The orientation of the State Bank of Vietnam (SBV) is to expand credit growth of the entire banking sector by about 14 percent in 2019, but the target can be adjusted flexibly according to market and macroeconomic situation. It shows that the SBV continues to tighten credit management, after setting credit growth goal in 2018 at 14%, the lowest level in the last five years.
The SBV actively slows down the speed
Since Vietnam is facing the risk of total credit growing faster than nominal Gross Domestic Product (GDP), slowing down credit is needed. After years of maintaining high credit, the total credit in the domestic is now equivalent to 130 percent of GDP (while it was 20 percent 20 years ago).
In this context, international financial organisations such as International Monetary Fund (IMF) and the World Bank (WB) recommended that credit growth should be tightened in order to maintain macroeconomic stability in the coming years.
Therefore, the gradual reduction of credit growth target is an appropriate move to support economic growth stabilisation. In 2018, the credit growth limit assigned for each bank at the beginning of the year was around 14-15%, and some banks were granted higher limit (18-2%) in the fourth quarter of the year.
In 2019, most banks were initially assigned a credit growth limit of 13%, including Asia Commercial Joint Stock Bank (ACB), Military Commercial Joint Stock Bank (MBB), HCM City Development Commercial Joint Stock Bank (HDBank), Tien Phong Commercial Joint Stock Bank (TPB), and Vietnam Technological and Commercial Joint Stock Bank (TCB). Some banks were granted lower credit growth limit, including Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV, 12%), Vietnam Prosperity Commercial Joint Stock Bank (VPB, 12%) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (CTG, seven percent).
In particular, CTG is a special case as the bank is implementing the restructuring scheme approved by the SBV. In contrast, Vietcombank -one of the first three banks recognised by the SBV to comply with Circular 41 before the deadline in the end of 2018 was approved to expand credit by 15%.
Previously, the SBV announced that banks completing the implementation of Circular 41 would be prioritised in credit growth limit as well as network coverage system. Meanwhile, two remaining banks recognised to complete the Circular 41 implementation in 2018 including Vietnam International Commercial Joint Stock Bank (VIB) and Orient Commercial Joint Stock Bank (OCB, despite the assigned credit growth limit is not revealed yet, will get a higher initial credit growth room compared to other banks.
In the context when the consumer lending growth is slowing down, the SBV not only controls credit more strictly, but also actively tightens the limit for consumer finance companies. Specifically, FE Credit is approved to expand credit by 10 percent this year. MCredit which is a relatively small consumer finance company of MBB with about six percent of the market share and was previously allowed to grow freely (MCredit’s outstanding loans increased by about fourfold in 2018) has started to be limited for a maximum credit growth of 37%.
This will greatly affect the profit growth potential of MCredit, making MBB to reduce the pre-tax profit target of MCredit compared to the consolidated from above six percent to about four percent.
Another consumer finance company HDSaison said that the credit growth limit this year will be much lower than last year’s 35%.
According to the first quarter (Q1) results in the financial statements announced by banks, the actual credit growth continued to see differentiation among banks. Specifically, the credit growth was 1.1 percent at CTG, 3.6 percent at BID, 2.7 percent at ACB and negative 0.3 percent at TCB. These banks conducted fairly modest credit scale expansion, and thus they have much credit growth room in the last three quarters of the year.
Particularly, due to positive distribution of corporate bond portfolio for individual investors, TCB recorded negative credit growth, although its lending to customer increased by 2.4%. In contrast, some banks boosted credit growth right from the first quarter of the year, such as TPB (11.3%), OCB (8.6%), separate MBB (8.4%), and separate VPB (6.9%), more than half of the initially assigned credit growth limit.
These are all banks that set a higher credit growth targets than the assigned limits, and expect to be granted more credit limit by meeting the provisions of Circular 41.
In April 2019, four more banks were recognised to comply with Circular 41 ahead of time, including MBB, ACB, TPB and VPB. Accordingly, these banks will start to apply new capital safety standards from May 1st. Thus, a total of seven banks were approved for early compliance of Circular 41.
These banks all expect the SBV to consider adding more credit growth limit to the room assigned earlier this year. Meanwhile, the remaining banks are urgently completing the relevant procedures to be recognised to comply with Circular 41 with the expectation of being granted additional credit growth limit.
For example, TCB (on the pilot list) and HDB (not on the pilot list) have submitted application for complying with Circular 41 in advance and expected to be officially approved in the second quarter.
This is why in recent Annual general Meetings, many banks still set higher credit growth targets than the assigned limits, such as MBB (15%), VPB (15%), TPB (20%), HDB (24%), OCB (30%) and VIB (35%).
Some banks set similar credit growth to the assigned limits, including VCB (15%), TCB (13%), ACB (13%), BIDV (12%) and CTG (seven percent). In particular, VCB and ACB (approved to comply with Circular 41) and TCB (waiting for approval) are willing to further accelerate credit growth limit if the SBV permits more room.
In contrast, for BID and CTG, it is likely that these two banks will only maintain actual credit growth at or below that above mentioned targets due to capital constraints.
