The low credit growth in the first two months of this year showed that the 14 percent credit growth target was not easy to achieve, even though this was the lowest credit growth in the last five years.
Speaking at the recent Vietnam Economic Conference in 2019, Pham Thanh Ha, director of the Monetary Policy Department of the State Bank of Vietnam (SBV), said that credit was estimated to increase about one percent in the first two months of this year. Although this growth rate is better than the level of 0.77 percent announced by Ministry of Planning and Investment (MPI), it is far behind the increase of 1.8 percent in the same period in 2018.
Many bank leaders shared that, although they still tried to push credit up from the beginning of this year, but how much credit increased depended on the absorption capacity of the economy. Accordingly, although credit growth was positive in the first month of the year, it slowed down in February because this month has only 28 days, coinciding with the Lunar New Year.
Pham Thanh Ha also said that the reason for credit growth was oriented at such a low level because putting the high target for credit growth would increase the pressure of capital mobilisation, thereby affecting the average interest rate. Besides, credit in the whole economy had also reached a quite large scale, so it was time to “save” credit growth to ensure stable asset scale and improve the quality of loans.
A bank expert estimated that by the end of 2018, the credit balance for the economy was about 7.22 quadrillion dong, an increase of about 900 trillion dong compared to the end of 2017. “Credit increased by one percent after the first two months of the year, which means more than 72 trillion dong of credit has been pumped into the economy, “said the expert.
However, the low credit growth is partly due to a sharp increase in the number of dissolved and inactive businesses. According to statistics, there are more than 30,000 enterprises dissolved and stopped operations in the first two months of this year, doubled the number of newly registered enterprises. In fact, newly registered enterprises are only on paper, not in full operation, while dissolved and decommissioned enterprises will reduce demand for credit.
Businesses need to diversify capital channels.
According to economic experts, banks’ top priority this year is to raise capital to meet Basel II standards, not credit growth.
Indeed, according to Circular 41/2016/ TT-NHNN, besides credit risk, since January 1, 2020, banks have to ensure sufficient capital to cover operational and market risks. According to Bao Viet Securities Joint Stock Company (BVSC)’s calculations, due to the application of Basel II, the estimated capital demand to meet the credit growth of 14-15 percent per year in listed banks is about 237 trillion dong in 2018 and 2019. That is the reason for the wave of banks’ capital increase in 2018 and is expected to continue this year. However, it is not excluded that there will be cases where the capital cannot be increased and with these banks, the most feasible solution to meet Basel II standards is to narrow the scale of assets.
A typical example is Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) as the bank had to reduce the size of credit in the fourth quarter of 2018 because the minimum capital adequacy ratio fell to the minimum threshold. It is forecasted that its capital raising roadmap will be difficult to complete in a short time so Vietinbank only set a modest credit growth target in 2019 of eight to nine percent.
Dr Can Van Luc, a financial and banking expert, said that banks should only boost credit if they managed risk well, thus ensuring sustainable growth. Even according to Dr Nguyen Xuan Thanh, Fullbright University, to stabilise the macro, credit growth in the coming years needed to be lower, only 11-12 percent per year.
Of course, when credit growth is low, there are many businesses worried that access to credit will be more difficult. But according to banking experts, businesses should not be too concerned. Firstly, because the current economic growth in general, the operation of enterprises in particular had no longer relied on credit as before when there were currently many other capital channels such as issuing shares and bonds, investment funds. Evidence that credit in 2018 increased only 14 percent, but GDP still increased to 7.08 percent, the highest in 11 years.
Secondly, although credit only increased by 14 percent, it was on a credit balance of 7.22 quadrillion dong, much higher than the increase of 14 percent based on credit balance of 6.33 quadrillion dong in 2018.
