capacity Building

15. The project supported institutional strengthening and capacity building to develop the housing finance system in Viet Nam. This included to (i) support establishing an HFF that would become the apex institution for the housing finance sector, (ii) provide training and capacity building for HFF and PFIs, and (iii) develop a housing finance awareness and marketing program. The establishment of a housing demand database for ULIPHs at the HFF did not occur as envisaged, nor was the intended project performance monitoring system within the HFF and SBV’s International Credit Project Management Unit (ICPMU) implemented. Difficulties and delays in implementing a management information system (MIS) contributed to these shortcomings. The allocation at appraisal for component C was $1.7 million, of which $1.3 million was utilized before the consultants ceased work in 2006. A significant level of training was delivered to HFF staff by the consultants based on a training program schedule approved by the HFF. This training covered broader issues relating to the project’s implementation, including subjects such as overall policy issues, use of hedging instruments and mortgage insurance, and the need to implement the project in such manner as to enable the formation of a secondary mortgage market in future. Most scheduled training courses were completed as planned and additional workshops were delivered. ICPMU and HFF staff also participated significantly in overseas study tours.

16. The consultants prepared a report on creating an MRA and supplied to the HFF draft documents for its reference. Those drafts, however, were not sufficiently detailed. The HFF, in coordination with related SBV departments and other ministries, later prepared and in 2010 completed a draft MRA report for submission to the Governor of SBV. The draft is being revised and is scheduled to be submitted to the Governor by the fourth quarter of 2013.

17. Housing finance awareness and marketing programs were carried out in 2006 and 2010 through advertisements in Viet Nam Banking Times and distribution of leaflets. C. Project Costs

18. The total cost of the project estimated at appraisal was $51.8 million equivalent, including all the investments into new and improved housing expected to be generated through the catalytic effect of the ADB-financed subloans. Table 1 compares the assumptions made at appraisal to the actual figures. Utilization under component A exceeded estimates while only 40% of the estimated amount for component B was utilized. The allocation for component C was only 66% utilized because the consultants ceased work in September 2006 as relations became strained between the executing agency and consultants. 19. The cost estimates had assumed that the ULIPHs receiving housing loans through the project would invest an amount equal to at least 30% of the value of the total housing expenditure. Given the cost increases in the realty sector since 2002, the original assumptions did not hold true either for the ADB contributions or counterpart funding. Increasing costs over the implementation period also resulted in reduced numbers of both subloans and beneficiaries being funded under component A while the borrowers’ contributions from their own sources came to 43.58% of the total cost. ADB’s contribution as a percentage of total cost, at 46.07%, was lower than the original estimates of 57.92%, given the increase in project cost over the implementation period and the fact that end borrowers’ share of project cost, at 43.58%, was in excess of the original estimates of 28.8%.

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Table 1: Project Costs (original estimates and actual) ($ million)

Item

Allocations Utilized Unutilized

ADB

Counter- part

Funds Total

ADB

Counter- part

Funds Total

ADB

Counter- part

Funds Total

Component A 22.4 18.4 40.8 24.9 31.7 56.6 (2.5) (13.3) (15.8)

Component B 5.0 2.9 7.9 2.0 1.9 3.9 3.0 0.9 3.9

Component C 1.7 0.5 2.2 1.3 0.0 1.3 0.4 0.4 0.8

Interest and fees 0.9 0.9

0.5 0.5

0.4 0.4

Total 30.0 21.8 51.8 28.7 33.6 62.3 1.3 (12.0) (10.6)

Note: Negative values within parentheses denote the amount by which actual costs exceed those estimated at appraisal. Source: SBV (ICPMU)

D. Disbursements

20. The proceeds of the loan were drawn in accordance with ADB’s standard disbursement procedures. Two imprest accounts were used, one for the credit components (A and B) and the second for component C. Statement of expenditure procedure was used to liquidate advances into the imprest accounts or for reimbursements. The ceiling for the imprest account was raised from $3 million to $5 million on 20 April 2010 to facilitate cost-effective disbursements. The initial disbursement was on 30 August 2004 and the final disbursement on 11 January 2012. While the original allocation had been SDR22,438,000, the disbursed amount was SDR18,689,640.62, and thus there remained an unutilized amount of SDR3,748,359.38. The executing and implementing agencies had no issues in following the prescribed disbursement procedure.

21. Disbursement under the ADB loan was slower than envisaged at appraisal, as there were significant delays in the loan’s becoming effective as well as in recruiting and mobilizing the consulting firm. By the loan completion date, the project disbursement had surpassed $28 million, accounting for more than 95% of the disbursement plan (see Supplementary Appendix C, Table 1). Disbursement under the two credit components totaled $26,911,338, equivalent to 98.2% of funds allocated for these components (see Supplementary Appendix C, Table 2).

22. About $8 million has so far been repaid by the PFIs and is available for refinancing under the revolving fund. Disbursements from August 2011 to the date of this completion report were $3.78 million. Table 3 in Supplementary Appendix C provide lending data by category, PFI, and time period.

E. Project Schedule

23. The loan was approved in December 2002 but became effective only on 6 January 2004. Thereafter, there was some delay in recruiting and mobilizing the consultants under component C. After brief initial mobilization of the consulting team during inception in late November through 21 December 2004, the consultant resumed work from 16 January 2005. The loan agreement was amended on 5 June 2006. The project’s completion dates were extended three times, and the final completion date was 31 August 2011. Financial closing was 3 May 2012.

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F. Implementation Arrangements

24. The project was to be implemented over 5 years and expected to be completed by December 2007. As stipulated in the loan agreement, the Ministry of Finance (MOF) and SBV entered into a 20-year financing agreement on 28 November 2003. This enabled the establishment of an HFF project management unit. The ADB loan was routed through MOF to SBV and the HFF in dong. Qualified PFIs concluded a housing finance company loan agreement with the HFF before accessing housing loan refinancing for beneficiary subloans. The HFF initially provided credit lines for each housing finance company with a maximum of $2 million for PCBs and $1 million for CFIs. The maximum cumulative total housing finance company amount for any PFI was $7 million. PFIs provided from their own resources capital equal to 20% of all subloans to borrowers from PCBs and 10% of all subloans to borrowers from CFIs. Subborrowers were required to contribute 30% of the costs to ensure they had significant equity in their housing projects. Given the escalation in market prices the subborrowers ended up contributing about 44.5% of the project costs from their own sources. The subloans for new home acquisition were on average made for a maximum tenor of 15 years. The average rate of interest charged by the PFIs was between 15% and 18% per annum. The nonperforming loans are reported to be very low, at less than 1% of the overall loan portfolio. The principal repayments (about $8 million as of the date of this completion report) from PFIs to SBV are held in a revolving fund established by SBV to continue refinancing PFIs’ subloans. SBV is allowed to retain 1% per annum of the amount of the outstanding housing finance company loans to PFIs to cover costs of training and institutional capacity building (see Supplementary Appendix E).

25. The loan agreement specifies that the HFF will be managed by a project director and a full-time project manager and be staffed with at least 15 full-time professional staff including the project director and project manager. The HFF’s initial structure was outlined in a Decision of the SBV Governor No. 304/2004/QD-NHNN, dated 24 March 2005, which accommodated an important requirement for an effective HFF, which is that full-time personnel report through the HFF’s project manager and ICPMU’s director. As of the date of this completion report, HFF and ICMPU together had total staff strength of 38 personnel to carry out their overall functions, although there was no longer any unit dedicated exclusively to housing finance activities.

26. Implementation of the project MIS has been difficult and there were many delays during mid-2005. The PFIs are submitting reports in hard copies which are then entered manually into the HFF operating system to generate internal reports. Basically, the MIS now performs only accounting functions. No database on housing demand and supply is in place, and there is no performance monitoring system. The HFF maintains only consolidated data as to the number of loans made under components A and B and not for each subproject under the two components.

27. In June 2005, the consultants provided a report to the HFF entitled Housing Finance Demand Database Update Manual. Two training sessions were provided to HFF staff to familiarize them with this web-based database and demonstrate how the relevant HFF staff could update it on at least a quarterly basis. However, the database is yet to be established. 28. A project steering committee was set up. Chaired by the SBV’s Deputy Governor, it was comprised of representative from the ministries of Construction, Finance, Planning and Investment, Natural Resources and Environment, and Justice, as well as from SBV’s Bank and Nonbank department. The meetings were irregular and rarely were chaired by the Deputy Governor. Two inter-ministerial committees were also established through an SBV decision dated 18 November 2005 to address policy and legal issues related to housing in Viet Nam.

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29. There was also delay in activities under component C. According to the original action plan, the National Housing Finance Policy should have been completed and approved in 2005. Due to delays described above, it was eventually approved by the Prime Minister only on 13 July 2007. Moreover, the plan to establish an MRA based on the HFF and put it into operation in December 2007 was not realized inasmuch as the necessary premises for establishing and operating such agency were not yet in place. A draft paper for the establishment of an MRA had been completed and submitted to the Governor by ICPMU and HFF in October 2010. This required additional work, and it is now targeted for submission in the fourth quarter of 2013.

30. Due to delays in the implementation of project activities the project completion date was extended three times. Closure was on 31 August 2011.

31. In the original report and recommendation of the President establishing the project, gender issues were not considered significant for the project. Only a limited gender action plan was prepared. Performance relative to that plan is summarized in Appendix 2.

G. Conditions and Covenants

32. There was some delay for loan effectiveness as the Governor’s directive to establish the HFF was issued only in October 2003 while the financing agreement between MOF and SBV was executed only on 28 November 2003. The HFF established a financial management system acceptable to ADB as well as prepared draft housing finance company agreements between the HFF and PFIs with terms and conditions acceptable to ADB to satisfy the conditions for disbursement. Due to the delay in the start of the project, many of the action plans could not be completed within the agreed time frame. All qualified PFIs are in compliance with the eligibility criteria agreed upon by the government and ADB, including the prudential norms issued by SBV. Each accredited PFI submitted an opinion of an independent auditor to the effect that such PFI is in proper financial condition. However, the PFIs expressed their discomfort with the requirement for additional audit certification annually beyond the standard audit report on the compliance with various financial ratios stipulated in the project although they are willing to have the ratios certified by their authorized signatories. Most of the accredited PFIs have a housing finance project implementation unit and separate accounts for project-related housing lending. PFIs have formulated loan underwriting, services, and field audit procedures to ensure that subloans are made only to ULIPHs. Each PFI observed subloan financing criteria that include maximum ADB financing of 80% of the subloans provided by PCBs for ULIHs and 90% of the subloans provided by CFIs for UPHs. The HFF-ICMPU also confirmed that subloans do not entail any involuntary resettlement arising from land acquisition or changes in land use. The consultants as well as HFF carried out training programs as originally envisaged at appraisal (para. 15) including preparation of a housing finance manual detailing lending guidelines to PFIs. Based on this manual, regular monitoring was carried out by the HFF. PFIs as well the HFF are staffed with a fair proportion of female staff and credit officers. Almost all loans require the joint signature of both partners. The women’s union at CCF provides care and support for female employees, equipping them with social knowledge and enhancing their professional skills. Certificates of excellence are regularly awarded to teams and individual female staff. Workshops are held at regular intervals at CCF, including participation by female staff in overseas trips for institutional strengthening and product development. CCF has been the principal borrower of the ADB loan funds through SBV and is keen to further avail of the refinance available through the recycling of used funds. Refer to Appendix 3.

9

33. Of the 8 policy and institutional action plans, 4 can be considered as fully complied with, albeit with delay, 1 can be treated as in progress, while 3 are not complied with as of the date of this completion report. The 4 completed actions are the following:

(i) Develop a national housing policy document. The National Housing Finance Policy was approved by the Government under Decision No 105/2007/QD-TTg of 13 July 2007.

(ii) Improve legal procedures for calling up defaulting mortgages and selling mortgaged land and houses. There has been good progress over time under this policy action. A number of legal measures have been taken to date toward improving legal procedures, as detailed in Appendix 3. A draft amendment of the Land Law 2003 is expected to be completed in 2013, though actual instances of enforcement of complex and wide ranging security packages in Viet Nam are extremely rare.

(iii) Improve valuation system of land and houses to facilitate the development of the primary mortgage market. Decrees 188/2004 and 101/2005 and the valuing standards and implementing practices are making considerable improvements to the valuation system for land and houses. This improvement should facilitate the development of both the primary mortgage market and a subsequent secondary mortgage market. As per Decree 163/2006/ND-CP, on secured transaction, financial institutions are free to perform their own land valuations and take all associated risks.

(iv) Increase number of urban land use certificates issued and improve registration procedures. As of December 2011, 3,683,411 land use rights certificates had been issued to urban households, accounting for approximately 64% of urban land area, which is beyond project expectations.

34. The capital market in Viet Nam is still in the early emerging stage, and at present there is virtually no investor interest in mortgage investment—neither directly nor via mortgage bonds or other instruments. The policy action to attract additional funds to the capital market through development of a secondary mortgage market has been initiated through efforts by MOF to develop the bond markets in Viet Nam. This has been facilitated through the ADB Financial Sector Development Programs for Viet Nam.4 A proposal to establish an MRA in Viet Nam was drafted and submitted to the Governor in October 2010. Currently, ICPMU, in coordination with departments within SBV and experts in the banking sector, is reviewing and updating the draft for resubmission in the fourth quarter of 2013. Noncompliance with three action plans is reflected in the situation that (i) not much improvement has been seen in the banking sector performance, and there is an increasing level of nonperforming loans; (ii) there are no particular products in the banking system to link formal savings with mortgage lending for housing; and (iii) there has been no progress in developing mortgage credit insurance, as there is currently no market need or demand for mortgage insurance products, particularly due to the low loan-to-value ratio currently existing in the housing finance market. A more detailed status of compliance with the policy and institutional action plan is provided in Appendix 4. H. Related Technical Assistance

35. No separate technical assistance was provided under the loan. Project preparatory

4 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Program Loan

Cluster to the Socialist Republic of Viet Nam for the Financial Sector Program Loan II. Manila. ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Program Loan Cluster to the Socialist Republic of Viet Nam for the Financial Sector Program Loan III. Manila.

10

technical assistance (footnote 5) was provided in an amount not exceeding the equivalent of $400,000 for preparing the Housing Finance Project.5 Since the initial delay of implementation of the Project was caused by insufficiently flexible design, the performance is rated less than successful.

I. Consultant Recruitment and Procurement

36. The consultants were selected and engaged by the HFF under component C in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements acceptable to ADB for selecting and engaging domestic consultants. According to the contract for consultants’ services, 38 person-months of international and 26 person-months of domestic consulting services were contracted to provide technical support to HFF, PFIs, and the project steering committee in project implementation. There was a delay in recruiting and mobilizing consultants. According to the schedule at appraisal, the consultants should have been recruited to support project implementation within 3 months of the loan’s becoming effective (1st quarter of 2004). Recruitment and mobilization of consultants could take place only by November 2004, however, given the time required for the executing agency to comply with local procedure for recruiting consultants and to obtain ADB’s endorsement. The consultants commenced work on 16 January 2005. This impacted project implementation and disbursement. The consultants ceased work in September 2006, with funds of $397,073 remaining unutilized as provided in Supplementary Appendix E

J. Performance of Consultants, Contractors, and Suppliers

37. The consulting services were engaged under component C. Given the delayed implementation, the consulting services were not fully utilized and $397,073 of component C funding was not used. The tasks assigned to support the project performance monitoring system and the project completion report could not be undertaken. Further, the housing finance database could not be established. The consultants ceased work in September 2006, as relations between the executing agency and the consultant had become strained. The performance of the consultants was otherwise stated to be satisfactory. Continuation of the consulting service beyond 2006 could have benefited HFF and ICPMU in gaining more capacity in operations, as the disbursements picked up only from 2008 onwards. Implementation of the project’s MIS was difficult and encountered many delays during mid-2005. The project consultants provided support in developing the MIS tender package and were required to assist in the tender procurement process. The total cost for the MIS component that included hardware and software development was $40,000. It was procured in accordance with ADB guidelines and consistent with Vietnamese regulations. The MIS functions were eventually very limited, however, and the interlink between the PFIs and HFF did not function. This is attributed to lack of budgetary allocations for regular maintenance, including for hardware, software, and for upgrading the operating software.

K. Performance of the Borrower and the Executing Agency

38. The borrower’s part in program implementation is rated less than satisfactory. The HFF was set up as a separate dedicated unit within SBV under Decision No. 1386/QD-NHNN of October 2003 by the Governor of SVB, as required under the project. Currently, however, the HFF team is also involved in supporting other projects under ICPMU. The project benefit and

5 This technical assistance was financed initially as a grant, but it was subject to the reimbursement arrangements

set forth in the Board papers on Technical Assistance Operations (Doc. R51-77, dated 20 May 1977) and Streamlining Technical Assistance Operations (Doc. R44-88, dated 21 March 1988).

11

monitoring system and the housing finance database were not established within the HFF. The MIS role has been very limited. Efforts in pursuing the policy and institutional action plans could have been better. Nevertheless, reports on project performance were regularly submitted to ADB. Formation of the project steering committee and the two inter-ministerial committees helped in establishing good linkage among the different government agencies to address the issues related to land titling and registration.

L. Performance of the Asian Development Bank

39. ADB’s part in program implementation is rated satisfactory. Appropriate corrective measures were undertaken in 2006 to address issues in disbursement and participation of PFIs. The loan agreement was amended in time to provide more flexibility in project implementation and the qualifying criteria to enable disbursements to reach 98% of the loan amount. Regular review missions (16) were undertaken over the implementation period to address implementation issues. The executing agency acknowledges ADB’s active support and close coordination in project implementation. The executing agency further appreciates the timely resolution of project-specific issues by allowing flexibility in some of the criteria originally stipulated in the loan agreement. This facilitated accrediting 10 PFIs as well as disbursement. The executing agency also acknowledges the advisory support provided by ADB over the project implementation period, which helped the HFF in its operations.

III. EVALUATION OF PERFORMANCE

A. Relevance

40. The project design is rated relevant. It was relevant at appraisal, as measured against the government’s development strategy, ADB’s country strategy and program, and international good practice (paras. 5–6). Given that it was a pilot project for developing a market-based housing finance system, the project design was a bit ambitious. Though disbursement reached 95% of ADB’s loan amount, some of the policy and institutional actions plans proved difficult to accomplish within the project implementation period. The design at appraisal could have been more flexible, as it delayed the project disbursements and required amendments to the loan agreement. The project is considered relevant, as it has created a base for development of the housing finance system and could help in the development of a secondary mortgage market with more progress in the policy and institutional action plan. Mobilizing savings to support housing for low-income and poor households remains high on the government’s strategic agenda. However, no loans could be extended for new house acquisition for the urban poor under component B (CFI being the only lending PFI) even as late as the date of this completion report. This relates to the supply of suitable housing units and the disinclination of lending institutions to consider lending to the urban poor as a fitting line of business. B. Effectiveness in Achieving Outcome

41. Rated less effective is the purpose as per the project framework. This was to establish a sustainable housing finance market in Viet Nam accessible to ULIPHs through a housing finance facility (HFF) within SBV and which would become the apex institution for the housing finance sector in Viet Nam and an independent mortgage refinance agency. Through the project, an HFF was established in SBV. Though delayed, a draft proposal to set up the MRA is in the process of inter-ministerial consultation for submission to the Governor of SBV by the fourth quarter of 2013. The lack of access to credit was a major constraint upon ULIPHs, and the project helped in establishing common underwriting standards and due diligence among the

12

PFIs. Nevertheless, the project could not extend any loans to the urban poor for acquiring new homes as envisaged at appraisal. C. Efficiency in Achieving Outcome and Outputs

42. The project can be considered efficient considering the fair level of accomplishments in outcome and outputs (paras 10–17) Project activities translated into project outputs with a good level of ADB support throughout implementation. The outputs could have been better had the consultation support been more evenly phased out and available through the implementation period.

D. Preliminary Assessment of Sustainability

43. The project has initiated the process to develop a sustainable market-based facility to provide housing finance to the ULIHs, although there still are issues with lending to the UPIHs as evidenced by underutilization of component B. This raises the issue of whether such market- based mechanism can be applied to the urban poor or if special government-sponsored schemes are needed to address their housing needs. The use of collaterals and the need for property insurance for the urban poor were other constraints. The use of market-based interest rates is expected to lead to the project’s sustainability, although the end borrowers could benefit more with a fixed-rate interest modality. The establishment of a revolving fund at HFF for refinancing mortgage loans from PFIs should ensure the sustainability and reuse of the funds, although consideration should be given to making the process more acceptable to the PFIs as only two PCBs and one CFI have expressed interest to further use the line of credit under the second phase. PFIs cite high administrative cost and the requirement for additional annual audit certification beyond the standard audit reports as issues. The willingness of PCBs and CFIs to provide 20% and 10%, respectively, of the total loan value and to standardize the housing loan underwriting procedures, practices, and documentation should also ensure sustainability. In the medium-term, will facilitate the establishment of appropriate control mechanisms and legal reforms, and in the long-term attract capital to the sector for the development of a secondary market. The HFF is likely to be sustainable.

44. The government in May 2013 announced a scheme for financing urban low-income and poor housing. Under the scheme, SBV will refinance loans totaling up to $1.5 billion to be extended through the four state-owned commercial banks and the Viet Nam Agriculture and Rural Development Bank for people who are not liable to pay income tax. The loans will be for acquiring housing units costing not more than D15 million and with area less than 70 m2. They are to be provided at 6% per annum, with SBV extending an interest subsidy up to a maximum of 1.5%. Developers will also be provided financing for building low-cost housing units where land use rights will be provided and while requiring that at least 20% of the land be used for social housing. This government-sponsored scheme may reduce demand for the HFF, although it is available only through the state-owned banks, which are not participants in the HFF.

E. Impact

45. The goal of the project as per the original project framework is to improve the quality of life for ULIPHs through improved housing. As of the project loan completion date, the total cumulative amount disbursed under the two credit components had reached nearly $27 million (over D510.3 billion), with more than 13,000 subloans and 45,000 beneficiaries. In comparison with the total of 5.8 million low-income households in urban areas across the country, the project beneficiaries accounted for a relatively modest 0.8%. Considering that this was a pilot project in the housing finance sector and with a modest loan amount, however, the project has

13

established a foundation for improving the quality of life in general for those ULIPHs benefiting under the project. No funds were channeled to activities that resulted in involuntary resettlement or had impacts on communities of indigenous peoples.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

46. The project is rated successful. The project design and objective appear consistent with worldwide experience that a broad, market-based system offers the most effective vehicle through which to provide financial resources to low-income and poor households in urban areas. Lessons learned from developing countries’ experience with ULIPHs indicate that subsidized interest rates on subloans to ULIPHs are not appropriate mechanisms to address housing requirements, as such subsidies invariably leak to higher income groups regardless of control mechanisms on income-qualification criteria. The project design is also based on the premise that developing housing solutions for lower income segments at a national level can only be addressed through effective coordination of the government, the financial institutions, the developers, and the end borrowers. However, given the weaknesses in Viet Nam’s housing policy, the legal framework with respect to land and property rights, and the institutional framework for implementation and the banking sector, both implementation of the project and its long-term sustainability were indeed challenging.

47. The original project design allowed limited flexibility, thus requiring amendments to the loan agreement in 2006 to build in more flexibility in the project’s scope and implementation arrangements to reflect changes in both the policy environment and market reality. The project design was a bit ambitious given that the housing finance industry in Viet Nam was at a very nascent stage of development. The project outputs envisaged at appraisal were difficult to accomplish within the project period, thus requiring three extensions of the loan completion date. It is important to recognize that secondary mortgage markets are unsustainable unless a primary mortgage market has been developed on sound land titling, valuation, and legal mortgage loan recovery provisions. The policy and institutional action plan includes measures to address the above issues. In the context described by the above points, however, the proposals to develop a secondary mortgage market and mortgage insurance fund were a bit ambitious and too early for Viet Nam to implement, although the project views development of the secondary housing market as a long-term objective. Time frames contained in the original project framework were, in some cases, unrealistic.

48. Implementation was slower than anticipated. It was hampered initially by the time taken for the loan to become effective and late engagement of the consultants. Changes in the qualifying criteria were required at regular intervals to recognize market conditions. Reasons for the slow progress can also be attributed to (i) the small size of the individual loans and the fact that the associated administrative cost proved to be a disincentive for the PFIs to aggressively market this product, (ii) inadequate supply of housing units suiting the requirements and purchasing power of the targeted urban population, and (iii) limited capacity within the HFF unit at SBV to constructively coordinate with PFIs and other agencies. No loans could be extended for acquiring new homes for the urban poor. The plan to establish an MRA based on HFF and put it into operation in December 2007 was not realized because the necessary premises for the establishment and operation of this agency were not yet in place, although a policy paper is in the process of being submitted to the Governor of SBV. Currently, only three PFIs have shown interest in using additional refinance after full utilization of their initial individual credit limits.

49. Nonetheless, the objective of the project to improve the quality of life for ULIPHs

14

through improved housing is well appreciated in Viet Nam. The provision of long-term funds was welcomed by the PFIs. The amendments to the loan agreement and three extensions of the project’s physical completion date facilitated project disbursements of $28 million, accounting for about 98% of the two credit components and more than 95% of the overall loan amount. Policy and institutional action plans have been initiated and, though requiring more time than envisaged for their accomplishment, should provide a good base for developing the primary mortgage system in Viet Nam. The project also helped in building awareness of housing finance in Viet Nam, developing common underwriting standards and procedures, and building some institutional capacity. Creation of the project steering committee helped to establish effective linkage among relevant government agencies for collaboration and development of the housing finance system and of the institutional and policy actions. The project facilitated issuance of the National Housing Finance Policy 2007–2020, which also led to policies and measures to promote housing development for low-income households in urban centers. The project led to improvements in legal procedure for issuance of land use rights and registration of land use right certificates for mortgages. These certificates have been issued to urban households accounted for approximately 64% of the urban land area, and directives have been issued by the Prime Minister to further improve the issuance of land use right or house and other land-attached asset ownership certificates. The directive also calls for the development of a land database.

B. Lessons

50. Careful poverty analysis, a proper demand and supply analysis for housing, better selection criteria, as well as more pro-poor loan procedures and flexibility in the loan size, term, and use would have enhanced the inclusiveness and beneficial impacts of the project. Given the targeted low-income segment and limited institutional capacity, such projects should not be overly complex in design and difficult to implement. Having a variable interest rate on the loan did not help. Fixed interest rates are more appropriate and preferred by low-income and poor borrowers. The spread levied by some of the PFIs over their borrowing rate from SBV (HFF) was high. The project’s capacity building component provided for development of hedging instruments to enable PFIs to offer fixed-rate housing subloans. Hedging is practically nonexistent in Viet Nam. Further, given the weak institutional capacity, consulting support should be properly phased out over the implementation period of the project. Because consulting support ceased in 2006, component C was not fully utilized. More flexible instruments and such product design innovations as graduated-payment mortgages, flexible repayment arrangements, and multipurpose loans might be considered to suit such type of borrowers. In parallel, encouraging financial discipline among low-income borrowers is also important.

51. Finally, there are perceptions among some government agencies in Viet Nam that the interest rate should be much lower than market rates and be subsidized. Rather than focusing solely on the financing side, the complex issue of housing for the urban poor also needs to be looked at from the viewpoint of supply side constraints and the willingness of lenders to consider this an appropriate business line. Targeted subsidies that are separate from financing also need to be considered.6 Again, access to credit is more important than is providing interest rate subsidies. In every part of the developed and developing world, housing for low-income and poor people includes subsidies in some form as part of national social policy. Such schemes together with interest rate subsidies are plausible so long as the lending institutions continue to receive subsidies from the government.

6 Kyung-Hwan Kim. Access to credit, terms of housing finance, and affordability of housing, Housing Finance

International, June 1995, Brussels.

15

C. Recommendations

1. Project Related

52. Future monitoring. To support sustainability of the market-based lending for low-income and poor households and strengthening the primary market for mortgages, ADB needs to further monitor progress of the policy and institutional action plans stipulated under the project. This should also provide a base for developing the secondary mortgage market. Coordination with the financial sector programs should also help in introducing flexible instruments, innovative product design to suit such type of borrowers, and lender’s risk mitigation through credit insurance products. Areas in which to provide further advisory support could be identified to strengthen institutional capacity in the housing finance industry. Such support will strengthen the HFF and ICPMU in SBV as well as those financial institutions providing housing finance, help in identifying measures to make the HFF revolving and sustainable, and eventually set the stage for the MRA. Government agencies and financial institutions welcome additional support for developing the housing finance system in Viet Nam with projects targeting ULIPHs.

53. Covenants. Given that a few of the policy actions stipulated under the project are not fully accomplished, it is important that these be pursued for the sake of developing the housing finance market in Viet Nam. Legal procedures for calling up defaulting mortgages and selling mortgaged land and houses need to be strengthened. Developing the primary mortgage market requires promulgating new legislation, which is outside the control of the executive branch. The legal measures to decide on mortgage defaults and foreclosures should be expedited. Schemes to promote household savings in commercial banks and microfinance institutions for housing purchase and improvement should be encouraged. ICPMU and SBV are in the process of completing the draft MRA concept and submitting it for approval. Since that draft has been developed by ICMPU internally, it will be useful to have the draft reviewed by international experts. Support will also be needed to accomplish the policy action to introduce mortgage insurance schemes. MOF has been assigned to undertake this task, but it will need external support to execute this.

54. Timing of the program performance evaluation report. It is important to have the policy and institutional action plan accomplished before the project evaluation is undertaken.

2. General

55. Sufficient time and effort should be devoted at the appraisal stage to assess the capacity of the executing agency and reach consensus with the government on institutional arrangements needed to successfully implement such projects. Consulting support should be properly phased over the implementation period of the project while including contingency plans for projects that require extension to achieve their objectives. ADB needs to undertake regular review missions to ensure that program implementation remains on track and necessary adjustments are made, particularly when assumptions at the design stage do not hold true and risks materialize .

16 Appendix 1

16

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1

PROJECT FRAMEWORK

Design Summary Targets Achieved by August 2011 Risks and Assumptions

Goal

Improve the quality of life for urban low-income and poor households (ULIPHs) through improved housing

Better housing conditions create improved health and income for ULIPHs and higher employment in construction and related sectors.

Achieved to the

extent that 13,088 and 15,307 subloans were extended until August 2011 and June 2013, leading to improvement in quality of life for 45,213 and 52,776 beneficiaries in total.

Continued government commitment to priority of addressing the housing finance needs of ULIPHs and on promoting sectoral policy reforms

Purpose

Establish a sustainable housing finance market in Viet Nam accessible to ULIPHs

A housing finance facility (HFF) within State Bank of Viet Nam (SBV), which will become the apex institution for the housing finance sector in Viet Nam and will become an independent mortgage refinance agency, will be established. Provide approximately 27,500 new housing finance loans benefiting over 137,000 people living in urban areas, disbursed through qualified participatory financial institutions (PFIs)

Achieved. A housing

finance facility was established within SBV as per Decision 1386/October 2003. With both the cost for housing scaling up since 2002 and also the eligible loan size, the ADB loan could finance fewer housing loans than originally envisaged. A total 13,088 housing loans were provided benefiting 45,213 people through 10 PFIs by August 2011 and 15,307 housing loans benefiting 52,776 people by June 2013.

HFF project management unit is able to effectively monitor and manage efficiently refinancing of housing loans. PFIs achieve and maintain HFF project management unit qualification standards. Participating commercial banks (PCBs) effectively originate and manage housing loans with target urban low-income households (ULIHs). Microfinance community-based financial institutions (CFIs) establish effective linkages with nongovernment organizations (NGOs) and people’s committees (PCs) to initiate loan funds to urban poor households (UPHs).

Outputs

Established HFF within SBV to refinance housing loans from qualified PFIs, monitor project funds, and establish procedures and documentation for the development of the housing finance sector

HFF to establish assessment and monitoring procedures for PFIs

HFF to develop documentation and procedures for refinancing of housing finance loans

Achieved.

Established 2005 Achieved. 2005

Capacity of HFF to effectively manage the monitoring process PFIs’ interest in accessing long-term housing credit funds for ULIPH lending and their ability to meet and maintain qualification standards

Appendix 1 17

Design Summary Targets Achieved by August 2011

Risks and Assumptions

HFF to monitor PFIs and ensure onlending terms to ULIPHs are applied

Achieved. Being

done

Refinancing through HFF to PFIs originating housing loans for ULIPH

PFIs to establish loan application procedures to ensure housing credit fund facility is directed to ULIPHs and loans are within household capacity to repay At least 4,000 ULIHs obtain loans from PCBs to buy or build new houses by December 2007 At least 14,500 ULIHs obtain loans from PCBs to upgrade or improve existing houses by December 2007 At least 6,600 UPHs obtain loans from CFIs to upgrade or improve existing houses by December 2007 At least 2,000 UPHs obtain loans from CFIs to own-build new houses by December 2007

Achieved.

Established as and when accredited Total 999 subloans for new houses extended by August 2011 and 1,058 by June 2013 Total 10,765 subloans extended by August 2011 and 13,128 by June 2013

Total 1,324 subloans extended by August 2011 and 1,573 by June 2013

Not Achieved. No

subloans under this category

Capacity of PFIs to effectively handle the monitoring process PFIs’ loan originating capacity for long-term housing credit funds for ULIH lending ULIHs are to utilize long-term housing loans through formal finance sector. Appropriate screening criteria and lending procedures are in place to ensure the housing loans are taken up by target ULIHs without leakage to higher income households. NGOs and PCs facilitate CFI origination and management of small home improvement or self-build new housing with UPHs.

Linkages between CFIs, and NGOs and PCs to facilitate small loans to UPHs for own-build and house improvement Capacity building and institutional strengthening through HFF, resulting in effective project management systems in the PFIs, a housing finance orientation policy (document), and consolidate legislation on mortgages and

NGOs/PCs to facilitate establishment of sustainable small long-term credit fund from CFIs for UPHs CFIs to monitor and manage long-term credit funds and ensure onlending terms to UPHs are applied Training and institutional strengthening program for HFF, PFIs, and NGOs/PCs prepared and implemented Housing finance awareness program prepared and implemented

Not Achieved.

Achieved. 40% of

project loan utilized, although CFIs later allowed also to lend to ULIHs Achieved. Training

programs, workshop, and seminars conducted for HFF and PFIs

Achieved. Carried

out in 2006 and 2010

CFIs can effectively develop sustainable medium- and long-term credit funds. CFIs can originate small, long-term UPH loans for own-build and house improvement. Turnover of staff minimized All ministries and government agencies involved cooperate and reach agreement on policy and legal reforms

18 Appendix 1

Design Summary Targets Achieved by August

2011 Risks and Assumptions

valuation

Housing demand database established and updated regularly Draft housing finance orientation approved by the Prime Minister by December 2004 Mortgage legislation consolidated and improved by December 2004 Improved system of valuation of land use rights certificates used by PFIs by December 2004

Design of a system to promote savings products linked to housing by June 2004

Not Achieved.

Achieved. Approved by

Prime Minister in 2007 Achieved. Satisfactory

progress (see policy and institutional action plan) Achieved. Decree No

188/2004/ND-CP dated 16 November 2004 on the method of land valuation and land pricing framework followed by other circulars

Not Achieved. Proposal for a housing savings fund drafted and being completed by Ministry of Construction before submission to government for approval, which is scheduled for 3rd quarter of 2013. Fund will combine models of German Bausparkasse and housing finance of Singapore.

.

Inputs

ADB loan PFI contribution Government Beneficiary contribution Total

$30.0 million $6.4 million $0.5 million

$14 9 million $51.8 million

$28.73 million $ 6.45 million $ 0.33 million

$27.20 million $62.71 million

ADB = Asian Development Bank, CFI= community-based financial institution, HFF = housing finance facility, NGO = nongovernment organization, PC = people’s committee, PCB = participating commercial bank, PFI = participating financial institution, SBV = State Bank of Vietnam, ULIH = urban low-income household, ULIPH = urban low-income and poor household, UPH = urban poor household.

Appendix 2 19

19

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2

Gender Action Plan and Outputs

1. The specific objective of the project is to promote the establishment in Viet Nam of a sustainable housing finance market accessible to urban low-income and poor households (ULIPHs). The project aimed in a first round of lending to provide approximately 27,500 housing loans for over 137,000 people, disbursed through participating financial institutions (PFIs).

2. The project consists of three parts: (i) component A—mortgage lending to urban low-income households through participating commercial banks under two subprojects: loans for housing purchase and loans for housing upgrade; (ii) component B—housing microfinance to urban poor households through community-based financial institutions (CFIs) under two subprojects: loans for small home improvement and loans for own-build housing; and (iii) component C—institutional strengthening and capacity building. Component C aimed to support the establishment of a housing finance facility (HFF) that would become the apex institution for the housing finance sector, as well as implementation of a policy and institutional reform action plan facilitating development of the housing finance system. The project included a significant institutional strengthening and capacity building program to facilitate the development of a sustainable and effective housing finance market in Viet Nam.

Outline Gender Action Plan

Issues Proposed Action Steps

1. While there are no legal

impediments to women borrowing

on equal terms as men, women

lack information on housing credit

opportunities.

A. Information campaign requirement in lending guidelines to PFIs

B. Monitoring by housing finance facility (HFF)

2. Participating financial institutions

(PFIs), and particularly

participating commercial banks,

are insufficiently accessible to

women, in part because the

number of female credit officers in

PFIs is limited.

C. PFIs to attract more female credit officers

D. Detailed terms of reference for capacity building of PFIs will incorporate this dimension.

E. Monitoring by HFF

3. PFI staff and nongovernment

organization support staff do not

always have sufficient

understanding of savings and

borrowing potential of women in

low-income housing areas.

F. Sensitization training of PFI staff and monitoring by HFF

G. Detailed terms of reference for capacity building of PFIs will incorporate this dimension.

3. A husband is traditionally the household head, although some 32% of all households in Viet Nam have a female head. Women are the ones who manage household expenditures and savings, while men earn money and are responsible for housing. Most ULIPHs thought it better if loans are issued in both the husband’s and wife’s names to prevent the husband from improperly using and, possibly, transferring land use rights certificates without the consent of the wife or other members of the household. Upon review, it was reported that 90% of the loan

20 Appendix 2

contracts were signed jointly by husband and wife. At present, women are more involved in savings-and-credit groups and improving their knowledge and skills. Women have lower levels of education and communication skills, so they feel inadequate in discussing business matters with banks, especially if their names do not appear on the land use rights certificate or building ownership and land use certificate. Savings-and-credit programs supported by the Women’s Union and nongovernmental organizations have strongly encouraged the role of women in loan activities. Such programs have helped residents, especially women, to improve their knowledge and skills in savings and repayment management. 4. The consultants as well as the HFF carried out training programs as originally envisaged at appraisal, including to prepare a housing finance manual detailing lending guidelines to PFIs. Based on this manual, regular monitoring was carried out by the HFF. PFIs as well as the HFF are staffed with a fair proportion of female staff and credit officers. The women’s union at Central People’s Credit Fund provides care and support for female employees, equipping them with social knowledge and enhancing their professional skills. Certificates of excellence are regularly awarded to teams and individual female staff. Workshops are held at regular intervals at Central People’s Credit Fund, including participation by female staff in overseas trips for institutional strengthening and product development. 5. The original report and recommendation of the President had provided for a limited gender action plan, and the related outputs prepared were also limited. The generation of gender-related data could be further streamlined in future projects

GAP Matrix Select View: Project Gender and Development Achievements Pr

Gender Action Plans/Outputs

Proposed Action Steps Outputs

Information campaign requirement in lending guidelines to participating financial institutions (PFIs)

Housing finance awareness and market programs were carried out in 2006 and 2010 through advertisements in Viet Nam Banking Times as well as through distribution of leaflets.

Monitoring by housing finance facility (HFF)

This is being done on a continuous basis by the HFF unit established in the International Credit Project Management Unit (ICMPU) at the State Bank of Viet Nam. Monitored through the loan utilization by the PFIs. 90% of the loan contracts were signed jointly by husband and wife. Women joined their spouse as joint signatories to the HFF loan.

PFIs to attract more female credit officers

All PFIs have a good percentage of female credit officers, close to 50%.

Sensitization training of PFI staff and monitoring by HFF

A significant level of training was delivered to HFF staff and PFIs by the technical assistance consultants based on a training program schedule approved by HFF. The PFIs were represented by a good number of female staff. Together, these sections were designed to enable participants to understand the theoretical and practical aspects of the project, tailored to the Vietnamese banking and financial context. ICPMU and HFF staff have also participated in a significant level of overseas study tours which included the Director (female) and other female staff. The key issue being addressed by this

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section was the lack of understanding of PFI staff on the saving and borrowing potentials of women in low income housing areas. The Unit in each of the PFI dealing with HFF loan comprised of a good number of female staff and they were provided training under component C which included gaining more knowledge and information on the borrowers (husband and wife). The women’s union at Central People’s Credit Fund provided care and support for female employees, equipping them with social knowledge and enhancing their professional skills.

Detailed terms of reference for capacity building of PFIs will incorporate this dimension.

TOR covered NGOs and other mass organization including Vietnam Women’s Union as one of major targets.

22 Appendix 3

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STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in

Loan Agreement Status of

Compliance 1. Use of loan proceeds 2. Conditions for disbursement 3. Maximum ceiling for lending under components

A, B, and C 4. Particular covenants The Borrower shall: 4.01 carry out project efficiently and with due

diligence 4.01 (b) perform all obligations stated in Schedule 6 4.02 make available other resources in addition to

the loan proceeds for operation of the project 4.03 (a) engage qualified consultants acceptable to

ADB 4.03 (b) carry out plans specifications and works

schedules acceptable to ADB 4.04 ensure that the agencies carry out the related

activities in sound administrative policies and procedures

4.05 ensure adequate insurance of the project facilities

4.06 maintain proper accounts and records 4.07 furnish or cause to be furnished all reports and

information as required by ADB 4.08 allow inspection of the project records, facilities

by ADB 4.09 fully cooperate to ensure the purpose of the

project is fully accomplished 4.10 protect the interest of the borrower and ADB 4.11 the project is operated and administered

according to sound principles and practice 4.12 no other external creditor shall have priority

over the loan by way of lien on the assets of the borrower

5. Condition for Loan Effectiveness 6. Disbursement condition: two imprest accounts

and use of statement of expenditure procedure 7. Use of consulting services under component C 8. Implementation

(i) (Policy & Institutional Action Plan) (ii) Project Steering Committee (iii) HFF to be the project monitoring unit (iv) To set up Housing Finance Consultative

Group (v) HFF onlending criteria

Onlending Arrangement:

(vi) Allocation of credit lines to PFIs

Sec. 3.01 and 3.02

Sec. 3.2 Sec. 3.03

Sec. 4.01 to 4.12

Sec.5.01 to 5.03 Schedule 3

Schedule 5 Schedule 6

Complied

Complied Complied

All Complied

Complied Complied

Complied Separately

provided in Appendix 3

Complied Complied Complied Complied

Complied

Complied

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Covenant Reference in

Loan Agreement Status of

Compliance (vii) Auditor certification (viii) Submission of subloans by PFIs (ix) HFC loans does not exceed 80% of the

subloan amount by PFIs (remaining 20% borne by participating commercial banks)

(x) Does not exceed 90% of subloan amount provided by CFIs

(xi) HFF interest charge levied on PFIs (xii) Conditions on PFIs’ onlending (xiii) The loan-to-value ratio not to exceed

70% (xiv) Security for subloans extended by PFIs (xv) Maintenance of two separate accounts

for repayments of principal and interest repayments by PFIs

(xvi) Each PFI shall make quarterly repayments

(xvii) PFIs to exercise due diligence (xviii) Project performance monitoring and

evaluation

Complied Complied Complied

Complied

Complied Complied Complied

Complied Complied

Complied

Complied Not Complied

ADB = Asian Development Bank, CFI = community-based financial institution, HFF = housing finance facility, PFI = participating financial institution.

24 Appendix 4

24

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POLICY AND INSTITUTIONAL ACTION PLAN

Policy Objective Situation at Appraisal Action Needed at

Appraisal Agencies Involved Current Status

Develop national housing finance orientation (policy document)

Orientation for Housing Development 2001–2010 approved by Ministry of Construction (MOC) presents the orientation, objectives, and solutions for housing development. The Housing Development and Management Action Plan for 2001–2005 and Major Objectives and Measures for 2001–2010 contain short sections on financial and economic policies, listing financial resources to mobilize for housing development. However, the Government has not adopted a formal housing finance orientation (policy document).

Prepare a National Housing Finance Orientation (policy document) that includes principles, objectives, roles, and responsibilities of Government agencies, commercial banks, and microfinance institutions and special measures to reach low-income and poor households. It will also include measures to ensure sustainability, efficiency, affordability, and equity of the housing finance system.

1. Form inter-ministerial committee chaired by SBV with senior representatives of MOF, MOC, and Ministry of Natural Resources and Environment (MNRE)

2. Submit to Asian Development Bank (ADB) for concurrence

3. Submit to Government for adoption

4. Approval by Government

State Bank of Vietnam (SBV), Ministry of Finance (MOF), MOC

The National Housing Finance Policy orientation was approved by the Government under Decision No 105/2007/QD-TTg dated 13 July 2007 Decision No 360/QD-TTg dated 4 April 2008 of the Prime Minister, establishing central executive committee on housing policy and real estate market Decision No.67/2009/QD-TTg dated 24 April 2009, on the policies and mechanism to promote the development of housing for urban low-income households Decree 71/2001 of 23 June 2010 detailed guidelines on implementation of the Housing Law from November 2005

Improve legal procedures for calling up defaulting mortgages and selling mortgaged land and houses

Jurisdictional rules regulating loan and security components of mortgage finance are not clearly defined in Viet Nam. While the Land Law and Civil Code permit mortgages and right to sell land in case of loan default, this right is seldom exercised due to the confusion of legislation on mortgages which allows too much flexibility for the judges to interpret and apply the law in a manner that can effectively defeat the value of the

Consolidate and rationalize provisions about mortgages in the different existing laws and regulations following the recommendations of a newly established inter-ministerial committee. Implement the mortgaging system to facilitate collection of loans and interest from defaulting borrowers and clarify the jurisdiction of the courts.

1. Form inter-ministerial committee

2. Submit the recommendation report to ADB for concurrence

MNRE,

Ministry of Justice,

MOC, SBV

Law No. 33/2005/QH11 of the National Assembly dated 14 June 2005, adopting the Civil Code of Viet Nam (in effect from 1 January 2006) (the “Civil Code”)

Decree No. 163/2006/ND-CP of the Government dated 29 December 2006, on security transactions as amended by Decree No. 83/2010/ND-CP dated 23 July 2010 and Decree No. 11/2012/ND-CP dated 22 February 2012. Security over most types of assets may be registered with the National Registration

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Policy Objective Situation at Appraisal Action Needed at

Appraisal Agencies Involved Current Status

3. Submit this report to

Government for adoption

4. Approval by Government

5. Issue of appropriate legislation on mortgages

Agency for Security Transactions (“NRAST”), established under the Ministry of Justice. Security over land may be registered with the relevant Department of Natural Resources and Environment (“DONRE”) at its Land Use Rights Registration Centre. (“Decree No. 163”) Circular No. 05/2011/TT-BTP of the Ministry of Justice dated 16 February 2011, guiding the registration of and information provision about security transactions and contracts, and notification of assets attached to enforce a judgment directly, by post, fax or email at registration centers of the National Office for Registration of Security Transactions under the Ministry of Justice (“Circular 05”).

Actual instances of enforcing complex and wide ranging security packages in Viet Nam are extremely rare, and, no matter how robust the security structure may be, proceeding to enforcement proceedings is something that should be considered extremely carefully. Circular No. 22/2010/TT-BTP dated 6 December 2010 of the Ministry of Justice, guiding online registration of and information provision about security transactions Circular No. 33/2010/TT-BTP dated 6 December 2010, detailing and guiding the implementation of Government Decree No. 17/2010/ND-CP of 4 March 2010, on property auction

26 Appendix 4

Policy Objective Situation at Appraisal Action Needed at Appraisal

Agencies Involved Current Status

Improve valuation system of land and houses to facilitate the development of the primary mortgage market

Values of land assessed on the basis of outdated, arbitrary, inaccurate prices set by provincial people’s committees, based on the national frame price set by the Government, restricts credit institutions from making their own value and risk assessments and frequently disadvantages borrowers.

Abolish the need for credit organizations to use or be influenced by frame prices. Widely publish the MNRE land valuation manual and improve training of officers of Departments of Land Administration (DLAHs) in international valuation techniques and best practices.

SBV, MNRE,

DLAHs, MOF

Decree No 188/2004/ND-CP dated 16 November 2004 and 101/2005, on the method of land valuation and land price frame. The decree is not applied to the land valuation and assessment made by credit institutions. Decree No 163/2006/ND-CP dated 29 December 2006 Decree No 11/2012/ND-CP dated 22 February 2012, on the amendment of Decree 163/2006/ND-CP, on secured transaction: Financial institutions are free to use land valuation for their loan appraisal and take all risks associated with the loans. Circular No. 145/2007/TT-BTC providing guidelines for implementation of Decree 188/2004/ND-CP of the Government dated 16 November 2004 (as amended by Decree 123 dated 27 July 2007), on land price determination methods and price frameworks for all types of land Joint Circular No. 02/2010/TTLT-BTNMT-BTC dated 8 January 2010 of the Ministry of Natural Resources and Environment with Ministry of Finance, guiding the formulation, evaluation, and issuance of land prices, and adjusting land prices under authority of provincial people’s committees, cities under central authority Circular No. 48/2012/TT-BTC dated 16 March 2012 of the Ministry of Finance, on guiding determination of the reserve prices and

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Policy Objective Situation at Appraisal Action Needed at Appraisal

Agencies Involved Current Status

Promote household savings in commercial banks and microfinance institutions for housing purchase and improvement Improve banking sector performance

No particular products in the banking system link formal savings with mortgage lending for housing. Banking sector is relatively underdeveloped, dominated by government ownership and influence, has significant nonperforming loans and in need of continuing reform.

Assess feasibility of a contractual housing savings scheme and potential government support for the scheme Deepen policy reforms in banking sector under existing programs to create a sound banking system, involving a 3-year agenda of reform measures to restructure the banking sector and individual banks; strengthen the regulatory and supervisory legal framework; and provide a level playing field for all banks.

SBV, MOF, participating financial institutions (PFIs)

MOF, SBV, PFIs

financial regulations in land use rights auctions for allocation of land subject to land levies or land lease New draft of land law revision will be submitted at the fourth session of the National Assembly by late October of 2013. Not much progress. MOC developed a draft in February 2013 for submission to the Government for approval, which is scheduled for 3rd quarter of 2013. Envisioned is a fund combining models of Germany’s Bausparkasse and Singapore’s model for housing and the welfare state. Despite the following measures, the banking system and supervision have a number of issues to be addressed, in particular nonperforming loans and bank supervision. Three state-owned banks have become joint-stock commercial banks: Vietcombank, Vietinbank, and BIDV Circular No. 13/2010/TT-NHNN dated 20 May 2010 of the SBV, stipulating prudential ratios in operations of credit institutions.

Decision No. 34/2008/QD-TTg dated 3 March 3, 2008, on the establishment of the national financial supervision committee

Decision No 83/2009/ QD-TTg dated 27 May 2009 of the Prime Minister, on the function, responsibility, authority, and organizational structure of the Banking Supervisory Agency belonging to SBV

28 Appendix 4

Policy Objective Situation at Appraisal Action Needed at

Appraisal Agencies Involved Current Status

Increase number of urban land use rights certificates (LURCs) issued and improve registration procedures

Approximately 18% of urban LURCs’ building ownership and land use certificates (BOLUCs) have been issued due to lack of sufficient suitably qualified staff, complexities of Land Law requirements, and procedures prescribed.

Expedite general issue of urban LURCs and BOLUCs by improving numbers and quality of staff resources of DLAHs. Approximately 50% of the urban households should have LURCs.

MNRE, DLAHs

Circular No. 22/2011/TT-NHNN dated 30 August 2011 of SBV, amending and supplementing some articles of Circular No. 13/2010/TT-NHNN dated 20 May 2010 of SBV, stipulating prudential ratios in operations of credit institutions Law on the State Bank of Viet Nam No. 46/2010/QH12 and the law on credit institutions No 47/2010/QH12 came into effect on 1 January 2011. Circular No. 02/2013/TT-NHNN dated 21 January 2013 of SBV, on classification of assets, levels and method of setting up risk provisions, and use of provisions against credit in banking activity of credit institutions and foreign banks’ branches. As of December 2011, 3,683,411 LURCs have been issued to urban households, accounting for ca 64% of urban land area. Some policy measures to increase registration of LURCs/BOLUCs include the following: Directive No. 1474/CT-TTg of the Prime Minister dated 24 August 2011, to strengthen the issuance of land use right or house and other land-attached asset ownership certificates and establishment of a database on land Directive No. 05/CT-TTg of the Prime Minister dated 4 April 2013, on directing and improving staff performance to complete

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Policy Objective Situation at Appraisal Action Needed at Appraisal

Agencies Involved Current Status

Attract additional funds to the housing sector through the development of a secondary mortgage market Facilitate introduction of mortgage insurance scheme

Institutional investors, such as insurance companies and pension funds, are progressively being established. These institutions will have long-term funds that could be redirected to the housing sector through the development of a secondary mortgage market. There is no mortgage insurance scheme to assist low-income borrowers make loan repayments when household income is lost due to job loss, illness, or incapacity to work.

Conceive and design features for mortgage bonds to be issued by a potential secondary mortgage facility for long-term institutional investors. Conceive and design features of a mortgage insurance scheme targeting low-income households

Housing finance facility

(HFF), SBV

HFF, SBV

issuance of land use rights certificates, certificate of residential house title and other real estate in 2013 Proposal to establish a mortgage refinance agency in Viet Nam was drafted and submitted to the Governor of SBV in October 2010. Currently, ICPMU, in coordination with departments within SBV and experts in the banking sector, is reviewing and updating the draft. It is planned to resubmit the updated draft in 4th quarter of 2013. No progress. Task assigned to the MOF as per the directive issued by the Prime Minister

ADB = Asian Development Bank, BOLUC = building ownership and land use certificate, DLAH = Department of Land Administration, HFF = housing finance facility, ICPMU = International Credit Project Management Unit, LURC = land use registration certificate, MNRE = Ministry of Natural Resources and Environment, MOC = Ministry of Construction, MOF = Ministry of Finance, PFI = participating financial institution, SBV = State Bank of Vietnam.

30 Supplementary Appendix A

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Revisions of Project Criteria

Date Content of revision

14 June 2006 Revision to the loan agreement whereby the criteria for eligible subborrowers and qualified projects were revised as follows:

-Updated income level of ULIHs: average monthly income D1.2 million to D5.5 million/household (previously D0.75 million to D3.5 million/month)

-Updated income level of UPHs: average monthly income D0.55 million to D1.2 million/household (previously D0.35 million to D0.75 million/month)

-Updated maximum value of qualified projects for ULIH to D140 million per subproject for purchase of a house (previously D100 million/subproject), to D28 million/subproject for renovation or upgrading of a house (previously D20 million/subproject)

-Updated maximum value of qualified projects for UPH to D22 million/subproject (previously D15 million/subproject)

27 June 2006 Waiving insurance requirements by ADB for subprojects up to D14 million.

4 July 2007 -Revised income level of ULIH: average monthly income increased to range of D1.5 million to D6.6 million/household

-Revised income level of UPH: average monthly income increased to range of D0.55 million to D1.5 million/household

- Updated maximum value of qualified projects for ULIHs to D300 million in Hanoi, Ho Chi Minh city, Bà Rịa-Vũng Tàu, and Vĩnh Long and to D200 million in other cities for purchase of a house. Maximum value of subprojects for renovation or upgrading of a house increased to D35 million/subproject

25 October 2007

-Included 4 cities: Hai Phong, Hai Duong, Can Tho, and Bien Hoa in list of eligible cities applicable for maximum value of ULIH qualified projects for housing purchase up to D300 million

-Updated maximum value of ULIH subprojects for renovation or upgrading of a house to D50 million/subproject

-Exclusion of collateral requirement for subloans up to D50 million

-Exemption of insurance requirements for subloans up to D50 million for renovation or upgrading of a house. Insurance was required for subloans for purchase of new houses.

-Updated maximum value of qualified subproject for UPH to D40 million/subproject

August 2009 -Revised income level of ULIH: average monthly income increased to range of D4 million to D10 million/household in Hanoi city, Ho Chi Minh city, and other provinces and cities in area I and to the range of D3 million to D9 million/household in other areas

-Revised income level of UPH: average monthly income increased to range of D1 million to D4 million/household in Hanoi city, Ho Chi Minh city, and other provinces and cities of area I and to the range of D0.75 million to D3 million/household in other areas

Supplementary Appendix A 31

-Adjusted maximum value of qualified projects for ULIH to D650 million/subproject in Hanoi city, Ho Chi Minh city, and provinces and cities of area I and to D550 million in other cities for home purchase

-Maximum value of subprojects for housing renovation or upgrading increased from D50 million to D125 million/housing unit cost

-Adjusted maximum value of qualified projects for UPH to D80 million in Hanoi city, Ho Chi Minh city, and provinces and cities of area I, and to D75 million in other areas

6 May 2011 -Revised income level of ULIH: average monthly income was raised to range of D4 million to D10.9 million/household in Hanoi city, Ho Chi Minh city, and other provinces and cities of area I, and between D3 million and D9.83 million/household in other areas

-Revised income level of UPH: average monthly income increased to D1 million to D4.37 million/household in Hanoi city, Ho Chi Minh city, and other provinces and cities of area I, and between D0.75 million and D3.28 million/household in other areas

-Updated maximum value of qualified projects for ULIH to D708.9 million per subproject in Hanoi city, Ho Chi Minh city, and provinces and cities of area I, and to D600.6 million in other cities for home purchase

-Maximum value of qualified project for housing renovation or upgrading increased from D125 million to D136.5 million/subproject

-Updated maximum value of qualified projects for UPH to D87.4 million in Hanoi city, Ho Chi Minh city, and provinces and cities of area I and D81.9 million in other areas

ULIH = urban low-income household, UPH = urban poor household.

32 Supplementary Appendix B

DISBURSEMENTS

Table 1: Disbursement through 30 June 2013

Item Number of Subloans Number of Beneficiaries

Urban Low-Income Households Home Purchase 1,058 3,267 Home Upgrades 12,676 44,005

Urban Poor Households

Home Purchase Nil Nil Home Upgrades 1,573 5,454 Source: State Bank of Vietnam.

Table 2: Disbursement by Individual Participating Financial Institutions

between Project Completion Date and 30 June 2013 (D)

No. Name of PFI Disbursed amount

I Urban Poor Households component

1 Central People’s Credit Fund (CCF) 9,315,000,000

Subtotal (1) 9,315,000,000

II Urban Low-Income Households component

1 Central People’s Credit Fund (CCF) 57,823,200,000

2 Housing Development Joint Stock Bank (HDB) 0

3 Dong A Bank (EAB) 16,133,900,000

4 Mekong Housing Bank (MHB) 1,684,000,000

5 Saigon Commercial Bank(Sacombank) 0

6 Viet Nam Technological and Commercial Joint Stock Bank (Techcombank) 0

7 Mekong Development Bank (MDB) 0

8 Viet A Bank (VAB) 0

9 Viet Nam International Bank (VIB) 0

Subtotal (2) 75,641,100,000

Total (1)+ (2) 84,956,100,000

Supplementary Appendix C 33

ACTUAL FINANCING AND DISBURSEMENT

Table 1: Breakdown of Actual Financing

Source of Funds

Foreign Exchange ($’million)

Local Currency ($’million)

Total Cost ($’million)

Percentage of Total Cost At Project Closing

Percentage of Total Cost Estimate at Appraisal

ADB 28.73 28.73 46.03 57.9 PFIs 6.45 6.45 10.33 12.3 Government 0.03 0.03 0.05 1.0 Beneficiaries 27.20 27.20 43.58 28.8

Total 28.73 33.68 62.41 100.00 100.00 ADB = Asian Development Bank, PFI = participating financial institution. Source: State Bank of Vietnam.

Table 2: Disbursement under Credit Components A and B ($)

Disbursement Amount

Year ULIH UPH Total

2006 0 37,662 37,662 2007 89,111 195,381 284,492 2008 2,289,140 62,208 2,351,348 2009 4,428,767 0 4,428,767 2010 11,261,203 783,687 12,044,890 2011 6,845,040 919,139 7,764,179 Total 24,913,261 1,998,077 26,911,339 ULIH = urban low-income household, UPH = urban poor household. Source: State Bank of Vietnam.

34 Supplementary Appendix C

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Table 3: Disbursements under the Project (by Individual Participating Financial Institutions) (D’billion)

No Name of PFI Line of

credit as of 31 Aug 2011

Disbursed amount as of 31 Aug

2011

Disbursed amount as of 30 Jun 2013

Outstanding Balance as of 31

Aug 2011

Outstanding Balance as of 30

Jun 2013

Repayment as of

31 Aug 2011

Repayment as of

30 Jun 2013

I Urban Poor Households Component

1 Central People’s Credit Fund (CCF) 26.575 37.633 46.948 26.575 15.124 11.057 31.823

Subtotal (1) 26.575 37.633 46.948 26.575 15.154 11.057 31.823

II Urban Low-Income Households Component 1 Central

People’s Credit Fund (CCF) 160.000 204.137 261.960 108.618 39.457 95.518 222.502

2 Housing Development Joint Stock Bank (HDB) 68.000 76.913 76.913 67.825 42.111 9.087 34.800

3 Dong A Bank (EAB) 9.700 7.024 23.158 5.458 17.199 1.566 5.959

4 Mekong Housing Bank (MHB) 106.000 109.713 111.397 86.682 56.271 23.031 55.125

5 Saigon Commercial Bank(Sacom-bank) 33.700 42.949 42.949 30.106 5.940 12.843 37.009

6 Viet Nam Technological and Commercial Joint Stock Bank (Techcom-bank) 7.000 8.249 8.249 6.646 4.413 1.602 3.836

Supplementary Appendix C 35

7 Mekong Development Bank (MDB) 19.500 17.619 17.619 15.500 6.293 2.119 11.326

8 Viet A Bank (VAB) 19.500 0.40 0.4 0.3 0.2 0.1 0.1

9 Viet Nam International Bank (VIB) 39.000 5.672 5.672 5.636 3.852 0.036 1.820

Subtotal (2) 462.400 472.680 548.321 326.857 175.7780 145.823 372.543 Total (1)+ (2) 488.975 510.314 595.270 353.432 190.903 156.881 404.366 Source: State Bank of Vietnam.

36 Supplementary Appendix D

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1% pa management fee for HFF

Quarterly remittance HFC

repayments

Weighted average of

all time deposits in the banking system

Project Financing Mechanism

Small home improvement and own-build housing loans for UPHs

House purchase and home improvement loans for ULIHs e

ADB = Asian Development Bank, CFI = community-based financial institution, HFC = housing finance company, PCB = participating commercial bank, PIU = project implementation unit, PMU = project management unit, ULIH = urban low-income household, UPH = urban poor household. Source: Asian Development Bank

ADB

Ministry of Finance (MOF)

State Bank of Viet Nam (SBV)

Housing Finance Facility—PMU

CFI

PIU

UPH

PCB

PIU

ULIH

1.5% per annum (pa)

MOF margin included cover for foreign exchange risk

Quarterly remittance HFC

repayments

Market rate

Subloan repayments

Subloan repayments

SBV pays back all interest collected less management fee of 1%

Supplementary Appendix E 37

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Comparison of Costs (Original vs. Actual)

Institutional Strengthening and Capacity Building Component ($)

Items

Allocations of the Project Utilized Unutilized

ADB Counter- part Fund Total ADB

Counter-part Fund Total ADB

Counter- part Fund Total

Consulting services, training, seminar 1,550,000 150,000 1,700,000 1,185,588 132,156 1,317,744 364,412 17,844 382,256

Means and equipment 100,000 350,000 450,000 86,476 8,642 95,117 13,524 341,358 354,883

Program of raising marketing awareness 25,000 25,000 6,033 604 6,637 18,967 18,363

Establishment of housing finance database 25,000 1,194 26,194 24,830 1,194 26,024 170 170

Total 1,700,000 501,194 2,201,194 1.302,927 142,596 1,445,521 397,073 358,202 755,672

Source: State Bank of Vietnam.