In its directives vis-à-vis monetary policies for the second half of 2009, the State Bank of Vietnam (SBV) decided to cap credit growth this year at 25-27 per cent, lower than the previous limit of 30 per cent. Many believed that the capital source for the economy will be narrowed.
As of the end of July, deposit growth at commercial banks was always lower than credit growth. Mobilised capital grew 16.2 per cent as of end June from the end of last year, compared with 17 per cent growth of lending. By the end of July, capital put at banks jumped 18.8 per cent while money going out of banks rose 20.5 per cent, nearing last year’s credit growth. Among more than 20 commercial banks, only one or two banks recorded credit growth of less than 20 per cent in the first six months. Notably, ABBank reportedly had outstanding loans to rise 132 per cent in the six months. Although its deposits soared 160 per cent to VND11,600 billion, its lending was only VND8,618 billion. This growth was attributed “too hot.”
Lowering credit growth
The credit growth is not high, even lower than the target, but it is still higher than growth of deposits. This suggests an “overheating credit” prospect following many economic stimulus packages.
Before the movements of the State Bank of Vietnam (SBV), many forecast that the central bank would issue compulsory notes to commercial banks to withdraw cash from circulation as it did in 2008. Mr. Nguyen Ngoc Bao, Director of SBV Monetary Policy Department, affirmed no plan for such action. He added: “The State Bank of Vietnam’s monetary management policy is flexible and periodically regulated. New policies and amendments are carried out transparently and publicly to provide exact information for the market.”
In 2008, the State Bank issued compulsory T-bonds valued at VND20,300 billion to withdraw cash from circulation. However, the present context is very different from last year’s inflation and economic growth.
However, through its activities, the central bank clearly intends to limit credit growth and require banks to tighten lending from now to the end of the year. In its recent directive, it required credit institutions to speed up capital mobilisation activities and prepare capital for expanding lending to the economy.
Particularly, the central bank has recently issued a decision to add foreign currency-dominated government bonds to the list of the valuable papers that could be mortgaged to borrow VND at the SBV. In addition, it will increase capital support for banks through the open market.
The National Financial Supervisory Commission of Vietnam, chaired by former State Bank Governor Le Duc Thuy, has submitted a report to the Prime Minister. The document is expected to be discussed and analysed next week at the meeting of the National Financial Supervisory Commission.
Limiting consumer lending
At a recent meeting on credit activities, State Bank Governor Nguyen Van Giau required banks to closely control credit and not to lower credit conditions. He also stressed on the direction to expand effective credit for the economy, focusing on production-based fields, not nonproduction-based ones.
Lending for stock and property markets escalated in May and June. According to the report released by the SBV, outstanding loans for stock investments as of June 30, 2009 jumped 28.31 per cent over the end of 2008 while the rate was only 4 per cent as of end-April. Similarly, outstanding lending for real estate investment and trading as of June 30, 2009 were estimated to grow 10.48 per cent from the end of 2008 while it declined nearly 12 per cent as of end-April.
The above ratios are still within the regulatory limits and are considered safe but they caused the credit to increase considerably in the first half of 2009. This is possibly a foundation for the State Bank of Vietnam to reduce credits for non-production fields to focus on production-based fields in the coming time.
At the moment, many commercial banks began examining their loans, especially consumer lending as well as stock and realty investment loans.
The remainder of the cap is 8 - 10 per cent in the next six months while the economy signals the recovery and enterprises need more capital for new business cycles. This will cause numerous difficulties for banks.
Initially, consumer lending and sensitive loaning like stock and real estate will be put under the focus of adjustment, aiming to avoid risks, ensure safe ratios and maintaining credits for production-based fields.
In fact, the consumer lending was narrowed in the past month. The Director of a joint stock bank said banks would difficultly develop credit products for housing purchase and car purchase.
MC
Vietnamese
