Credit Growth Weakens

Credit to the economy reached over VND12,300 trillion in the year to the end of May, an increase of 3.17% from the end of 2022, according to the State Bank of Vietnam (SBV). The SBV announced the targeted credit growth of 14-15% in 2023 and appropriately allocated to credit institutions from the beginning of the year.

This year’s target is 14-15%, so five-month credit growth of just 3.17% is very low, showing that capital absorption in the economy is much weaker than last year In the photo: The transaction office of HDBank, one of the leading commercial banks in Vietnam

SBV Deputy Governor Pham Thanh Ha said that the above data show that the capital absorption of the economy is still weak, significantly lower than last year (nearly 8% growth).

State-owned commercial banks accounted for 44% of the credit market share and their credit growth met only 35% of the target assigned by the SBV. Joint stock commercial banks accounted for about 44% of the share and achieved 50% of the growth target. These banks, which make up a majority of the credit market share, thus still have much room for credit growth in the rest of this year.

He cited three reasons for low credit growth. First, manufacturers witnessed shrinking output and consumption due to the lack of orders, leading to weaker needs for new loans for production. Second, many small and medium-sized enterprises (SMEs) failed to meet borrowing conditions due to weak financial health and no feasible business plans. Third, many existing real estate projects faced difficulties, mainly legal matters, while so few new projects were launched, resulting in falling credit demand.

In that context, the SBV continued to direct credit institutions, including banks, to reduce lending interest rates. After many regulatory moves by the SBV from March to May, the interest rates were also slashed. Recent figures show that lending rates on new loan boards are currently averaging around 9.07% per annum, down 0.9% from the end of last year.

"Given these data, we believe that the interest rate levels are falling and will continue to go down in the coming time," he added.

As customers faced difficulties in repayment for existing outstanding loans, the SBV issued Circular 02/2023/TT-NHNN allowing debt restructuring and keeping debt categories unchanged. The SBV will continue to direct relevant bodies to implement this policy to support for existing outstanding loans of businesses.

As for new outstanding loans, the SBV required banks to actively provide loans for qualified customers. Obviously, the banking system mobilizes capital for lending, so qualified customers will certainly have access to credit.

The Deputy Governor added that, in addition to banking solutions, it is also very important to have economic stimulus solutions. Therefore, relevant bodies should continue to introduce policies to support enterprises and develop SMEs; promote, search, develop and seek solutions to boost the consumer market and the real estate market, hence removing difficulties for businesses as well as improving their financial capacity and their access to credit.

According to statistics, industrial production in May 2023, although improving from the previous month, was still in the "no growth" territory over the same period of last year. From January to May of this year, the industrial production index slipped 2.0% year on year, driven by the manufacturing and processing sector which slumped 2.5%. Some industries grew slightly, like food processing (+3.8%), coke and petroleum (+12.7%) and rubber (+6.3%). Meanwhile, sharp declines included textile and garment apparel (-8.3%), motor vehicles (-10.1%) and electronics (-5.1%). By output, mobile phones and automobiles fell sharply 24.9% and 32.6% in May, respectively.

The short and medium-term outlook is not optimistic for the manufacturing sector. Vietnam's Purchasing Managers Index (PMI) fell to 45.3 in May 2023 from 46.7 in the previous month, three consecutive months in a contraction territory and lowest level since the index was released (if not included the period affected by COVID-19). Imports continued to decline in May, falling 18.4% year on year, higher than the slump of the previous month.

A recent survey conducted by the Board of Private Economic Research and Development (Board IV) into 9,556 companies showed relatively negative business confidence. Specifically, up to 82.3% of respondents planned to reduce their scale, suspend business or stop doing business in the remaining months of the year. Similarly, 83.7% anticipated a pessimistic economic picture. According to the General Statistics Office (GSO), the number of newly established companies plunged 9.5% in May, with the registered capital and employment scale falling 17.5% and 16.6% year on year, respectively.

By Quynh Chi, Vietnam Business Forum