Many experts recommend that credit growth target should only be guided and flexibly adjusted in accordance with domestic and world economic movements.
According to the State Bank of Vietnam (SBV), credit growth during 2018 has increased by about 14 percent compared to 2017.
Low credit growth target
At the recent meeting of implementing banking tasks in 2019, SBV Governor Le Minh Hung said that SBV targets credit growth of 14 percent this year. This is the lowest credit growth target in the last five years. According to experts, the reasons for the agency’s decision are:
Firstly, credit increased by only 14 percent in 2018, the lowest level in the last five years, but Gross Domestic Products (GDP) growth still reached 7.08 percent, the highest in 11 years. This shows that economic growth has reduced dependence on bank credit.
Secondly, after many years of high credit growth, the credit balance was pushed up to seven quadrillion dong, equivalent to 130 percent of GDP compared to 100 percent of GDP at the end of 2014. If in the coming years, credit growth of Vietnam is kept at the speed of 15.6 percent/year, while nominal GDP increases by only 10.2 percent/year as in the period of 2012-2016, after about 10 years, the credit/GDP ratio will reached 200 percent, the highest level in the world.
According to Dr Nguyen Duc Do, lecturer of the Academy of Finance, when the credit/GDP ratio is high, the stability of the financial system in particular and the economy in general will become more sensitive to interest fluctuations. “A small increase in interest rate may cause interest payment obligation to increase significantly and make the economy’s sustainability decline,” Do said.
Thirdly, the rapid increase of credit also has the risk of bad debts increase in the context of unpredictable domestic and global economy.
In addition, the due date for application of Basel II standard is close, making it difficult for credit to increase. Indeed, in order to comply with strict regulations of Basel II standards, many banks have to increase their chartered capital to maintain credit growth as in the past years. If there is no increase in capital, even many banks are forced to narrow down the balance sheet, meaning that credit can grow negatively. Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) is a typical example. Le Duc Tho, Chair of VietinBank, said that since the capital adequacy ratio (CAR) is close to the minimum threshold, since September 2018, this bank has not dared to increase credit, and credit in 2018 only increased by 6.1 percent.
Based on bank capacity
Although admitted that economic growth last year was less dependent on credit, according to experts, it does not mean that the growth has been less dependent on increasing investment capital. Evidence is that the total social investment capital last year still increased by 11.2 percent and equal to 33.5 percent of GDP, higher than the 33.3 percent of GDP in 2017.
Dr Vo Tri Thanh, former deputy director of the Central Institute for Economic Management (CIEM), said that if the world economy downturns, world prices will decrease and negatively impact Vietnam economy, so monetary policy need to be more flexible; if it is too tightened, it will greatly affect economic growth.
Leaders of many commercial banks also expressed concern with such low growth limit. This is understandable when the credit income still accounts for 70 percent, even 80 percent of the total revenue of banks. Low profits make it difficult for banks not only to attract new shareholders but also to convince existing shareholders to spend more money to raise capital.
“SBV should consider relaxing credit room for small banks, since with these banks, credit increased by 5-7 percent, even tens of percent is not as much as one percent increase of large bank. While this helps small banks improve their competitiveness,” said a small commercial bank leader.
However, the agency has a very different view. Although it also affirmed that credit growth target will be adjusted flexibly depending on the situation of macroeconomic developments, but according to the head of the banking sector, which banks operate healthily and safely, are recognised by SBV for the application of international standards and practices will be assigned with higher credit growth limit, not only applicable for small banks.
This view of SBV is supported by experts. Dr Can Van Luc, Chief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) recommends that credit growth limit should not be equally assigned but depends on the capacity of each bank.
