A customer at an HDBank office in Hanoi (Source: VNA)The credit growth quota regime was officially deployed in 2011 when Vietnam’seconomy was experiencing hyperinflation stemming from excessive money supply.The credit growth quota regime, putting a cap on the banking industry’s creditexpansion, was announced by the State Bank of Vietnam (SBV) at the beginning ofeach year.
Based on the credit growth quota for the entire banking industry, the SBV willdetermine the credit growth for each commercial bank depending on its financialhealth, with indicators including capital, asset quality, governance,business performance results, liquidity and sensitivity to market risks. TheSBV will consider other criteria related to its implementation in meetingpolicies and orientations of the Government and the SBV to give credit growthpriority, such as reducing lending interest rates to support firms and people,focusing loans on business and production, and participating in supporting thehandling of weak banks.
The SBV in early September raised the credit cap for 15 banks for thesecond time in 2022, of which Sacombank got a rise of 4%; Agribank, 3.5%; SHB,OCB and MBB, 3.2%; VIB, 3% and Vietcombank, 2.7%.
VNDirect Securities Company’s analysis division said the 15 banks account forabout 80% of total outstanding loans of the whole banking industry. With anadditional credit growth rate of 1-4%, VNDirect’s analysts estimate about 279trillion VND was injected into the economy, compared to the end of August2022.
However, not all banks were satisfied with the SBV’s credit growth quotaallocation. Some banks said they ran out of the allocated quota from the end ofJune and applied for an expansion many times, but weren’t on the SBV’s approvedlist. They were concerned as the credit growth quota regime can mirror thesubjective imposition by the SBV without properly attending to the developmentplan of each commercial bank, which doesn’t conform to the market-orientedeconomy and results in ‘ask-and-give’ deals. Meanwhile, commercial banks canmap out their own credit growth targets based on their financial power andmanagement capacity.
Businesses also disagreed with the tightening of the credit growth quota,saying it is unreasonable as the regime has been causing great difficulties forthem in accessing loans and leading to the loss of opportunities for thecountry’s economic recovery and development.
Despite the latest credit growth quota extension, firms said it isn’t stilleasy to get bank loans as the capital remains restricted. Banks also said theSBV’s credit growth adjustment in September is still quite low compared totheir expectations.
As most banks ran out of the credit growth quota allocated by the SBV at thebeginning of the year for more than three months, the waiting list of customersto get loans is very long. Meanwhile, the additional quota is very limited soit will be difficult to finance all the loan borrowing applications datedbefore September. With the new profile, banks said they may still approve, butare not sure about the disbursement. Many customers have met all loan criteriaand have been approved, but customers still have to queue to get loans as bankshave no credit quota to disburse.
Tran Thi Khanh Hien, Director of VNDirect Securities Company’s analysisdivision, said the remaining credit growth quota for this year has not beenable to quench the ‘capital thirst’ of firms and individual customers, but onlypartially clear up the congested capital flow in the last few months afterbanks ran out of the allocated credit quota at the end of June.
The SBV’s data showed by the end of August, credit increased by 9.91% againstthe end of 2021, much higher than the 7.42% rate in the same period last year.The surge proved that the capital demand of the economy was very large and willcontinue to rise, especially at the end of the year.
However, experts said the credit growth quota is designed to boost lending forsome banks without encouraging excessive credit growth so the measure isnecessary and effective in the short term to stabilise the macroeconomy andcontrol inflation.
Nguyen Minh Cuong, principal country economist of the Asian Development Bank inVietnam, said in the near future, the regulation of the credit capremains reasonable and has certain positive effects. The 14% credit growthcap for 2022 has been calculated by the SBV based on Vietnam’s targets, such asinflation control at 4% and economic growth at 6-6.5%.
Commenting on the SBV’s latest credit growth quota allocation in September,Cuong noted the SBV has made a flexible adjustment as it allowed some bankswith safe capital adequacy and short-term/long-term lending ratios to increasethe credit quota.
He said the flexible credit growth cap policy is effective in the short term,but the SBV should have a roadmap to eliminate it and use another tool tomanage the monetary market more effectively in the long term.
Lawyer Truong Thanh Duc, Director of ANVI Law Firm, said for nearly 20 yearsworking at four commercial banks, he witnessed huge volatility in the country’sbanking industry when credit growth reached up to 51.39% in 2007.
According to Duc, risks related to bad debts and inflation often come later in Vietnamthan in other countries. The risks will be serious if Vietnam doesn’t activelyprevent them. Unlike many other countries, high inflation in Vietnam is verydifficult to handle and is much more heavily affected due to psychological andtrust factors. Vietnam experienced bitter lessons in the past. Economic growthwill become meaningless if inflation is high.
It is necessary to impose the credit growth quota and the central bankshouldn’t change the regime, Duc noted, adding if the policy is removed, itmust be replaced by another similar measure.
According to VNDirect’s Hien, the SBV currently has to shoulder a significantrole. Besides harmonising interest rates and credit growth factors to supporteconomic recovery, it has to control inflation and contribute to macrostability.
“These are all challenges, which are even tougher under global volatility.Therefore, it is easy to understand that there will always be differingopinions on issues of public concern such as credit growth and interest rates,”Hien said. /.
VNA
