The explosion of the COVID-19 epidemic had significantly affected the credit growth target of 2020.
Adverse credit because of the epidemic
In recent years, credit often increased since the first months of the year, even though the increase was not high due to the impact of the Tet holiday. However, this year witnessed the opposite when credit growth was negative in the first two months of this year.
Nguyen Quoc Hung, director of the Credit Department of all economic sectors under the State Bank of Vietnam (SBV), said that as of February 7, 2020, the credit balance of the whole economy reached 8.164561 quadrillion dong, declined by 0.38 percent compared to the end of 2019 and by 0.47 percent compared to the end of the previous month. In particular, the credit debt balance decreased mainly in some sectors that were greatly affected by the COVID-19 epidemic, such as processing and manufacturing industries accounted for 16.48 percent of the gross domestic product (GDP), and accounted for 14.52 percent of the total balance of the economy; followed by agriculture, forestry and fishery, accounting for 13.96 percent GDP and 8.74 percent of the total outstanding loans of the economy.
Many economists also identified that the COVID-19 epidemic was complicated, causing negative impacts on production and business activities and people’s life. Almost all economic sectors were affected by the plague, including areas having immediate and significant effects, such as tourism, aviation, agricultural product export, etc.
Even the industrial manufacturing sector was also affected significantly when many businesses of textiles, footwear, electronics were heavily dependent on raw materials and components imported from China. According to data from the general Department of Customs, in Vietnam’s total import turnover of $253 billion in 2019, only $75 billion was imported from China. In particular, machinery, equipment, tools and spare parts imported from China to serve industrial production reached $14.9 billion. The group of cotton goods, textile fibers, fabrics, raw materials for the textile, footwear industry were imported from China with a value of 11.52 billion USD.
Speaking at a recent meeting of the Ministry of Industry and Trade, Truong Thanh Hoai, director of the Department of Industry, also acknowledged that Vietnam’s manufacturing and processing industries were currently heavily dependent on the supply of raw materials and components imported from China and other countries, which was affected by the epidemic (Korea, Japan), for production. In particular, one of the industries most affected was the electronics industry. Currently, electronic enterprises only had enough spare parts and accessories for production in the middle to the end of March 2020.
Obviously, when the production and export area delayed, it would affect the revenue and cash flow of the debt payment of businesses, so the credit demand would also decrease.
Credit targets should not be adjusted
Recently, SBV issued Document 1117/NHNN-TD asking credit institutions to proactively grasp the situation of production and business, review and assess the extent of damage and influence of customers who borrowed capital due to the COVID-19 epidemic to carry out these following actions, including restructuring repayment term; interest rate exemption and reduction; temporarily keeping the debt group for customers for debts affected by service; lending new loans to customers following regulations to stabilise production and business.
Commenting on these supportive measures of the SBV, experts said that the rescheduling and maintenance of the debt group, interest rate exemption and reduction were very practical for the affected businesses. Because production and export areas delayed, companies did not have the revenue to pay debt and interest.
In particular, allowing the debt group to remain in debt affected by the epidemic would halt the increase in the bad debt of banks, thereby encouraging banks to support more actively for businesses. As for businesses, keeping the debt group would help enterprises not to pay interest on overdue penalties and not reduce credit scores.
However, the requirement that banks continued to provide new loans did not have much effect because both banks and businesses were hesitant. Banks would undoubtedly have to carefully consider new loans to firms facing difficulties in production and marketing if they did not want to face the risk of bad debts. As for businesses, in the context of production and export areas facing many difficulties, they would certainly did not dare to borrow more.
In the preliminary evaluation report of the impact of the COVID-19 epidemic on the world and Vietnam economy recently published, Can Van Luc and the author of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) Training & Research Institute forecasted that this disease could cause a decline in credit demand due to lower credit demand of businesses and households, especially in Q1/2020 and Q2/2020.
That fact was threatening the target of 14 percent credit growth this year. However, according to a banking expert, it was not necessary to adjust the credit growth target. Firstly, the government had not altered the socio-economic goals of this year, so the credit growth target had not been modified.
Secondly, the disease was only of a short-term nature. After the epidemic, all economic activities would return to normal, and even businesses would work more urgently to make up for the previous stagnant days, leading to an increase in credit demand.
