Credit growth hard to accelerate at year’s end

According to the State Bank of Vietnam (SBV), by September 16, credit growth of the banking industry reached 4.81 percent. Although the State Bank of Vietnam has recently raised the credit growth limit for some effective credit institutions capable of expanding healthy credit into sectors serving economic growth, general credit in the banking system is still growing sluggishly.
Customers do transactions at a bank in Ho Chi Minh City. (Photo: SGGP)
Customers do transactions at a bank in Ho Chi Minh City. (Photo: SGGP)

Mr. Nguyen Tuan Anh, Director of the Department of Credit for Economic Sectors under the SBV, said that although credit growth was slow due to the impacts of the Covid-19 pandemic, the capital continued to focus on the fields of production and business and priority sectors. For instance, credit increased by 4.5 percent in the field of rural agriculture, 3.5 percent of that of small and medium-sized enterprises, and 5 percent of that of export.

Statistics of the State Bank of Vietnam also show that although credit growth in the first eight months of this year was lower than that in the same period last year, merely reaching 3.86 percent, banks in Ho Chi Minh City, together with the municipal Department of Industry and Trade, have actively launched connections to support enterprises to recover and develop production and business activities. The total capital in the connection activities exceeded VND87.8 trillion. Particularly, the connection activities between banks and enterprises in the districts have also provided loans worth nearly VND2.75 trillion. The credit package pledged by commercial banks at the beginning of this year has disbursed for over VND208 trillion. Generally, through these activities, nearly VND300 trillion worth of loans with low-interest rates have been introduced to the market to support enterprises.

From the second half of August up to now, the market has shown signs of recovery and revealed the bright spots of credit supply in the last months of this year of credit institutions. At the same time, banks also offer stimulus packages, such as exemption and reduction of lending interest rates to support enterprises affected by Covid-19. For example, HDBank has just had an interest-rate subsidy package for tenants and very-small enterprises to restore their business with a loan limit of up to VND2 billion and a grace period of up to 24 months for principals. This is considered as a good sign, signaling a new rebound from now to the end of the year.

Many commercial banks have increased their credit limits, such as Techcombank and VPBank raised credit room to 19-23 percent; MBB adjusted the credit room from 11.75 percent to 20 percent; VIB increased credit room to 12.5 percent compared to the initial limit; TPBank increased its credit room to 11.5 percent. However, four state-owned joint-stock commercial banks, consisting of Agribank, BIDV, Vietcombank, and Vietinbank did not ask to raise credit growth targets because they still faced difficulties in disbursement. After all, the room to increase loans for this group is still available. Meanwhile, credit growth still depends mainly on the group of the above four large banks.

Commercial banks said that the number of enterprises that want to restructure their debts and reduce the interest rates for existing loans is larger than that of enterprises that have the demand for new loans. SCB’s leaders said that the lending interest rates are now much less expensive than before, but enterprises in the sectors strongly affected by the pandemic do not need new loans but debt restructuring. Therefore, credit can only inject into industries capable of absorbing capital, such as consumption, necessities, pharmaceuticals, and retail.

Because it is hard to push credit into enterprises, recently, several commercial banks have boosted consumer lending with attractive interest rate packages. Specifically, from September this year, the personal loan interest rates for home loans, car loans, and house building and renovation at ABBANK was reduced for the fourth time with the lowest rate from only 5.9 percent per annum, effective until the end of December 31, 2020. SHB has also lowered the home loan interest rate from 7.5 percent per annum to 6.5 percent per annum, the loan interest rate for houses in housing projects, car loans, and consumer loans has dropped to only 6.8 percent annum. MSB continued to reduce interest rates to zero percent for individual customers with the needs for consumer loans and business development in the first month to the end of November this year.

According to Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, commercial banks have chosen the solution of increasing consumer credit in the year-end period because lending encountered many difficulties in the past months. Meanwhile, during this period, increasing consumer credit will contribute to stimulating aggregate demand and supporting growth. However, according to this economist, the main driving force to promote credit growth at the year’s end is disease control and the recovery of socio-economic activities. Of these, small and medium-sized enterprises and individuals will have more demand for loans, and that is the room for credit to expand.

‘With the right solutions, credit in the last months of the year is likely to grow by 1 percent per month, for the growth of the whole year to reach from 8-9 percent,’ said Mr. Can Van Luc.

The SSI Research of the SSI Securities Company also said that even when the credit growth target is lowered to 10 percent in 2020, much lower than the target set at the beginning of the year at 13-14 percent and the growth rate of 13.65 percent in 2019, it is also extremely difficult to realize the target. Because, to achieve the target, credit growth in the last months of the year must be equivalent to that of the same period last year. This means that the average credit will have to increase by about 1.3 percent per month in the last months of the year, and this is unlikely to happen in the context of complicated pandemic developments all over the world and broken production chains.

Mr. PHAN DUNG KHANH, a founding member of the Vietnam Association of Financial Executives: Credit quality is most important.

The Covid-19 pandemic recurred in Vietnam in July this year, and currently, in the world, there are more and more cases of Covid-19. Therefore, the credit demand in the last months of the year will possibly remain low, and it is difficult to reach the target set by the State Bank at the beginning of the year. However, when the economy cannot absorb capital, if the credit balance increases, it is possible that the capital will flow into speculative channels, such as stocks, real estate, and gold. At that time, the potential risk of a financial bubble will be extremely high.

Therefore, the current problem is not to promote credit growth to make achievements, but most importantly, to improve credit quality. Regulators must know where the money is injected and how well it will be used. It is necessary to have priority policies to support sectors that are essential and deeply rooted in the economy and limit capital into industries with high speculative potentials to avoid money flowing into speculative products.

Dr. NGUYEN TRI HIIEU, finance and banking expert: The disbursement of public investment needs to speed up.

Credit growth slowed down at the beginning of the year, but it might recover by the end of this year, thanks to the need to deploy infrastructure investment. Even so, the growth target approximating to that of last year at nearly 14 percent is hard to achieve. To promote credit, it cannot only rely on the support of banks, but it also needs the policy support, including speeding up the implementation of the second support package to people and enterprises, accelerating investment, and stimulating domestic consumption.

Therefore, to have good growth in the last months of the year, it is necessary to speed up the disbursement of public investment because the demand for loans to finance large projects will increase upon the process of promoting the public investment disbursement. Moreover, consumer credit is a potential sector and expects to have high demand by the end of the year, so commercial banks can take advantage of this sector to boost the credit. However, banks also need to be cautious when fostering growth in this segment due to high risks, especially in the context of economic difficulties caused by the pandemic, the affordability for consumer loans of people will also be restricted because of the impacts on income and employment.

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