Credit growth must be controlled: experts
Authorities need to closely control the rapid increase in Vietnam’s credit-to-GDP gap so as not to cause high inflation as in the past, experts have warned.
Experts said the credit growth target should be lowered to 12-14 percent this year. (Photo: VNA)Hanoi (VNS/VNA) - Authorities need to closely control the rapid increase in Vietnam’s credit-to-GDP gap so as not to cause high inflation as in the past, experts have warned.
Reports from Saigon Securities Inc (SSI)’s retail research division showed high credit growth has pushed total outstanding loans of credit institutions to 7 quadrillion VND (299.15 billion USD), equal to 130 percent of the country’s GDP against the 100 percent rate at the end of 2014.
With the rise, the credit-to-GDP gap has increased in the past few years, from negative growth in 2014 to 30 percent in 2018 the report noted, adding that the rate is much higher than that of other countries including Thailand (6.1 percent), Indonesia (6.8 percent), China (12.7 percent) and the Republic of Korea (-2.4 percent).
“The rapid increase in the credit-to-GDP gap is a risk indicator that needs to be controlled so as not to cause inflation as it did in 2008 and 2010,” SSI analysts said.
The warning was made in the context that the CPI in the first nine months of 2018 increased 3.2 percent compared to end of 2017, the highest increase in recent years.
According to the analysts, the policy of stabilising exchange rates and curbing domestic inflation needs to be prioritised as it is very difficult to control external factors, such as crude oil price or US dollar value. Credit growth should be tightened to reduce liquidity pressure, narrow the credit-to-GDP gap and keep inflation at a reasonable rate.
Banking expert Pham The Anh said that as Vietnam has overcome the downturn and is recovering, the country should focus on sustained growth and avoid excessive reliance on credit as before.
According to Anh, the 6.7 percent GDP growth target this year has almost been reached so, monetary policy needs to shift from growth support to inflation caution as inflationary pressure is the biggest risk for the economy in the rest of the year.
The central bank should limit the money supply to the economy and lower the 17 percent annual credit growth target to 12-14 percent this year, Anh recommended.
Previously, the International Monetary Fund also warned Vietnam’s credit growth was too high, suggesting the country should lower the rate from the current 17 percent to below 14 percent to reinforce macroeconomic stability.-VNS/VNA
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