Year of Abundant Money

According to experts, based on economic development targets reported by the Government and adopted by the National Assembly in November, to achieve the GDP of 6.7 per cent in 2016, credit growth must reach 20 per cent to meet sufficient capital demand for investment and development.

 

In early December 2015, the State Bank of Vietnam (SBV) issued Circular 23/2015/TT-NHNN, effective January 28, 2016, to amend and supplement some regulations on reserve requirement at credit institutions. Accordingly, a big amount of capital set aside for bad debt provision will be released.

 

Earlier, the central bank specified that where credit institutions are placed under special control, the SBV Governor will consider lowering reserve requirement for credit institutions to 0 per cent at a minimum. Circular 23 added that where credit institutions are carrying out approved restructuring plans or taking part in the reshuffle of weak credit institutions as required by the SBV, SBV Governor will consider lowering compulsory reserve ratio for each credit institution. This ruling may allow many credit institutions to reduce their required reserve ratio in the coming time.

 

The new rule may facilitate big banks to restructure their operations, especially when they are assigned to take part in the reshuffle of banks.

 

Many commercial banks have participated in restructuring and handling weak banks since 2012. With the recent loosened ruling many banks will be able to reduce required reserve ratio from January 28, 2016. Many commercial banks have enjoyed benefits after they merge with weak lenders like Vietcombank, Vietinbank, BIDV, Sacombank, PVcomBank and SHB. Zero-capital banks like VNCB, GPBank and Ocean Bank will also be benefited a lot. A huge source of capital will be brought to credit market.

 

Currently, demand dong deposits or deposits with a maturity of less than 12 months are imposed a compulsory reserve of 3 per cent and deposits with a maturity of over 12 months are subjected a compulsory reserve of 1 per cent. Respective ratios on foreign currency deposits are 8 per cent and 6 per cent. Agribank, a special lender, is imposed lower rates.

 

Biggest benefits will go to three big lenders: Vietinbank, BIDV and Vietcombank, which now keep 30 per cent of market share in combination. Their credit growth was 16-17 per cent in the first nine months of 2015.

 

According to its third-quarter financial statements, BIDV mobilised nearly VND625 trillion of deposits, up 21 per cent from the start of the year. If its reserve ratio is slashed by 1 per cent, the lender will be able to immediately bring VND6,250 billion to circulation. Similarly, Vietinbank is expected to raise VND676 trillion of deposits in 2015, up 14 per cent, and Vietcombank mobilised VND424,412 billion, up 12 per cent.

 

Compulsory reserve ratio subjected to these lenders is 3 per cent on dong deposits and 8 per cent on dollar deposits. The combined deposit value of these banks is estimated at VND1,802,092 3 billion. If their compulsory reserve ratio is lowered by 1 per cent, they can bring VND18 trillion to lending base.

 

Mr Nguyen Duc Long, Deputy Director of Monetary Policy Department under the SBV, said credit growth was projected at 18 per cent in 2015. This is a high credit growth rate compared with previous years. Remarkably, credit growth is good and high throughout the year, rather than focusing on some months as in previous years. He said, “This signals good economic growth and huge economic growth momentum. Credit growth was estimated at 18 per cent in 2015, a very good rate for high economic growth.”

 

Lenders are hoping that the SBV will allow credit growth of 20 per cent in 2016 given the target GDP growth of 6.7 per cent and inflation growth of below 5 per cent in the year. Experts said oriented credit growth must be based on macroeconomic indicators provided by the Government to ensure economic growth and control inflation. If the credit growth is 18 per cent and GDP growth is 6.5 per cent in 2015, a higher rate in credit growth is necessary to fuel the target growth of 6.7 per cent in 2016.

 

The weakness of Vietnamese economy is its heavy reliance on bank loans. Dr Cao Sy Kiem, former SBV Governor, said the credit growth must be 17-20 per cent to guarantee the expected GDP growth of 6.7 per cent in 2016 as an increase of 1 per cent in GDP will require a rise 2-3 per cent in credit.

 

However, when capital is plentiful, credit quality may be low and high inflation may return. Mr Pham Hong Hai, CEO at HSBC Vietnam, said that if credit growth is 20 per cent or higher, economic growth, inflation and real estate markets may be overheating.