Efforts needed to eliminate causes of difficulties in promoting credit growth

The Prime Minister has issued Directive No. 18/CD-TTg on managing credit growth in 2024, in which he instructed the State Bank of Vietnam (SBV) to remove difficulties and obstacles to promote credit growth.

Prime Minister Pham Minh Chinh has issued Official Dispatch No. 18/CD-TTg, instructing the State Bank of Vietnam (SBV) to comprehensively review the results of credit issuance by the system of credit institutions and their impact on the economy. Reporters from the SGGP newspaper had a discussion with Dr. Nguyen Quoc Hung, Vice Chairman and General Secretary of the Vietnam Bankers Association (VNBA), regarding credit growth in the early months of the year and the limitations and challenges that need to be addressed.

Customers are making transactions at a bank in HCMC. (Photo: SGGP/ Hoang Hung)

By the end of last February, credit only increased by 2 percent compared to the same period in 2023, and it had even experienced a negative growth in January.

According to Dr. Nguyen Quoc Hung, there are two reasons accounting for this trend. Firstly, the phenomenon of low credit growth, or even negative credit growth at the beginning of the year is quite common and predictable. The reason is that there was a high demand for payments from businesses and individuals at the end of the previous year, leading to a huge rise in credit. In addition, the first month of the new year coincides with the Lunar New Year holidays, resulting in a reduction in credit demand in January of the following year as most borrowers have already completed their transactions.

The most significant problem at this time is the lack of customers that meet the loan criteria despite the fact that banks have no capital shortage, and credit targets are abundant.

Regarding the businesses’ difficulties in accessing bank loans despite low-interest rate, some said that this is due to the banks’ tightening lending criteria. However, according to Dr. Hung, no bank wishes to deny businesses’ access to loans because the fundamental function of a bank is to mobilize capital and grant loans. The reason why certain individuals cannot access capital or why businesses are facing difficulties in obtaining loans may be attributed to the fact that they do not meet the lending criteria set by banks.

In fact, several banks are trying their best to provide loans in order to facilitate credit growth. However, it is essential for them to find eligible customers when providing loans to avoid potential risks.

Moreover, this problem may be associated Covid-19 pandemic’s negative impact on businesses’ production activities and the economy over the past few years, which makes them no longer have sufficient capacity. That’s why businesses lack the assets to secure collateral and evidence to prove to the banks that they can continue to develop steadily.

According to Dr. Hung, the prospect for credit growth in the coming time may be affected by both objective and subjective factors.

Regarding objective factors, the geopolitical situation in the world is still complicated. For example, the Middle East and the Red Sea region are still tense, the conflict between Russia and Ukraine is still ongoing without positive signals. These factors will affect the domestic economy as the consumer demand of world markets decreases and thus affect the production and business activities as well as the import and export of domestic enterprises.

Concerning the subjective factors, it is the internal issues of the economy. Vietnam has a very open economy, and exports play an important role, but it has seen a sharp decrease in the past time due to external market fluctuations. This affects consumer demand, directly impacting businesses. Therefore, to stimulate consumer demand, it is not only the responsibility of banks but requires all relevant sectors to work together to resolve the problems.

Dr. Hung also doesn’t support the viewpoint of continuing to reduce loan interest rates to support businesses and thereby stimulate economic growth.

The reason is that the rates have already decreased significantly. The banks are offering loans with rates as low as 3-4 percent per year for well-performing manufacturing and business enterprises, yet some businesses are still not interested in these opportunities. This is because these businesses do not have the need for additional capital, nor do they have plans to expand their production and investment. On the banks’ side, they are also reluctant to provide loans for less well-performing businesses that do not meet the required standards, even with higher interest rates ranging from 10-15 percent per year.

The banks are also cautious about accepting proposals for reducing loan rates of the businesses that have borrowed before the rate reduction because this may lead to serious legal issues.

According to Dr. Hung, to stimulate consumer demand for lending, people need to have income, job stability, and businesses must operate effectively. Therefore, it is expected that the economy and the production and business activities of enterprises will experience a gradual recovery. Moreover, recently, there have been many foreign direct investment (FDI) projects from various countries into Vietnam. This could be a factor contributing to the revitalization of the economy in the coming months, providing conditions for businesses and individuals to access credit for investment in production and business.

The banks must carefully choose their customers, as this is both a principle and a matter of survival for the safety of the banking system. Practical experience has proven many painful incidents related to lending without adhering to regulations. This shows that accessing credit needs to be more stringent and challenging, ensuring the safety of credit and the long-term stability of the economy.

There is also a suggestion to lower lending standards, which I believe is not possible. Regulations on credit investment standards so far do not allow any lowering of standards. The credit capital is the money deposited by the citizens, so risks will arise when the banks lower their lending standards, affecting both the banks and their customers. This issue needs to be viewed broadly like this. – Dr. Nguyen Quoc Hung

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