Customers make transactions at a BIDV office in Hanoi. After the central bank raised the credit growth cap, BIDV has been allowed to lend an additional 27 trillion VND. (Photo: VNA) The SBV last week raised the 2022 credit growth target for thedomestic banking system by 1.5-2 percentage points from its previous target of14%, allowing commercial banks to pump an additional 240 trillion VND into theeconomy.
According to the SBV’s Deputy Governor Dao Minh Tu, the revisionoffers banks relatively large room to provide funds to businesses, individualsand the economy.
Under the new policy, BIDV, for example, has been allowed to lendan additional 27 trillion VND, while the amount for Vietcombank is 5 trillionVND.
A survey of the National Private Economic Development ResearchBoard showed a severe lack of capital in businesses across industries aftercombating the COVID-19 impacts for two years, leaving them at risk of beingunable to maintain operations and production, purchase raw materials, and paysalaries.
High credit growth rate in the first half of 2022 caused manybanks to run out of their credit growth quota granted by the SBV and theycouldn’t continue to lend to meet the capital needs of firms and people. Somebanks had to stop receiving new loan applications for the last two months asthey used all their granted credit growth quota.
Enterprises in Vietnam had faced difficulties in having access tocapital for the past several years, but only in the past 12 months has thesituation become more serious.
Worse could still come as the country’s largest holiday Tet approaches and enterprises withbusiness models that revolve around Tet needcapital to import goods. They also need money to settle debts, as well as paysalaries and Tet bonuses totheir employees.
The increase in credit growth cap at the last month of the yearwhen businesses are in dire need of capital to fulfil their production andbusiness plans to prepare for Tet isconsidered a timely and positive move to help businesses, and the economy as awhole.
According to experts, the credit growth cap expansion willincrease the working capital of enterprises, rather than serve investments orreal estate projects.
Banking expert Can Van Luc said raising the credit growth cap isone of the important solutions to deal with the problem of capital bottlenecksof the economy in the short term.
The expansion will also help enterprises build momentum foreconomic growth next year, explaining that if the SBV waits until 2023 toexpand credit, it will be hard to restart a system that has been suspended fora long time.
According to Lam Thuy Ai, Chairwoman of Mebipha Trading ProductionCompany, the news that the SBV raised credit room is very positive, helpingmany businesses, including her company, have more opportunities to accesscapital to reactivate their production and business plans in 2023.
Nguyen The Minh, head of Yuanta Vietnam Securities Company’sretail research division, expects the increase in credit growth cap will helpreduce pressure on interest rate hikes to support the economy next time.
Minh explains interest rate has increased strongly since Augustthis year as the room for credit growth was limited while capital demand waslarge. Therefore, when the SBV grants more credit quota for banks, lendingrates will tend to cool down gradually in the short term.
Minh believes the credit growth cap expansion of 1.5-2 percentagepoints, or 240 trillion VND, will not significantly affect the country’sinflation, especially when global commodity prices, including oil prices, tendto cool down. Vietnam’s inflation has averaged 5% since 2013, meaning thatinflation, which currently stays at 4.5%, is still below the average rate.
Beneficiaries
According to the SBV’s Deputy Governor Dao Minh Tu, local banksthat meet liquidity requirements and offer low lending interest rates areprioritised for the increase in credit growth cap this time.
The SBV sees it needs to impose credit growth restrictions onlenders with high interest rates. Banks that have not reached the cap do notneed a quota increase for now.
However, banks need to actively mobilise deposits to have enoughfunds to lend. Despite the extra lending room, Vietnam’s credit growth mustfollow the safety of lending activities and liquidity.
Saigon Securities Incorporation (SSI)’s analysts also said thepressure on banks to balance capital is huge. Liquidity in the banking systemin the medium term has yet to improve as deposit growth is much lower thancredit growth. By October 25, credit surged by 11.5% against end-2021 whilemobilised deposits rose by only 4.6%.
Several banks and analysts forecast the increased credit quotawould not result in a major influx of cash into the economy since many lendershave reached or exceeded the safe loan-to-deposit ratio (LDR).
Yuanta’s Minh said according to the current legal regulations,banks are allowed to lend up to 85 VND out of every 100 VND they mobilise, but16 out of 27 listed banks had reached an LDR of more than 100% by the end ofthe third quarter.
Under the decision on the credit growth cap expansion, the SBValso directs commercial banks to prioritise capital for production and businessactivities; priority sectors such as agriculture, rural development and export;small and medium enterprises; and supporting industries.
Businesses also agreed, saying the new policy should be limited tobeneficiaries with proven track records, as well as those in manufacturing,export, and agriculture sectors that have already secured orders they need tofulfil./.
VNA
