Although the dramatic surge in credit supply in the latest two months is arousing controversial opinions, the credit growth of 11 percent in the year to early December is fine enough to realise the full-year growth target of 12-14 percent. This will also open hopes for credit supply in 2015, especially when banks have pledged to channel credits to production to boost economic growth.
Cash havened to bonds
According to analysis, the leap of credit growth is sadly not for manufacturing businesses but bonds - the buoy to keep the credit growth afloat.
Outstanding credit was estimated at VND3.47 million billion at the end of 2013. The growth of 12 percent in 2014 is equivalent to VND416 trillion (US$19 billion). If just looking at the figures, it is certain that all companies are very happy because, according to a report by the Vietnam Chamber of Commerce and Industry (VCCI), Vietnam still had 391,547 operational businesses out of over 764,000 registered companies at the beginning of 2014. On average, each company can borrow over VND1 billion.
Vietnam planned to sell VND210 trillion (US$10 billion) of government bonds but the target valued was repeatedly revised up to VND232 trillion and eventually VND262 trillion. With VND72 trillion of G-bonds reaching maturity in 2014, assuming that all is reinvested, this channel drew VND190 trillion if the plan is successful. Indeed, after the first 11 months, nearly VND230 trillion was spent on G-bonds and key buyers are banks.
As a result, companies were still seeing a narrow access to credit sources. SMEs accounted for 98 percent of enterprises but their loans just accounted for only 25 percent, or VND896 trillion.
Indeed, money is being spent on G-bonds while production - the drive of growth - is still thirsty for capital. Companies are still difficultly accessing capital sources as ever.
How to send money into production?
Nguyen Tien Dong, Director of Department of Credit for Economic Sectors, said credit flows are being channelled into government-prioritised fields like agriculture, export and SMEs.
This can be considered the credit growth orientation of the State Bank of Vietnam (SBV) in 2015. Dr Tran Du Lich, Member of the Advisory Council for National Financial and Monetary Policies, said that credit growth is a good sign. But, what companies need are better medium and long-term interest rates. “The capital consumption of the economy has not really improved much and businesses are still struggling. Therefore, although banks have big cash hoards for lending, companies are not ready [to accept the current rate]. Medium and long-term rates remain high and they need to be slashed further.
It is still uncertain whether banks used “technical measures” to push up credit growth to meet the target in a couple of months or not but it is undeniable that credit growth sluggish most of the time in the year. The dramatic surge in credit growth in just three months seems not to have significant impact on the economy because credit growth should be steady throughout the year.
It is quite obvious that cash has been strongly flowed into stock and real estate markets - non-manufacturing sectors that has seen a 12 percent growth. The SBV argued that the credit for real estate and securities is not big. Credit for SMEs rose 13.5 percent, for high-tech application up 14.8 percent, and for agriculture and rural development up 12.8 percent.
The SBV said, in the long term, the credit for real estate and securities will be controlled to ensure that money is channelled directly into production. The central bank submitted a draft decree to replace Decree 41 and expected to put it into life in early 2015. The new ruling will be an important impetus to encourage businesses, economic sectors as well as people to expand operations in agriculture and rural areas.
Bao Chau
Vietnamese
