Containers at Hai Phong Seaport in the northern Hai Phong City (Photo: VNA)Hanoi (VNS/VNA) - The Government has called for faster than targetedcredit growth in pursuit of this year’s GDP goal of 6.7 percent.
However, experts have some concern that this would exert more pressure on thecentral bank to ensure macro-economic stability and efficiency of credit growth.
In a recent meeting with top Government top officials, Prime Minister NguyenXuan Phuc urged the State Bank of Vietnam to work out measures to boost creditgrowth to 21 percent this year, higher than the initial target of 18 percent.
This is the second time in a month that the SBV has been officially requestedto do this.
In mid July, Mai Tien Dung, Minister and Chairman of the Government WorkingGroup to the central bank conveyed a message from the PM, asking the SBV toensuring the credit growth pace at 18-20 percent, identifying it as one of theways to reach the year’s GDP goal.
The newly-set lending growth rate is said to be achievable, but there are concernsthe extra pressures it will bring to bear on the central bank in maintainingmacroeconomic stability.
Experts say the economy’s ability to absorb the additional capital as alsoinflationary pressures should be taken into account.
According to the National Financial Supervisory Commission, credit growth inthe first seven months is estimated to reach 9.3 percent, 0.5 percentage pointshigher than the same period last year.
In fact, several commercial banks have asked for the central bank’s permissionto raise the credit growth limit as they have almost used up the quota set forthe year.
The Vietnam International Commercial Joint Stock Bank (VIB)’s outstanding loanshave increased by 15.7 percent in the first two quarters of the year, while thetarget set by the SBV in the beginning of the year was 16 percent.
The Vietnam Prosperity Commercial Joint Stock Bank (VPBank) also saw a 12 percentgrowth in H1 lending, meaning that it can only raise its outstanding loans byfour percent in the remaining six months of 2017.
SBV Governor Le Minh Hung said that the target of 18-20 percent credit growthwas feasible as many commercial banks have launched programmes to supportenterprises by reducing lending interest rates, following the central bank’sdecision to cut several basic interest rates.
Credit demand
Nguyen Khac Quoc Bao, head of the Faculty of Finance under the HCM CityUniversity of Economics, said that the SBV allowing commercial banks to lowerlending interest rates in some areas, or opening more credit room for them toincrease lending was, in the end, just moves to influence the money supplyside.
If the Government wants efficient and sustainable credit growth, it must payattention to the economy’s capability to absorb capital, he said.
It is important that the Government and other ministries and agencies createfavorable conditions for businesses in priority sectors to access bank loanswhile reducing administrative procedures and non-interest expenses, accordingto Bao.
If this is done, the reduction in lending rates and expansion of credit growthfor the banking system will make sense and bring real benefits to the economy.
Dr Le Xuan Nghia, former chairman of the National Financial SupervisoryCommission, said: “The faster-than-planned credit growth of over 20 percent isreachable thanks to favourable macroeconomic conditions that the SBV can use asa base to consider an expansion in money supply and facilitate a further cut inlending and deposit interest rates.”
However, the SBV should also take into account the ability of SMEs to absorbthe expanded credit, Nghia stressed, adding that the ability depends on whetherthe lending interest rates remain high or not.
"If the interest rates are still kept high, the additional source of capitalwill likely flow to risky sectors like real estate and securities –somethingthat the Government does not expect," he said.
“If the lending interest rates are lowered, more capital would flow intoproduction and processing fields, which would help increase aggregate demand,thereby boosting GDP growth,” he added.
Nghia explained that "processing and manufacturing enterprises usuallyhave to borrow money used as working capital to buy materials. Expense on inputmaterials probably amounts to 80 percent of their total costs, so they suffer ahuge pressure of paying interest."
The expert reiterated his warning: “We do not have ‘large room’ for furthercredit growth, so we must be prudent.”
Financial expert Phan Ngoc Minh said that it would be more difficult for theSBV to manage its monetary policy if it was forced to ensure credit growth ofover 20 percent, because it would still have to keep inflation below 5 percentthis year.
Potential risks
According to a report by the Bao Viet Securities Company, total outstandingloans in the whole banking system has reached 6 quadrillion VND (266 billionUSD). If the credit growth rate of the year is 20 percent, the lending mustincrease by 1.2 quadrillion VND for the whole year and by 642 trillion VND inthe last five months of the year.
This might put pressure on the liquidity of the banking system, especially whenbanks have to make more payments towards the end of the year, the report said.
Earlier, the IMF country report for Vietnam released in July showed that thecredit growth averaged 24 percent in the last 10 years. It said credit-to-GDPratio reached 124 percent of GDP at the end of 2016, while the appropriatelevel should be 80 percent.
The report highlighted that the credit-to-GDP ratio was now close to levelsduring previous periods of macroeconomic stability, signalling potential risksahead.
IMF experts also said that alongside rapid credit growth, productivity ofcredit and rates of return on investment have deteriorated due to misallocationof capital across enterprises, between and within industries.
They have, therefore, voiced concerns over Vietnam’s credit growth, saying“monetary policy should remain on hold but be alert for signs of rising coreinflation.”
Executive directors at the IMF warned that “vigilance would be needed tocontain rapid credit growth and credit allocation made more market-based, whichwould improve its efficiency in supporting growth.” - VNA
In a recent meeting with top Government top officials, Prime Minister NguyenXuan Phuc urged the State Bank of Vietnam to work out measures to boost creditgrowth to 21 percent this year, higher than the initial target of 18 percent.
This is the second time in a month that the SBV has been officially requestedto do this.
In mid July, Mai Tien Dung, Minister and Chairman of the Government WorkingGroup to the central bank conveyed a message from the PM, asking the SBV toensuring the credit growth pace at 18-20 percent, identifying it as one of theways to reach the year’s GDP goal.
The newly-set lending growth rate is said to be achievable, but there are concernsthe extra pressures it will bring to bear on the central bank in maintainingmacroeconomic stability.
Experts say the economy’s ability to absorb the additional capital as alsoinflationary pressures should be taken into account.
According to the National Financial Supervisory Commission, credit growth inthe first seven months is estimated to reach 9.3 percent, 0.5 percentage pointshigher than the same period last year.
In fact, several commercial banks have asked for the central bank’s permissionto raise the credit growth limit as they have almost used up the quota set forthe year.
The Vietnam International Commercial Joint Stock Bank (VIB)’s outstanding loanshave increased by 15.7 percent in the first two quarters of the year, while thetarget set by the SBV in the beginning of the year was 16 percent.
The Vietnam Prosperity Commercial Joint Stock Bank (VPBank) also saw a 12 percentgrowth in H1 lending, meaning that it can only raise its outstanding loans byfour percent in the remaining six months of 2017.
SBV Governor Le Minh Hung said that the target of 18-20 percent credit growthwas feasible as many commercial banks have launched programmes to supportenterprises by reducing lending interest rates, following the central bank’sdecision to cut several basic interest rates.
Credit demand
Nguyen Khac Quoc Bao, head of the Faculty of Finance under the HCM CityUniversity of Economics, said that the SBV allowing commercial banks to lowerlending interest rates in some areas, or opening more credit room for them toincrease lending was, in the end, just moves to influence the money supplyside.
If the Government wants efficient and sustainable credit growth, it must payattention to the economy’s capability to absorb capital, he said.
It is important that the Government and other ministries and agencies createfavorable conditions for businesses in priority sectors to access bank loanswhile reducing administrative procedures and non-interest expenses, accordingto Bao.
If this is done, the reduction in lending rates and expansion of credit growthfor the banking system will make sense and bring real benefits to the economy.
Dr Le Xuan Nghia, former chairman of the National Financial SupervisoryCommission, said: “The faster-than-planned credit growth of over 20 percent isreachable thanks to favourable macroeconomic conditions that the SBV can use asa base to consider an expansion in money supply and facilitate a further cut inlending and deposit interest rates.”
However, the SBV should also take into account the ability of SMEs to absorbthe expanded credit, Nghia stressed, adding that the ability depends on whetherthe lending interest rates remain high or not.
"If the interest rates are still kept high, the additional source of capitalwill likely flow to risky sectors like real estate and securities –somethingthat the Government does not expect," he said.
“If the lending interest rates are lowered, more capital would flow intoproduction and processing fields, which would help increase aggregate demand,thereby boosting GDP growth,” he added.
Nghia explained that "processing and manufacturing enterprises usuallyhave to borrow money used as working capital to buy materials. Expense on inputmaterials probably amounts to 80 percent of their total costs, so they suffer ahuge pressure of paying interest."
The expert reiterated his warning: “We do not have ‘large room’ for furthercredit growth, so we must be prudent.”
Financial expert Phan Ngoc Minh said that it would be more difficult for theSBV to manage its monetary policy if it was forced to ensure credit growth ofover 20 percent, because it would still have to keep inflation below 5 percentthis year.
Potential risks
According to a report by the Bao Viet Securities Company, total outstandingloans in the whole banking system has reached 6 quadrillion VND (266 billionUSD). If the credit growth rate of the year is 20 percent, the lending mustincrease by 1.2 quadrillion VND for the whole year and by 642 trillion VND inthe last five months of the year.
This might put pressure on the liquidity of the banking system, especially whenbanks have to make more payments towards the end of the year, the report said.
Earlier, the IMF country report for Vietnam released in July showed that thecredit growth averaged 24 percent in the last 10 years. It said credit-to-GDPratio reached 124 percent of GDP at the end of 2016, while the appropriatelevel should be 80 percent.
The report highlighted that the credit-to-GDP ratio was now close to levelsduring previous periods of macroeconomic stability, signalling potential risksahead.
IMF experts also said that alongside rapid credit growth, productivity ofcredit and rates of return on investment have deteriorated due to misallocationof capital across enterprises, between and within industries.
They have, therefore, voiced concerns over Vietnam’s credit growth, saying“monetary policy should remain on hold but be alert for signs of rising coreinflation.”
Executive directors at the IMF warned that “vigilance would be needed tocontain rapid credit growth and credit allocation made more market-based, whichwould improve its efficiency in supporting growth.” - VNA
VNA
