Banks continuously lowered deposit and lending rates, but credit growth in the first six months was still much lower than in previous years. Given this fact, many experts and market analysis companies assessed that the target of 14 percent credit growth set by the State Bank of Vietnam (SBV) for this year was likely to go bankrupt.
Data from the General Statistical Office showed that, as of June 19, 2020, capital mobilisation of credit institutions increased by 4.35 percent (the same period in 2019 increased by 6.09%). Still, credit was only increasing by 2.45 percent (the same period in 2019 increased by 6.22%). The growth rate of capital mobilisation nearly doubled the growth rate of credit, partly showing the situation of excess capital of banks.
Low capital pressure was the reason for deposit rates to fall, leading to lower lending rates. However, the weak demand of the economy had not led to high credit growth.
Although Vietnam’s economy had entered a new normal period, the epidemic in the world was happening very complicatedly, and the normalisation of goods between countries had not yet returned.
Many businesses said that the state of production and business was still hesitant due to the large inventory. Therefore, companies had no need for loans. According to a director of a wood export business, his companies then had to process all catalogs to recover capital to repay bank loans. Considering whether to expand production and business or not depended on the disease situation in Vietnam and the world.
In fact, the current interest rate had decreased by about two percent compared to the beginning of 2020. Therefore, it was no longer a significant barrier for businesses. The biggest problem causing slow credit growth was the weak demand of the economy as well as the export market. Credit institutions were actively speeding up the implementation of many lending programmes in the context of slow credit growth. Typically, the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) had designed a series of loan packages for each customer.
For example, the payroll account package for office workers and employees in general who needed to open an account at BIDV to receive salary would enjoy some outstanding utilities, such as loans no guaranteed assets for up to 30 times wage (not exceeding 500 million dong), automatic electricity and water bill payment with 20 percent off the first month’s invoice value.
Besides, banks also said that they had been studying and implementing the most straightforward loan procedures to ease difficulties for borrowers. However, this did not mean that the terms and conditions of lending would be loosened.
Leaders of a commercial bank said that due to low credit growth, banks actively reduced lending rates to compete. On the other hand, maintaining the interest rate level to support businesses was also the direction of SBV.
Credit had risen again
At this point, the question was whether the banking industry must, at all costs, achieve the credit growth target. The bank’s efforts to support businesses had a positive impact. At the National Conference on Local government, the Governor of SBV informed of the effects of the Covid-19 epidemic, including low loan demand and slow credit growth, especially in May. But, from the end of May, credit had grown quite strongly again. As of June 29, the credit increased by 3.26%. Before that, in March, the credit increased by only 1.13%, in April grew by 0.12%. Surprisingly, by May, it rose by 0.53 percent and by June 29, the increase compared to May was 1.28%.
Facing those situations, along with the balance of liquidity and favourable capital of the system, right from the beginning of July, SBV actively adjusted credit to support growth. Specifically, SBV had loosened the credit growth targets of a series of commercial banks; members having healthy growth in areas that serve economic growth could adjust credit growth at a higher level compared to demand.
The SBV leaders also affirmed that the credit growth target this year was only a guide, not a mandatory one and would be flexibly adjusted following the development of the economy. The banking sector strengthened lending to support businesses and the economy but did not follow credit growth at all costs or sub-prime loans to achieve profit targets. All were to ensure quality credit growth, ensure system safety, not to increase bad debt as the operation target set for the industry in 2020, said the SBV leader.
Experts also said that this year’s economic growth was likely to be less than five percent. Therefore, credit growth for the whole year at nine percent to 10 percent would be appropriate. Credit growth should not be forced at all costs, because this would have the risk of bad debts as well as create inflationary pressures in the coming year, an expert emphasized.