Finance & Banking

Last updated: Friday, March 22, 2019


Credit to Be Further Loosened to Support Growth

Posted: Tuesday, August 22, 2017

Credit growth is likely to exceed 20 per cent in 2017, marking the return of high credit growth of the Vietnam banking system from 2011 to 2016.

The Vietnamese Prime Minister recently asked the State Bank of Vietnam (SBV) to regulate monetary policy towards lowering lending interest rates and raising credit growth to 20 per cent or higher at the end of 2017, with the targets being four State-controlled commercial banks.

Previously, the credit growth of 18 per cent was set by the central bank at the beginning of the year. So far, some commercial banks have reported that their credit growths have almost reached this rate.

According to data from the National Financial Supervision Commission, the credit expanded by about 9.3 per cent in the first seven months of this year. Given the growth of 22 per cent, banks will lend extra VND698,500 billion in the last five months.

Loosening cash flows is considered one of the measures the Government adopted to achieve this year's economic growth target of 6.7 per cent. Thus, 2017 may witness the return of high credit growth after the 2011 - 2016 phase.

The Vietnamese economy has seen an annual credit growth of 10 per cent or so since 2011. Specifically, it dramatically dropped to 10.9 per cent in 2011 and stayed below 20 per cent a year since then (even below 10 per cent in 2012).

Earlier, the credit boom that lasted between 2001 and 2010, with a yearly credit growth of over 20 per cent, for example 19.20 per cent in 2005, 41.5 per cent in 2004, 53.89 per cent in 2007 and 37.53 per cent in 2009 (the stimulus package was launched).

The high target this year is recalling the previous overheating period.

The total outstanding loans to the economy reached VND5,500 trillion at the end of 2016. With an estimated growth of 22 per cent, the economy will receive VND1,210 trillion more this year. Compared with the initial plan of 18 per cent set by the SBV, an extra VND220 trillion will fund the economy.

Earlier, the Prime Minister issued Decision 1058/QD-TTg approving the credit institution restructuring scheme and bad debt settlement in 2016 - 2020. One of the most important contents is loosening credit flows and increasing State funds.

In Decision 1058, the Prime Minister assigned the Ministry of Finance to work with the State Bank of Vietnam and the Ministry of Planning and Investment in balancing and allocating sources to increase the registered capital for commercial banks where the State holds over 50 per cent of stake to meet Basel 2 capital adequacy requirements in 2020 as approved by the Prime Minister.

According to SBV's scheme, Basel 2 will be applied to 10 commercial banks from 2017 - 2018, including four State-controlled lenders. To apply the Basel 2 standard, commercial banks need to increase capital to improve the capital adequacy ratio (CAR).

Data from SBV showed that the four largest commercial banks had a lending to deposit ratio of 95.31 per cent as of as of June 20, 2017. Meanwhile, their CAR was yet to improve markedly, standing at 9.76 per cent, marginally higher than the lower-limit threshold of 9 per cent.

To raise their CAR, banks will have to restrict lending to high-risk areas and move to low-risk areas. At the same time, they need to improve their financial capacity by means of increasing the registered capital, to enhance the CAR.

Therefore, the Prime Minister issued the above decision to pour capital into these banks. According to the plan, the Ministry of Finance will arrange capital sources for these banks to hike their registered capital while the banks themselves will issue shares to the public to raise funds on the condition that the State still holds the controlling power with over 50 per cent of stake and at least 65 per cent of the total number of voting shares.

Increasing charter capital for State-owned banks is not easy. They are yet to lift the capital increase requirement for raise their financial ratios, thereby adding to their credit strength. Meanwhile, it is difficult for the Ministry of Finance to allocate funds on limited State budget for investment.

Le Minh

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