As of 25 March 2019, credit to the economy increased only about 2.28 percent from the end of 2018. This credit growth is much lower than the growth of 3.5 percent as of the same period last year and 4.3 percent in the same period in 2017, the State Bank of Vietnam (SBV) reported.
Is the slow credit growth a sign of an economy that is less dependent on banks? On the other hand, amidst the slow credit growth, the mobilising interest rate still increases in long terms. So where is the money?
Talking to BizLIVE reporter, a financial expert said that one of the important reasons for the slowdown in credit growth is the limit of credit growth.
Since 2014 so far, due to pressure of macroeconomic stability and restructuring of the banking system, the State Bank decided to apply the credit growth limit for banks. In particular, the quote for each bank will depend on the scale as well as its own capacity.
In addition, the policy of increasing credit quality instead of quantity also made the bank continue to tighten the loan capital.
The tightening of credit will greatly affect banks’ profits when net interest income still accounts for 80 percent of total income in most members.
Therefore, in order to increase profit but still not “surpass” the credit target of the State Bank, some banks have switched to focus on capital arrangement service through brokerage services for corporate bonds.
According to the expert, with this service, commercial banks still act as an intermediary financial institution, however, cash flows do not run through their balance sheet.
Firstly, in this direction, because people do not send their money directly to the bank, thus it affects the deposit. In addition, banks do not directly lend so credit also slows down. This is one reason why the credit growth in the first 3 months of the year was only 2.28 percent.
Secondly, in the above direction, enterprises mobilise capital through bond channels with intermediary banks, they use a part of that capital to repay for loans borrowed from banks and partly reduce credit.
According to the expert, another important cause of slow credit growth in the past three months is the growth of peer-to-pear lending (P2P lending).
Connecting on a non-intermediary technology platform helps reduce costs, quickly and conveniently, and create attractive investment channels, P2P lending has become a growing and remarkable financial channel in Vietnam.
According to official statistics, there are currently about 40 P2P lending companies operating in Vietnam with impressive numbers of total outstanding loans and scale of connection.
With these figures, we can see that despite many shortcomings and risks, the development of this platform will be a significant threat to the traditional credit model.
In the recent meeting, SBV’s deputy Governor, Nguyen Thi Hong also said that the SBV has assigned the departments and functional departments to refer to the management of countries and will propose pilot application of this model and consider this a conditional business sector.
