Despite interest rate easing particularly after the government’s request to lower interest rates for existing loans to 15pct, credit growth has not seen any remarkable pick-up.
On one hand, what also matters to any businesses besides interest rates are consumption power, markets and the like. Moreover, more effective capital deployment has led enterprises to be more prudent in bank credit.
DongA Bank, for instance, saw six-first-month outstanding loan growth rate of slowly edging up to merely 4pct-5pct versus the target of 15pct and so did HDBank, Eximbank, Sacombank and ACB.
On the other hand, mounting bad debts have also impeded further lending thus hurting credit growth. Since interest rate easing does not necessarily mean rapid credit growth, banks should have monitoring of loan quality tightened so as to alleviate bad debt risks.
General director of Phuong Dong Joint Stock Bank (OCB) Nguyen Dinh Tung said credit growth can only pick up on improved market consumption and decreasing bad debts. This lender, therefore, has been gradually restructuring debts in an attempt to ease burdens on customers.
However, the bank is still reluctant to provide loans to new customers. Though the business season is approaching particularly in the ending months, the priority is given to closely monitoring of bad debts rather than boosting up credit growth.
The statistics from the State Bank of Vietnam as of 30 June 2012 indicated a 0.76 percent credit growth over the early year after several months of negative figures. The first week of July alone saw credit growth rate climbing 1.76pct against the beginning of the year.
Yet, given the year target of 8pct-10pct, at least a monthly rate of 1.5pct-2pct for the last six months should be required, which is pretty challenging. It is estimated that 10 percent credit growth would mean monthly injection of around 50 trillion dong which could hardly be fully absorbed by the economy in a short time. Also, what matters is how to handle the injection so as not to trigger the return of galloping inflation.
Soaring bad debts have been putting a drain on the economy, so a comprehensive solution package should be executed with the participation of not only the central bank, commercial banks but enterprises as well.