The State Bank of Vietnam (SBV) has assigned credit growth targets to each credit institution in 2019.
Accordingly, the highest credit growth of 15 percent belongs to the group of banks who have completed risk management following the framework and standards of Basel II (excluding foreign banks and branches) while other joint stock commercial banks are allocated with growth limit at 12 percent. As reflected by many banks, this credit growth target is considered much lower than the target of 14-16 percent in 2018.
Nguyen Thi Hong, deputy Governor of SBV, said that when banks complied with Basel II, not only individual credit institutions but also the whole system would achieve the stability. In the coming time, SBV would direct credit institutions to carry out this goal drastically to meet Basel II standards before 2020.
In Vietnam, the Basel II application roadmap is set by SBV with two phases. Phase one has been piloted at 10 banks from February 2016, including: Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Military Joint Stock Commercial Bank (MB), Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Asia Joint Stock Commercial Bank (ACB), Vietnam Prosperity Joint Stock Commercial Bank (VPBank), Vietnam International Joint Stock Commercial Bank (VIB) and Maritime Joint Stock Commercial Bank (MSB). Phase two aimed at the basic commercial banks with equity capital in accordance with Basel II standards, of which at least 12-15 banks successfully applied this standard.
Initially, the time limit for the pilot phase was fixed from February 2016 to the end of 2018 and the second phase by 2020. However, raising equity capital was difficult, putting pressure on the Basel II application deadline for the pilot-banking group. Therefore, the deadline has been extended to 2020.
In recent years, credit tends to increase in the following year more slowly than the previous year. According to experts, there are many reasons, one of which is the direction of SBV. Accordingly, the banking system as an intermediary in the monetary market will only support short-term capital for the economy through working capital loans for businesses and households. Meanwhile, the function of providing medium and long-term capital will belong to the capital market, in which the stock market plays a central role. That is the need for capital to deploy new investment projects through the procurement and construction of fixed assets.
This is the reason why SBV is still determined to lower the ratio of short-term funds for medium and long-term loans. This situation is placing banks to face the pressure to narrow down the scale of future operations. Therefore, in order to continue maintaining high asset growth, banks need to find a new direction.
Phan Duc Tu, Chair of BIDV’s Board of directors, said that credit growth in 2018 (reaching 14 percent) was lower than previous years, but still fulfilled important targets such as maintaining credit growth all over four quarters, focusing on priority areas; increasing short-term credit to raise capital turnover, helping improve credit efficiency for the economy. To improve financial capacity, one of BIDV’s important goals this year is to increase charter capital, especially when the capital adequacy ratio (CAR) hit the ceiling in the past year.
In fact, SBV has issued Directive 04/ CT-NHNN 2018, which states that it will not consider to increase credit growth targets (except special cases, such as commercial banks participating in restructuring weak credit institutions).
Nguyen Xuan Thanh, director of Development of Fulbright University in Vietnam said that the pressure on credit growth was not so large, so the allocation of growth limit, as well as the expansion of credit room according to the capacity of each bank was reasonable. Accordingly, banks should only boost credit in case of good control of risks, in order to ensure sustainable growth.
