Removing Credit Bottlenecks

At the end of the year, the demand for cash payment of Vietnamese companies is very high. This is also the time people do more shopping and spending, so the demand for loans often strongly increases. Credit rose sharply last year as usual, but this year the situation seems to remain very quiet, and many banks in Vietnam are still trying to push money out in credit. The first 10 months of 2013 saw credit growth in the new system of 6.8 percent.

Vietnam's economy has not exposed clear signs of recovery, the pessimism are still puzzling the business community so this is not the time to embark on the new plan. The demands to expand production of the businesses are lower, which require cautious calculation to select the right projects for investment. The challenges of job market and loss of income caused consumers to tighten spending. The challenges make the businesses difficult to sell their products, leading the collapse of the production and the businesses' restrictions to make new loan. This causes low credit growth.

 

The businesses are always in hunger for capital; particularly, in the high economic growth periods, the businesses are always lack of capital for production. The interest rate is too high; sometimes, it reached to around 20 percent per year. Now the interest rates fell to just 10 percent to 12 percent per year, but the difficulties still remain.

 

But the hidden causes will explain why the banks are now tightening their "pockets". The first difficulty comes from the business operation. For a long time, many large enterprises have been running businesses based on the unrelated investment in finance sector instead of their core business activities. Many businesses that got involved in the fast profitable industries such as securities and real estate are now paying the price. Meanwhile, their core business areas are facing the difficulties because of the sluggish economy, large inventory, and competitive pressures from the imported goods. All of the challenges are pushing the businesses under the pressures and causing them to pay the price.

 

However, if the economy cannot recover sustainably, the firms cannot recover their operation, leading an increase of the unemployment. The government is adopting some of solutions to supports for businesses to overcome the crisis and the interest rates are continuously adjusted downward, along with the credit support packages for priority sectors. The companies are rescheduled or extended for loan payment or loan rollovers to revive the businesses.

 

The banking system is in the phase of restructuring to make the system healthy, increase the securities and reduce the risks. Many banks are more redundant to give loans to lenders than those in the last year. In response to the reporters, Mr Tran Xuan Quang, Standing Deputy Director of the Maritime Commercial Joint Stock Bank of Vietnam (Maritime Bank) said that in the current economic context with potential risks, the banks are certainly cautious to review the loans to avoid the heavier burdens of their own bad debts.

 

The credit bottleneck is formed as a result. The banks face the pressures of increasing the credit growth while paying the interest rates, which cause negative impacts on their profitability. And the fact shows that the businesses can not access to the credit packages smoothly.

 

The credit bottleneck is one of the issues that the government and the State Bank of Vietnam are now discussing and proposing solutions to help the economy grow. The policies for loan rescheduling and debt restructuring are technical measures, which help the companies to be fueled by new financial sources. But so far, the results have not been clear, apart from the fact that the NPL ratio of the banks is reported to decline rapidly.

 

Another important move is that the Governor of the State Bank of Vietnam will host a meeting with 14 large banks (G14). The banks are listed as Vietcombank, VietinBank, BIDV, Agribank, ACB, Eximbank, Sacombank, Techcombank, Military Bank, Maritime Bank, VP Bank, VIB, SeABank and SHB. The expected content of the meeting is to evaluate the credit growth in the banking system.

 

Previously, at the National Assembly's meeting in November 2013, Governor Nguyen Van Binh said the State Bank of Vietnam would coordinate with the Ministry of Construction and some businesses in the construction sector to offer a combined product, which aims to facilitate the purchase of building materials and tackle the problems such as inventories and backlog in building materials.

 

Construction and real estate sectors are two main sectors facing serious difficulties. However, if the policies are open and supportive, many businesses can revive the business activities and accelerate the work progress and avoid the incomplete projects, which drive the businesses to be drowned.

The highlight of the credit growth this period may include the credit packages for agriculture and rural development sector, with a high growth rate of over 15 percent, and an expected rate for the whole year of 18 percent while the bad debts in the agriculture and rural development sector are only over 3 percent.

 

Governor Nguyen Van Binh said that the State Bank of Vietnam will continue pursuing the flexible and effective monetary policies. The controlling of the interest rates and exchange rates will help to regain the confidence for businesses in the investment. The handling of the bad debts through Vietnam Asset Management Company will help the companies to access the capital.

 

Credit at this point is still congested, but it is expected to be pushed up under the supervision of the State Bank of Vietnam and the fact shows that the banking system now proves its more prosper and safer activities. It is obvious that the banks that changed the credit activities, proactively reviewing and enhancing the accessibility to its customer, reviewing and selecting the appropriate clients are likely to overcome the immediate difficulties and gain trust for lending. The banking services are being better improved, indicating a new wave of competition in improving service quality.

 

At this period, many optimistic signs also appear. In some banks, the credit growth is fostered in the last months. The SHB at the first 6 months of the 2013 has its credit growth of only 2.7 percent while reaching 8.7 percent at the end of September, compared to the end of 2012. And at the first 9 months of the year, the HDBank's credit has grown to 20.39 percent, compared with 2012.

 

Another factor stimulating the credit growth rate is the relatively "soft" interest rate, which stimulates the demands for shopping and spending on the products in the peak seasons, particularly in upcoming Lunar New Year. This motivates the businesses invest more in production.