VNDirect Securities Co’s recent report stated that credit growth will remain at average level in 2019 but there is still room for retail credit.
Specifically, VNDirect expects Vietnam to maintain credit growth of 14 percent -15 percent in 2019-2020, based on three main factors.
First, Vietnam’s inflation is rising again with the consumer price index (CPI) at below 4 percent. According to VNDirect, policy makers have controlled inflation below 4 percent due to delaying the increases in electricity price and environmental taxes, applying credit tightening policies, as well as significant support from the oil price decrease. With the 2018 GDP growth surpassing 7 percent, VNDirect experts said that controlling inflation will be the main priority of the government in 2019.
Second, credit supply in 2019 will be more limited due to the new regulations of the State Bank of Vietnam (SBV) on increasing the risk factor of real estate loans from the current 200 percent to 250 percent in early 2019. Besides, the regulation of reducing the ratio of short-term capital for medium and long-term loans from 45 percent to 40 percent, effective from early 2019 will also affect the liquidity of the system.
Third, VNDirect observed that the central banks of the Asean-4 have begun to tighten monetary policy in 2019, amid tight global financial conditions, stemming from the Federal Reserve (FED)’s interest rate rise, the reversal of the quantitative easing programme and consequently the USD strengthened.
VNDirect assessed, a positive change compared to the previous credit growth cycle is the high demand for credit being driven by households and private businesses, including small and medium enterprises (SME), while in the past, new credits were mainly real estate and State-owned enterprise (SOE) loans. The proportion of SOE loans in total credit decreased significantly to 11 percent in 2017 from 25-26 percent in the 2011-2013 period.
“We think this is partly supported by the privatisation process with many state-owned enterprises being equitised and currently classified as a private enterprise. However, the strong growth of individual lending segment is an important factor to boost overall credit growth and lead to a change in the system’s loan structure, “VNDirect said.
Retail banks (including personal and SME loans) have begun to grow in Vietnam since 2015 and in the early stages of retail banking revolution, banks have been making their own differences by launching more sophisticated products such as cash and liquidity management tools for SMEs or asset management products including a number of new assets. VNDirect said that in the near future, banks will have the opportunity to cross sell more fee-based products such as bancassurance and credit cards to existing retail customers.
“We see there is still room for banks to expand in the segment of private enterprise lending and consumer lending. For consumer lending, we estimate the penetration rate of Vietnam’s household credit reached about 44.7 percent of GDP in December 2017, quite low compared to other countries like Thailand (78 percent) or Malaysia (84 percent), while these countries have credit penetration rates similar to Vietnam (165 percent and 124 percent respectively). For the private enterprise segment, the number of new businesses increased by 16 percent over the same period in 2018 while the number of businesses stopping operation down by 5 percent year-on-year”, according to VNDirect experts.
However, the determining factor in retail banking racing is customer-focused service and sales. Therefore, the ability to distribute and sell plays an important role for banks to rise to the top in this fast growing segment. Therefore, according to VNDirect, banks with larger branch networks and larger customers will have an advantage.
Consumer finance sector grew strongly in 2012-2017 period with a double growth of 44.8 percent. This growth was supported by favourable demographics, increased urbanisation rates, improved incomes and higher levels of home, car and household ownership.
VNDirect said that the consumer finance market in Vietnam is only in the first phase with a portfolio of less diversified products and low credit card utilisation rate, showing a lot of untapped potential. Therefore, the consumer finance sector still has room to improve the Net interest margin (NIM) even if lending rates are more tightly controlled in the future.
