Easier access to credit, lower interest rates to support growth recovery was nobody’s desire, but solutions were needed to remove bottlenecks to solve the number and quality of credit growth.
Low credit demand
Nguyen Minh Cuong, Chief Economist of Asian Development Bank (ADB) in Vietnam, said that the economic growth this year was forecast at only about three percent and businesses faced many difficulties in output markets (especially export). However, it was difficult for credit growth to reach 10 percent due to production capacity or lack of capital. According to this expert, the credit flow should basically be based on the picture of the impact of Covid-19 epidemic on industries, fields and businesses operating in those fields.
Although Covid-19 affected all industries and fields, the severity varied. Accordingly, there were some businesses which were capable of developing well. But there were also businesses facing great difficulties, even unable to recover. Others that was difficult to grow fast could still recover.
For businesses with the ability to develop and recover quickly, there should be mechanisms to meet their credit needs better. While with businesses facing great difficulties on the one hand, they needed urgent support (from the monetary policy) to keep workers, on the other hand, they needed to promote restructuring. Businesses in the middle still had to meet credit needs, but not by putting pressure on banks to lend, but to promote the role of credit guarantee for businesses to access capital, suggested Cuong. According to this expert, the current key was the credit demand and absorption capacity of businesses. Economic growth was lower, the number of businesses dissolved and ceased operations increased, the income of individuals and businesses decreased. All of these factors showed a lower demand and ability to absorb credit.
Share this view, Can Van Luc said that the main problem then was not interest rates or access to capital, but mainly in the ability to absorb low capital of companies. What people could see was that banks were trying to push credit out in the context of abundant liquidity, said Luc.
Flexibility to increase access to capital
Experts said that the support efforts of the recent banking system were remarkable. The State Bank of Vietnam (SBV) had twice cut interest rates and deposit rates and short-term lending rates, creating favourable conditions for commercial banks to lower lending rates to support businesses. SBV also issued Circular 01/2020/TT-NHNN allowing credit institutions to restructure loan repayment, exemption and reduction of fees and charges, keep the debt group for customers who were in difficulties due to the Covid-19 epidemic.
Currently, SBV was collecting comments on the draft circular amending and supplementing a number of articles of Circular 22 on the limits and prudential ratios in operations (including proposing to delay the tightening of the short-term capital ratio for medium and long-term loans of six or 12 months more than previously planned). What the banking industry had done recently was very timely and probably, the expert said.
Nguyen Minh Cuong also said that the economy was still in an urgent phase, not a growth recovery phase, so the support from the fiscal policies was of great importance to overcome difficulties. Credit would be more useful in the period of growth recovery, because then the demand for business expansion and credit demand would increase rapidly, the expert said.
Besides, while being consistent that the viewpoint could not lower credit standards, experts believed that there were still solutions to help increase credit as well as access to credit for businesses in need.
According to Can Van Luc, another solution that needed to be implemented was to increase access to capital for small and medium-sized enterprises (SME), which was the group of businesses greatly affected by Covid-19. In order to do this, it was necessary to better carry out the operations of the SME Support Fund, and at the same time, to restore operations or strengthen the role of credit guarantee funds to coordinate well with banks in the boost lending.
Whenever the economy, production and business activities of enterprises fell into difficulties and the need to promote economic growth became a top priority, lowering interest rates to boost credit was always taken into account.
However, this was not always true. As experts had pointed out in the context of the current Covid-19, the main bottleneck was not high interest rates but the ability to absorb credit of businesses. Besides, the credit story at this time not only revolved around the relationship between enterprises and banks as in the normal context, but also related to the sources of deposits, given that mobilisation and deposit rates played a very important role in deciding lending rates out).
Experts warned that if deposit interest rates were no longer attractive enough for deposits to continue flowing into banks, but through more risky channels, macroeconomics could then fall into a shortage of stability.
