Credit Must Increase

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According to the State Bank of Vietnam (SBV) by the end of July 2020, new credit increased only by 3.45%, less than half of the 7.48 percent increase of the same period last year. Notably, after a rather rapid rise in June, the credit speed had slowed down over the past month. In June, the credit grew by 1.28 percent compared to May, the increase in July was only about 0.2%.

According to the credit reports of banks in the first half of the year, credit in a series of industries and sectors such as aviation, shipping, services, restaurants, hotels, real estate, construction… not only stayed unchanged, but also decreased. Some banks reduced loan balance to only half over the same period last year in the above areas.

The reason for the reduction that was not explained by banks was because of the epidemic. If enterprises did not expand their business, the need for new loans (the basis for credit growth) was not available, many industries directly affected by Covid-19 quickly would settle old debts to reduce costs, or recommend banks to restructure debts to delay.

From this perspective, it could be seen that the credit growth for the whole economy also showed a positive sign

However, from a business perspective, the credit that could not be increased was partly subjective to the bank’s side. Customers’ loan risk increased because the business became more difficult, banks were afraid of bad debts, so they were very cautious in making new loans. Thus, there appeared more approval procedures, longer time, and so on.

The leader of a commercial plant drug business in Dong Nai had used the image of ‘entrenchment’ when talking about this issue. According to this leader, the fact that banks were more cautious in the current context was also understandable. However, as cautious as ‘entrenchment’, it was very difficult for businesses to access credit, said the leader.

In many dialogue conferences with the banking industry in recent months, many businesses still expressed confidence that the Covid-19 outbreak would soon pass, and business opportunities would be better. However, they also concerned, new loans had still been very difficult. The fact that banks required collateral, as well as cash flow to repay loans proof, was a very difficult condition for businesses today. The Covid-19 epidemic had made production and business activities unstable, while the large amount of asset had been pledged to old loans, a leader of a business in the restaurant and hotel sector said.

The UOB survey results showed that nearly three out of five of Asean small and medium enterprises (58%) would no longer promote their investment plans in this year. However, in Vietnam there was difference.

Only 47 percent of small and medium enterprises in Vietnam said they would delay their investments during the year. Vietnam had become the only market in the region where a great proportion of enterprises in this group said they would invest in 2020.

The above survey was a small example showing the level of optimism among Vietnamese firms in the epidemic. That optimism was not simply the Vietnamese character that was always shown up in difficulties. Of course, these opinions had to base on a certain economic basis.

Reports of many economic sectors also proved that ‘growth’ was still the word most mentioned in the first six months, although the growth rate had decreased compared to the previous years. Agriculture still increased by 1.19 percent (3.9 percent in the same period), processing and manufacturing also rose by 4.96%, of which construction was the bright spot with 4.5 percent of growth.

Businesses remaining optimistic was the basis to expand credit, bring more capital to the economy to promote growth. But in order to clear banks’ concerns about risks and bad debts, experts pointed out that there should be more drastic measures to stimulate demand, especially in public investment, to lower interest rates further to stimulate consumption, bring people’s savings into investment, business.

Trade was also a solution when the largest consumer market in the world in the North of our country was boosting economic stimulus. The iron ore spot prices rose to $130 per tonne, the highest since 2014 mainly thanks to China boosted investment in infrastructure.

Or making good use of free trade agreements that Vietnam had signed, such as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-Vietnam Free Trade Agreement (EVFTA), not only provided businesses with output, but also helped banks to confidently disburse capital.


Category: Finance, Vietnam

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