Credit Targets and Enterprise's Capacity to Absorb

 

In2012, credit growth finished at 8.91 per cent, much lower than the expected target of 15 per cent -17 per cent.

 

According to the State Bank of Vietnam (SBV), although credit growth in 2012 was at a multi-year low, the structure was positive. The proportion of loans for export and agricultural production was higher than that for discouraged fields. It was noted that, but likely be ignored by the SBV, the credit growth of 8.91 per cent in 2012 was significantly contributed by banks’ investment for government bonds. This was the first year government bonds were included to credit growth.

 

In early 2013, the credit growth was negative as of mid-February like what it happened a year ago. The decline was lower, 0.16 per cent versus one per cent in January 2013 and three per cent in the same period. Nevertheless, this remained a very remarkable signal because, after a year of economic slowdown, only good performers could borrow. Dr Le Xuan Nghia, former Chairman of the National Financial Supervisory Commission, said, even when lending rates dropped to the low rate in late 2012, only good companies dared to borrow money. They are expected to be backbone companies of the current economy. Bad debt-burdened companies can only rely on their own capital. Then, interest rates will no longer be a problem for enterprises but the way to gain the right to access bank capitals. To do so, they must wait for the result of dealing with non-performing loans. When debts are cleared and companies are free from bank loans, they will then have the right to access bank capital.

 

The business circle is upbeat with the Government’s determination to launch the National Asset Management Company in the first quarter of 2013 as stated in the Official Announcement No. 79/TB-VPCP dated February 22, 2013. Although the registered capital and operation of this company remain unknown, this is a clear expression of the government’s determination to clear bad debts in the system and clear up congestive points of capital flows this year. Then, companies may have the opportunity to be granted the “right” to credit capital.

 

Mr Pham Ngoc Hung, Deputy Chairman of Ho Chi Minh City Business Association, said, apart from bad debts - the barrier that prevent enterprises from regaining the right to return to credit capital, banks’ credit policies also block capital flows. They now primarily give lending priority to big companies, State-owned enterprises and companies with security assets, not small and medium-sized enterprises (SMEs). “Most bankrupt companies in the past year were SMEs,” he noted. The collapse of SMEs is understandable because they do not have security assets for loans like property, factories and modern machinery. Their humble assets have already been used to borrow loans earlier. For that reason, accessing new loans is an “impossible mission” for them now.

 

Thus, the overall credit growth limit or credit limit on groups of banks as the SBV imposed in 2012 will not have much

Dr Le Xuan Nghia - member of the National Advisory Council for Monetary Policies Despite narrow accessibility, Vietnamese enterprises still have many opportunities. In my opinion, some companies can negotiate directly with banks and represent their business plans in 2013 to banks to revive production and repay bank loans. Banks may weigh on their business plans to reschedule old loans and grant new loans. In other words, the year 2013 is a great opportunity for businesses to work out business strategies and production plans based on positive cash flows, and bring them to banks to negotiate credit loans. Banks will consider granting new loans or taking them to court to have their security assets liquidated. The second choice is also “good enough” because this move will clear their bad debts. Free from debts, they will easily apply for new loans. In summary, businesses need to re-plan cash flows and production plans to negotiate with banks on new loans or assets liquidation for debt settlement.

meaning. Mr Le Quang Trung, Acting General Director of VIB Bank, said although the credit growth is expected at 12 per cent, it is very hard to reach it given current economic situation and banks’ lending performances. Or in other words, credit growth targets will be almost meaningless and credit scope will be meaningless if such scope will not bring about real growth of capital and real contribution to GDP growth.

 

From the perspective of enterprises, if the realisation of the growth target is made by huge capital flows into government bonds and humble credit for enterprises (as in 2012), the credit growth target will be like a “greasy pole” for enterprises to see. But, from the perspective of banks, if they have to fulfil the target, with different asset scale, customer base and market shares, some will ask for higher quotas while others will live in the fear of liquidity loss (as in 2012).

 

In fact, some banks are worried about more difficult lending now. "According to our observations, in 2013, the focus of management bodies may not be confined to bad debts but also included the bailout for the real estate market and stimulus for directional home-buying. Meanwhile, for some banks like us, in 2012, we had to temporarily close this lending portfolio. In reality, many banks informed customers to borrow to buy houses and consumption, they had stopped lending, except for special cases. Banks are now afraid of risks and hedge real estate loans. Of course, once the SBV lifts up limits on loans for non-manufacturing fields, their anxieties may disappear,” a banker said.

 

Needless to say, the capital market in 2013 was opened less than two months ago, businesses mostly borrowed for salary payment, remuneration payment and debt settlement. They only accelerate lending from the end of the first quarter and the negative credit growth in the first two months of the year means very little. Apart from popular forecasts that the credit growth this year will be similar to, or slightly better than, that in 2012, some even envisaged a scenario that the credit growth will soar when the credit valve for non-manufacturing fields is open.