Compared to the end of the first quarter, credit growth announced by the State Bank of Vietnam (SBV) are almost unchanged. As of April 17, 2019, credit increased by 3.23 percent compared to the beginning of the year, much lower than the same period of 2018 (5%), 2017 (5.2%), and 2016 (4, 2%), becoming the lowest credit growth rate in the last four years. Compared with the credit growth of 3.19 percent in the first quarter announced by SBV, it can be seen that, credit growth has been quite sluggish.
Although credit growth is low, Can Van Luc, the chief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that he was not surprised by this figure because the goal of controlling credit growth was set by SBV from the beginning of the year to curb inflation and stabilise macro economy.
According to the expert, moderate credit growth comes from two main reasons. Firstly, it is the cyclical nature of the economy when credit often increases slowly in the early months of the year and then increases sharply in the last months of the year.
Secondly, the market appears new capital flows, new business models such as peer lending and fintech so businesses are not too dependent on capital channels from banks. “Therefore, in my opinion, this is a good signal for the economy, ” Luc commented.
His judgment was reinforced when looking at credit structure in economic sectors. According to the Department of Economic Credit of SBV, in the first three months of 2019, although the credit balance of the economy only increased by 3.19 percent compared to the end of 2018, the credit source was still flowing strongly into priority areas under the government’s policy such as credit for supporting industries increased 3.63%, high-tech enterprises increased by 7.25%, export sector increased 3.5%, agriculture and rural areas increased by 4.8%.
This shows that bank credit continues to move into production and business sectors as the driving force of economic growth. But according to Luc, the quality of credit growth is not only represented by the credit flow in the economic sectors but also at the overall solutions, which aims to control the credit growth target in 2019.
Meanwhile, according to Nguyen Anh Duong, Head of the general Research Department, Central Institute for Economic Management (CIEM), credit developments has recently been a reflection of SBV’s moves in controlling credit for sectors with potential risks, concentrating credit on production areas; policy of banking industry to repel shadow banking; and especially the roadmap to cut foreign currency credit to combat dollarisation in 2019.
But there has been a remarkable development in recent times. Although SBV has assigned credit growth targets for 2019 to banks, many banks are expecting to loosen the growth threshold.
Dang Khac Vy, Chair of the Board of directors of Vietnam International Joint Stock Commercial Bank (VIB), said that VIB had proposed to SBV about raising credit growth to 35 percent as VIB is one of the first banks in the market that meet Basel II standards. However, the head of VIB said that if SBV did not approve this proposal, the bank would still carry out it within the allowed framework.
Similar to VIB, some other banks in the market are also expecting higher credit growth than the average of 14 percent due to Basel II standards such as Military Joint Stock Commercial Bank (MB) and Tien Phong Joint Stock Commercial Bank (TPBank). Meanwhile, Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) only offered credit growth of about six to eight percent due to the pressure of raising the capital adequacy ratio (CAR).
Although many banks propose credit growth hike to SBV, according to Luc, the situation is difficult even though SBV has a policy of prioritising higher targets for banks applying in advance the regulations on CAR in Circular 41/2016/ TT-State Bank dated December 30, 2016.
Because according to him, the growth cap of 14 percent has been repeated many times by SBV. Moreover, Vietnam’s credit scale reaches over 130 percent of GDP and the 14 percent growth plan is in line with the current context.
