A customer at an ABBank branch. The SBV said the extension of the credit growth quota will be implemented at an appropriate time and the adjustment will depend on the financial health of each bank. (Photo: ABBank) As demands for bank loans have increased rapidly this year after the pandemichas been controlled, banks have already used up most of their assigned quotathis year. The banks have therefore proposed the State Bank of Vietnam (SBV) toappropriately expand their credit growth quota to continually lend tocustomers.
Under the current regulations, the SBV sets creditgrowth limits for each commercial bank at the beginning of the year dependingon the bank’s health, including capital adequacy ratio, financial strength,risk governance and operational status. This was done to control credit growthof the entire banking system and to ensure money supply and inflation controlas targeted by the Government.
Nguyen The Minh, head of Yuanta Vietnam Securities Company’s individualcustomer analysis division, said without capital injection, firms cannotrecover, which will cause rising bad debts. Therefore, banks, which have goodasset quality, healthy finance and good capital buffers, should be givenpriority to allocate a higher credit growth quota.
The SBV has also said the extension of the credit growth quota will beimplemented at an appropriate time and the adjustment will depend on thefinancial health of each bank.
According to the SBV’s deputy governor Dao Minh Tu, from the beginning of theyear when setting the credit growth target at 14% in 2022, the SBV said itcould flexibly adjust the target depending on the actual situation.
As banks said they have all used up their credit growth quota and cannotaccelerate lending, Tu said the current situation is also an opportunity forbanks to restructure their credit sources, noting the SBV’s goal is to directcapital into priority areas and strictly control credit to risky areas.
After a period of overheating growth which caused interest rates and inflationto accelerate in Vietnam, the SBV decided to control the credit growth ceilingat commercial banks in 2011.
Dr Ho Quoc Tuan, a lecturer at the UK’s University of Bristol, said very fewcountries in the world still use a credit growth granting tool like Vietnam.
According to Tuan, removing the credit limit is necessary, but not immediately,and should be placed on a roadmap. For instance, the SBV announces within fiveyears it will remove the credit limit. During these five years, the SBV willtell commercial banks how to do a stress test and solve the bank's weaknesses,and deal with weak banks as well, with regulations on checking data andresponsibilities. If there is no specific schedule set, no one will do it.
Instead of controlling the credit growth ceiling, the SBV should control creditgrowth through capital standards according to Basel, combined with modernbanking management tools such as periodic checks. This still creates a creditlimit for banks, but on a more quantitative, objective and transparent basis, Tuansaid.
Dr Can Van Luc, member of the National Financial and Monetary Policy AdvisoryCouncil, said the SBV needs to remove the mechanism of granting credit room andmanaging credit growth through the capital adequacy ratio (CAR) of banks.
This credit limit granting mechanism should only be a temporary solution forthe next one or two years, Luc said./.
VNA
