Credit growth was quite sluggish in the first months of this year despite a drop in lending rates. Reported at the government’s regular meeting in April, the Governor of the State Bank of Vietnam (SBV) Le Minh Hung said that credit growth as of April 28 was 1.32%. This figure is much lower than the 4.6 percent increase in the same period in 2019. The financial statements of the first quarter of many banks also recorded negative credit growth. For example, at Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and Sai Gon Joint Stock Commercial Bank (SCB), customer loans decreased by 1.25 percent and 2.3 percent respectively.
According to Can Van Luc Chief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), the Covid-19 pandemic reduced consumption demand, foreign trade transactions, production and business activities of businesses and households, which led to reduced credit demand, thereby negatively impacting credit growth.
Pham Xuan Hong Chair of HCM City Textile and Garment Association in Ho Chi Minh city also acknowledged that at this time, export enterprises in general and textiles in particular did not have new orders but only signed orders so there was no need for new credit loans. What businesses needed now was rescheduling old loans and reducing interest rates on existing loans.
On the other hand, many businesses share that it is still difficult to access credit packages because they do not meet the strict conditions that banks offer. At present, the production of the enterprises is stagnant, while the collateral has been mortgaged to old loans. In addition, the banks still require the enterprises to have collaterals and to prove the repayment capability for new loans.
However, Nguyen Thi Hong SBV deputy Governor affirmed that if loosening lending standards and breaking the criteria, the credit institution system would face the risk of instability again as in the previous period.
In the context of Covid-19 outbreak with negative impact on production and business activities and threats to growth targets, many suggested that SBV should loosen monetary policy and credit growth threshold. For example, in a recent report on the Covid-19 epidemic response policy submitted to the government recently, the National Economics University asked SBV to consider increasing credit growth targets for banks with practical support for businesses.
Rong Viet Securities Company (VDSC) also expects the regulator to extend by two to three percentage points of the credit limit to banks in the second half of this year on the assumption that the disease will be controlled in the second quarter and production and business activities will recover from the third quarter, which is the beginning of the peak lending season for banks.
However, the other opinion is that the credit growth limit will not make much sense because the demand for credit is still low. The cause of the disease is only controlled in Vietnam, while it is still raging in many countries around the world. It means that production and business activities of enterprises still face difficulties in both inputs and outputs, leading to the expectation that credit demand, will recover, but not at strong level.
Moreover, inflation pressure is quite large when the average CPI in the first four months of the year increased by 4.9 percent over the same period last year. Although it has decreased from 5.56 percent in the first three months, but is the highest in the period 2016-2020. In this context, SBV has not dared to loosen money supply and credit limit because these are the main operating tools to control inflation of this agency rather than interest rates.
For the same reason, KB Vietnam Securities Company (KBSV) forecasts that SBV is likely to maintain the growth of money supply and credit in the growth band of 10-14 percent (equivalent to about one quadrillion dong) throughout the year, to avoid subsequent consequences such as bad debts and asset price bubbles.
