For years, credit growth has been the most important leverage to promote economic growth. However, from the beginning of the year to the middle of May, 2020, the outstanding credit increased by only 1.32%.
According to the prime minister’s conclusions at the government’s Standing Committee meeting on the government’s draft resolution on tasks and solutions to the difficulties of production and business, promoting disbursement of public investment capital and securing social safeguards in the context of the Covid-19 pandemic, there is a notable point regarding the banking sector: “Reviewing and adjusting appropriately the risk provisioning rates of commercial banks to facilitate and encourage them to further reduce lending interest rates.”
This is a signal that the monetary policy may be loosened in the near future, in the context that the economy will not only cope with the domestic economic downturn, but also be under great pressure from the global crisis.
Le Duc Tho – Chair of the Board of directors of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) said that although Vietnam had quite good control of the disease, its impact was unpredictable. “We can control it well but other countries do not, it is very difficult,” Tho said.
According to the Chair of VietinBank, Vietnam’s export-import turnover is twice the size of GDP, reflecting the relatively large openness of the economy. Therefore, the impacts, the ability to manage, control and recovery of other countries also greatly affect Vietnam.
“It is clear that the impact of the disease is very strong, causing aggregate demand to decline, sometimes to the minimum required level. Many businesses have to narrow, even suspend production while others are very difficult due to the domino effect. A number of consumers borrow loans for business and production, due to the decline in aggregate demand and income, so it is also affected,” said Le Duc Tho.
The perspective of businessperson Nguyen Duc Tai – Chair of the Board of directors of Mobile World Investment Corporation (MWG) is similar. According to Tai, Covid-19 will have an impact on the global rather than only in Vietnam.
“Vietnam can avoid this crisis? I think Vietnam will not be affected as much as other countries. My view is that demand and consumer purchasing power will decline in the future,” MWG President said.
“Maybe we do not feel its impact at this time because Vietnamese people, in general, have large savings, not spend more than half of their incomes. Meanwhile, other countries have an immediate impact because they spend as much as they earn,” Tai said.
The entrepreneur emphasized that the impact of the economic downturn on Vietnam would be late.
“When the world economic crisis came, you look at 2008, you will feel the same way: when almost all Asian countries felt into crisis, Vietnam was six months later. I think the effect is quite similar this year. Vietnam always has a lag in both growing and because the saving factor is quite large in Vietnam,” said the President of MWG.
Over the past few days, social media has been spreading the video of the owner of a leather shoe company bowing down and apologising to workers. It is known that this is Hue Phong Leather Shoes Joint Stock Company – a well-known footwear company in HCM City. The company has decided to stop employment for 2,000 workers and will continue to cut back to move to base II in Tra Vinh due to the consequences of the Covid-19 pandemic.
This is a warning that shows many businesses are running out of resources.
Clearly, the economic growth in 2020 is still very bumpy, not only in the second quarter with the peak of social distancing but also in the third and the fourth quarter when the global economic recession hit.
The GDP growth target of about five percent this year has been strongly launched by the prime minister not only domestically but also sent a message to the world when on May 21, the head of the government of Vietnam reaffirmed this target with Bloomberg (USA), NHK and Akahata (Japan), and TASS (Russia).
With a target of about five percent this year, Vietnam has the opportunity to become the country with the highest GDP growth in the world. China even gave up the GDP growth target to focus on saving jobs.
Good anti-pandemic is a very important premise to achieve this goal and public investment is expected to become a leverage to push growth back after the pandemic. However, when many people are still sceptical about the ability to disburse hundreds of trillion dong of public investment capital this year because of previous years, the money was not lacking but disbursement was still very slow. Credit has become the most likely leverage for economic growth, as it has been for years.
Talking about the importance of credit to economic growth, Truong Thanh Duc, Chair of Basico Law Firm, assessed the role of the current banking system “too big, too important”.
Lowering interest rates is a consistent goal and may continue to fall further if inflation goes well. However, there is a big problem that credit is stuck. From the beginning of the year to May 15, credit growth was only 1.32 percent while to achieve the growth target of about five percent, it is estimated that 10-12 percent of credit growth is needed.
The most important reason is that a large number of businesses and people, in difficult economic circumstances, do not meet the banks’ lending standards. Meanwhile, up to now, the message throughout the banking industry is not to lower lending standards to minimise the risk of bad debts.
In difficult economic times, lowering interest rates but not lowering lending standards seems to only have a difficult sharing effect but has many stimulating effects. If the economic situation continues to be difficult in the second half of the year, the credit is also difficult to be pushed out, the risk of low credit growth throughout the year is evident and this greatly affects the economic growth target.
Ultimately, the government will have to make a choice: whether or not to lower the lending standard?
Lowering the lending standards is not less risky, but insistently keeping the lending standards rigid is not necessarily good in the context of economic recession. It is important that the overall solution to lower lending standards but still control bad debt, along with that, there is a roadmap to neutralise risks in the future when the economy returns to the growth track.
