The Prime Minister has set a target for credit growth in 2024 of approximately 15 percent, which corresponds to the banking system pumping over VND2 quadrillion (US$813.17 billion) into the economy. However, credit growth in the first eight months of 2024 reached only 7.31 percent, less than a half of the target, posing a significant challenge.
Looking back at previous years of high credit growth, it is evident that these were primarily years when the real estate market was overheating, and while the economy was growing, it was unsustainable and harbored the risk of an asset bubble. Since the real estate sector is one of the most capital-intensive industries, achieving an economic growth rate of 6-6.5 percent requires credit growth to increase by about 14-15 percent.
Currently, the real estate market is relatively sluggish, and credit has been flowing primarily into production and business sectors, leading to relatively low credit growth. However, this is a more substantive and efficient growth.
This is also reflected in the 6.93-percent GDP growth in the second quarter of 2024, which is higher than previous forecasts. Without curbing capital flows and controlling inflation, capital will be poured into risky speculative channels such as real estate and securities. Therefore, it is not necessary for credit to grow by 15 percent this year; as long as credit is linked to real borrowing needs such as production, business, and consumption, GDP growth can still exceed 6 percent. To achieve this goal, the banking sector needs to have targeted preferential policies.
The export sector needs more concentrated capital due to its strong recovery, contributing to economic growth in recent times. The government and the State Bank should support and implement strategies for preferential interest rate loans because exports are considered a double-profit channel as they both support economic development and bring foreign currency to the country. If exports are promoted and the exchange rate continues to stabilize in the coming period, it will contribute to stabilizing the macroeconomy.
When exchange rate pressure decreases, it is unnecessary for the State Bank to adjust the policy interest rate to respond to exchange rate pressure, thereby giving it more room for monetary policy, maintaining low interest rates to support the economy.
The cooling of the exchange rate has many positive impacts on the economy, especially reducing inflationary pressure, increasing domestic purchasing power, and strengthening consumer confidence. In particular, attention should be paid to stimulating consumption, a key factor in boosting economic growth at the end of the year as this is the peak shopping season.
Aware of this, the Government and the State Bank should promptly implement the issued policies to support people and businesses in recovering and overcoming the consequences of floods as soon as possible, especially the need for people to rebuild their homes after storms. The demand for credit for people and businesses to recover after storms is expected to be quite large, and if credit is focused on supporting people and businesses, it can promote more effective credit growth to support the economy.
Currently, with Vietnam's domestic economic conditions, capital serving the economy relies heavily on the credit channel. The World Bank has also warned that Vietnam's current credit-to-GDP ratio is among the highest in the world. If the economy depends too much on credit, it will be vulnerable and face many risks.
Therefore, in the long term, solutions are needed to revive the capital market, especially the corporate bond market with a larger scale and structure than credit. This is to meet the medium and long-term capital needs of enterprises and the economy. Developing the capital market will help reduce the burden on bank credit, thereby reducing risks.
