This year the banking industry plans to grow credit by 14%, maybe even lower to control credit risk well. However, it does not stop banks from building ambitious credit growth targets.
Many banks set high credit growth targets
Although there is no information on the credit growth target assigned by the State Bank of Vietnam (SBV), most banks, before the 2019 Annual general Meeting, announced credit growth targets in this year’s business plan.
In general, many banks set the credit growth target within the limit (room) allowed by the SBV. For example, Asia Joint Stock Commercial Bank (ACB) and Vietnam Technological and Commercial Joint Stock Bank (Techcombank) set a target of 13%, Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) six to eight percent, all lower than the industry limit.
At the press conference ‘Deploying banking sector tasks in 2019′ hold earlier this year, the SBV Governor Le Minh Hung said that the credit growth target set for this year is 14%, equivalent to the level achieved in the 2018. Accordingly, the credit growth target will continue to be allocated based on the assessment of the operation situation and the ability of healthy credit growth of each credit institution.
In the context that the regulatory authorities continue to strictly control credit growth, the credit room for banks will be difficult to widen to more than 14 percent this year. However, some banks expect their room to be raised, so their growth targets are higher than the general target of the industry.
For example, Vietnam International Joint Stock Commercial Bank (VIB) set a credit growth target of 35 percent for 2019 if allowed by the SBV. At the annual general Meeting of Shareholders held on March 28, in response to the questions of shareholders about its target of high credit growth, Dang Khac Vy, Chair of VIB, said it was its plan, but it would comply with the level approved by the SBV.
According to Vy, on the other hand, the policy of the SBV is to prioritise credit growth for banks that have completed Basel II, including VIB, so the bank expects to loosen credit room. This is the basis for VIB to set a high credit growth target.
Leaders of Orient Joint Stock Commercial Bank (OCB) also said that the bank expected to be assigned credit growth target higher than 14 percent this year because it had completed the Basel II standards, though it was not in the pilot list. Among the 10 banks selected by the SBV to pilot Basel II standards (Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), VietinBank, Techcombank, ACB, Vietnam Prosperity Joint Stock Commercial Bank (VPBank), Military Joint Stock Commercial Bank (MB), Maritime Joint Stock Commercial Bank (Maritime Bank), Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank) and VIB), Vietcombank and VIB are the first two banks to receive official approval from the SBV.
Some other banks plan higher credit growth than the general target, for example MB aiming at 20%, and of course do not forget to explain ‘if allowed by the SBV’. Among smaller banks, Kien Long Joint Stock Commercial Bank (Kien Long Bank) set a 15 percent credit growth target.
Banks in the restructuring phase also propose to increase credit growth limit in 2019. For example, in Sacombank, its Chair Duong Cong Minh proposed the SBV to grant credit ‘quota’ for the period of 2018-2020 from 18-20%. It expects the granted limit of 19 percent in 2019 after the SBV approved its participation in people’s credit funds. Similarly, Hochiminh City Development Joint Stock Commercial Bank (HDBank) also expects to increase credit room for this year as it is in the process of completing the merger of Petrolimex Group Joint Stock Commercial Bank (PGBank). However, both banks still have not revealed their credit growth targets of 2019.
Is credit difficult to increase strongly in 2019?
The SBV revealed, as of March 25, 2015, credit for the economy increased by 2.28 percent compared to the end of 2018, in which credit increased quite high in January before slowing down in February. Regarding the credit growth of 2019, according to the representative of the SBV, it will maintain equivalent to the growth rate in 2018, about 14%. Foreign currency credit will continue to be cut. Circular 42/2018/TT-NHNN amending and supplementing a number of articles of Circular No. 24/2015/TT-NHNN will restrain foreign currency mobilisation and only allow foreign currency loans for the purposes of export and working capital.
According to Pham Thanh Ha, director of the Monetary Policy Department (SBV), controlling credit growth at about 14 percent this year ensures financial stability for the banking system and the economy. The SBV did not want to reenact the situation of fast capital mobilisation of banks pushing the interest rate as high as in previous years. Therefore, if a bank wants a higher credit room than the general target, it must be ‘strong’. In other words, if it wants to lend much, it must mobilise a lot of capital.
Experts commented that, in the current situation, the differentiation of credit growth would be clear. Banks with good capital flows and assets will be able to give more loans. The SBV encourages banks to meet risk management standards and Basel II standards before the deadline to be approved higher credit growth.
Tran Manh Thang, deputy general director of Vietcombank, said that the bank’s expected credit growth target this year was close to the industry’s target of about 14%, 1 percent lower than last year. However, Vietcombank can still raise a higher growth limit if allowed by the SBV because Vietcombank has abundant capital, not to mention having completed the pilot application of Basel II standards.
Previously, the SBV issued Directive 04/CT-NHNN stating that it would not consider and adjust the credit growth target. This decision worried many banks. Some banks had to reduce their profit targets and adjust their business goals.
On the other hand, although credit growth is slow, the lending interest rate is difficult to reduce. Currently, individual lending rates are increasing because the interest rates, especially for long terms, are increased by banks to mobilise long-term capital and restructure their resources in order to comply with the regulation of reducing short-term capital for medium and long-term loans. At many banks, VND deposit rates are popular at over eight percent per year for long terms, even up to 8.5-8.7 percent per year at some banks. The general director of a joint stock bank in HCM City said that when the credit room is allocated less, the bank has to recalculate the growth of lending activities. Because capital resource is getting less and less, increasing lending rate is difficult to avoid.
From another point of view, as there is no longer pressure on credit growth, economic and financial experts considered the banking sector’s target for outstanding loan growth of 14 percent in 2019 reasonable and credit room loosening unneccesary.
Dr Tran Du Lich, a member of the prime minister’s Economic Advisory Group, said that the credit growth target of the banking sector for this year was actually high. Due to the characteristics of Vietnamese businesses that depend largely on bank loans, it is difficult to reduce the credit growth immediately, but must follow a roadmap.
In the report of the prospect of banking industry in 2019 recently announced by Bao Viet Securities (BVSC), Vietnam’s credit growth in the next three to five years will maintain at about 14 percent per year, lower than that of period 2015-2017 at an average 18.1 percent per year. On the other hand, credit supply also slows down due to the impact of the new policy issued by the SBV. For example, real estate credit is restricted through the regulation of increasing the risk coefficient for loans for real estate business to 200 percent at the beginning of 2018 and 250 percent at the beginning of 2019 while reducing the ratio of short-term capital for medium- and long-term loans to 40 percent from early 2019.
BVSC believes that the estimated capital demand to meet the credit growth of 14-15 percent per year at listed banks in the period of 2018-2019 is about 237 trillion dong. In particular, the largest capital demand is concentrated in VietinBank, LienViet Post Joint Stock Commercial Bank (Lienviet Post Bank), and Sacombank, with an average annual capital increase of 22 percent per year, 16 percent per year, and 13 percent per year respectively.
Besides, BVSC forecasts that in 2019, the banking industry may reach the marginal interest income ratio of 3.2 percent because the mobilisation on lending ratio in most banks is still below the prescribed level according to Circular No. 36/2014/TT-NHNN and banks’ bargaining power is still stronger than customers. Accordingly, banks can change the interest rate according to the fluctuation of input interest rates, maintaining the difference at a reasonable level.
Experts commented that credit growth in 2019 might slow down due to, except for the slow growth of capital demand, the management target of the management agency.
