According to the State Bank of Vietnam (SBV), as of September 24, 2019, the total means of payment (M2) increased by 8.58 percent compared to the end of 2018; debit balance to the economy expanded by 8.64 percent compared to the end of 2018. These figures were slightly higher than the previous report of the general Statistical Office of Vietnam by September 20, 2019, the total means of payment increased by 8.44 percent compared to the end of 2018; credit increased by 8.4 percent.
However, SBV’s credit growth of 8.64 percent was still the lowest increase in recent years, even lower than the 9.52 percent increase in the same period of 2018 when credit only increased by 13.89 percent.
That credit had been on a slowly rising trend recently was of great concern. Previously the financial statements of the first six months of 2019 of many banks recorded a high credit growth of the period. Some banks had even completed over 80 percent of the credit plan for the whole year.
The monthly credit growth figures also clearly showed this slowdown when at the end of June, credit increased by 7.33 percent, but by the end of July, credit growth only inched up to 7.48 percent, then till the end of August, it was eight percent.
What makes credit stalled and credit growth at the lowest level in many years?
Answering this question, a banking expert said, although there were many banks with high credit growth in the first half, they were all small and medium-sized banks. While large banks, especially commercial banks with the state capital, experienced slow growth in credit. For example, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) witnessed its credit increased by only 2.38 percent in the first six months.
The reason why the state-owned commercial banks did not dare to boost credit growth was that the bank’s capital adequacy ratio was close to the minimum threshold prescribed by SBV. Thus, if it cannot raise capital, even these banks also had to narrow the credit scale. Because state-owned banks had a credit scale of nearly a quadrillion dong, small banks with credit growth of tens of percent were not enough to make up for the slowdown in credit growth of these large banks.
Nevertheless, many banks restructured the balance sheet, even reduced the credit scale instead of racing credit growth as the previous time to be able to comply with Basel II standard when the standard application deadline was nearby (January 1, 2020).
Is there credit growth limit expansion?
However, according to the above expert, whatever the reason, the slowing down of credit growth was making the annual credit growth target of 14 percent at risk of bankruptcy.
Although low credit growth might not immediately affect this year’s economic growth due to the weak credit growth offset by the relatively sharp increase of foreign investment, including direct and indirect, as well as net exports. However, if the slow-moving of credit growth continued, it might affect the economic growth momentum of the following year as these factors weakened. Credit was still an essential source of capital for the majority of businesses or domestic production as well, this expert warned.
Noticeably, from the beginning of this year, SBV only allocated credit growth limits to most banks at 12 percent to 13 percent. In order to achieve the credit growth target of 14 percent, there would certainly be a credit growth limit extension for banks. There were still no more banks claiming to be loosened, except for banks meeting Basel II standards, such as Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) having increased the credit growth limit from 12 percent to 16 percent; Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), Military Commercial Joint Stock Bank (MBMBBank) and Asia Commercial Joint Stock Bank (ACB) are allowed to extend the limit for credit growth from 13 percent to 17 percent.
Meanwhile, many banks proposed to increase the credit limit. For example, in Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank), Duong Cong MinhChair of the Board of directors of Sacombank said that he proposed to the Governor of SBV towards raising the credit limit for the period of 2018 to 2020 from 18 percent to 20 percent. Particularly in 2019, Sacombank expected the level to be granted as 19 percent. Orient Commercial Joint Stock Bank (OCB) wanted to loosen the credit limit to 30 percent because, in the first six months of this year, the bank’s credit growth reached nearly 20 percent.
Although agreeing with SBV’s point of view, loosening credit limit was only for banks with good financial background, especially those that had already met Basel II standards. However, in the current context, according to the above-mentioned banking expert, it was possible that the regulators must be more aggressive in raising the credit limit, or should even split the credit limit of state-owned banks for one meeting Basel II standards. Thanks to that, banks would be possible to meet this year’s credit growth target.
