Difficulty of credit growth is forecast to last to near the end of the year, and so far no effective solution has been adopted.
As always, profit, loss and dividend become a focal discussion of shareholders in annual shareholders’ meeting. For Vietnamese banking sector this year, merger and acquisition and new elections made for a really hot discussion. Furthermore, some basic financial indices of banks approved by Resolution or submitted to shareholders are not “yielding”.
Banks careful about credit growth
Difficulties of banking sector seem to not have passed over; many banks are careful about new annual growth plan, including new credit growth plan. A general director of a bank informed that he could not make out any specific solution for credit growth plan, which may satisfy shareholders’ requirement, so this situation causes none actions and confused sources for banks. And in another meaning, aiming to deal with shareholders in particular business plan, banking governors will use their method: Secret!
In a discussion in shareholders’ meeting of Nam A Bank, Mr Tran Ngo Phuc Vu, General Director of Nam A Bank said: On the basis of 2013, credit growth of 2014 will not be soon improved. Regularly, every work has its reason. “And if there is no good reason and no good surround context, credit growth will be hardly improved. For Nam A Bank, credit growth this year still remains its direction, concentrates on banking retail and its current advantages”, said Mr Vu.
Mr Vo Tan Hoang Van, General Director of Saigon Commercial Joint Stock Bank (SCB) shared that in 2013 credit growth increased only by 1.4 percent, this year the bank still targets to increase financial capacity, promote processes of restructuring, bad debt solution, provisioning fund etc; especially it does not concentrate on raising profits in order to achieve a longer term development. Therefore, SCB has planned to raise charter capital and target to credit growth rate of 76 percent (over 2013) to VND156,988 billion, overdue loans rate of under 5 percent and bad debt rate of under 3 percent.
And the situation occurs not only in SCB but also in other banks. Many other banks, even those with strong credit growth like the Orient Commercial Bank (OCB) and Vietnam Prosperity Bank (VPBank) tend to keep credit growth rate equal to that in previous year (about 20 percent) although they have not disclosed their plan. Based on the real situation and SBV’s approval they may raise the rate.
It is clearly seen that in the current context banks are cautiously considering over their capacity to conduct in accordance with situation.
Old scenario again?
This year, to monitor credit quality and control risks, the SBV issued Circular 09/2014/TT-NHNN amending and supplementing regulations in Circular no. 02/2013 on classifying assets, amount and methods of provisioning, as well as exploiting provisioning fund in credit institutions and branches of foreign banks in Vietnam.
Besides, the SBV also reduces base interest rates by 0.3-0.5 percent because inflation rate in February was 4.65 percent, the lowest level since 2009 while banks have excessive capital. Especially, deposit interest rate has decreased to 6.5 percent for short term deposits, which creates impetus for credit interest rate in the banking system returns to 9-12 percent with long term curve.
Low base interest rates with clear curve are positive factor for the market to access cheap capital and reduce financial costs in production, which in turn will lower product prices and directly promote production – consumption. However, on the other hand, the number of dissolved or malfunctioned enterprises keeps rising, reaches 16,745 enterprises, up 9.6 percent over the same period of previous year and is almost equal to the number of new-established enterprises; at the same time CPI reached the lowest point recorded for many years. These factors are very weak and can hinder the policy of effective low interest rates.
Therefore, according to Dr Can Van Luc, a bank expert, it is not an unexpected event if credit growth repeats the scenario of the year-beginning. SBV’s statistics has shown that by March 2013, credit of the whole banking system reduced by 1.66 percent compared to that of last months of 2013. One reason was that the economy did not well consume the capital, other reason was that banks had rapid credit growth in last months of 2013. Lent capital needs time to turn over, be repaid and begin a new lending cycle.
Consequently, banks will have to race again to increase credit growth at the end of this year. Enterprises that have not had access to loans at the end of previous year will again have an opportunity get cheap capital in condition that they will wait till the end of this year. The scenario is repeated. This is a negative point for enterprises, banks and the economy while enterprises simultaneously have to do business, strive to develop and watch for right time to access cheap capital.
L.M
Vietnamese
