2016 credit growth target of 18-20pct possible

21-Jul-2016 Intellasia | Dau Tu Chung Khoan | 6:00 AM Print This Post

State Bank of Vietnam (SBV) said that as of late June 2016, outstanding credit balance in the economy increased by about 7 percent, well below the target of 18-20 percent for the whole year, which makes the market become concerned of not finishing the target under a very difficult economic situation.

The report assessed the macroeconomic situation of the first 6 months of 2016 from BIDV’s Research centre said that the deposit rate would hardly decreased (due to inflation expectations at around 5 percent), which was mainly flat, by the amount of government bonds by mid-June was released by around 75 percent target by 2016, the demand for VND will be less stressful in the near future.

On the other hand, recent policies such as Circular 06 and 07 also contributed to reduce pressure on medium and long term capital mobilisation. At the same time, with lot of solutions such as cutting costs, increasing provisioning time by 10-year risk for bad debt, sell to VAMC (Circular 08), lending rates will at least remain stable.

General director of a commercial joint stock bank said, interest rates may continue to rise in some small banks, not yet meeting the safety regulations in the operation of the credit organisation, especially medium and long-term deposit rates. Moreover, the goal of reducing lending rates to support businesses is likely to carry out, in the absence of major shocks from the global economy, while inflation and the exchange rate under control are unpredictable.

Besides, some analysts said, in cases of State-owned Banks are having problems decline CAR (capital adequacy ratio), if capital is not increased causing limit the possibility of credit growth and have a significant impact to overall credit growth of the whole system (due to the current state-owned banks accounted for 50 percent of credit outstanding in total sector).

According to calculations, if the state-owned commercial banks are not able to raise capital in 2016 (in terms of joint stock banks grow normally), the credit growth rate in 2016 was only 12-13 percent (5-7 percent below expectation), thereby directly affects GDP growth rate.

Talking to Security Invest, said Nguyen Duc Huong, permanent deputy chair of LienViet Post Bank said that, although the credit growth of the whole banking system to reach 7 percent in the first 6 months of 2016, compared to the 18-20 percent target is quite low, but in fact, such a result is positive. The reason, according to Huong, is because the disbursement pressure serving for the payment and settlement activities is often put on the end of year. Therefore, in the last 6 months, if the monthly credit growth reached 2 percent, it will achieve its objectives for the year.

“Over the past difficult period, businesses exist is like ‘gold has been tested by fire’, so the health of the business was fundamentally better off, not as weak as the previous years,” Huong stressed.

Tran Ngoc Tam, deputy general director of South Asia Bank said: “As usual, the last 6-month period is a strong capital injection stage, so I am confident to achieve the credit growth target set by the State Bank, but business support needs to synchronised solutions.”

Also according to the report of BIDV Research Centre, credit is forecasted to continue positive growth until the end of the year and may reach 16-18 percent. Because, firstly, the mechanisms and policies (Resolution 35, Resolution 19, Circular 06 and 07) start to go live; Secondly, typically credit cycle rise sharply in the last 2 quarters.

Share with Security Invest, Dinh Duc Quang, deputy general director of Ocean Bank said, in 2015, annual credit growth still reached 18 percent, even though the credit of the first 6 months is over 6 percent. Therefore, with an increase of approximately 7 percent after the first 6 months of 2016, credit growth goal can be achieved. Even the market and banks have stronger credit demand, but the State Bank is very cautious, a top priority of keeping inflation under control.

Previous concerns about possible credit flowing strongly into the property market, Quang said that there will have specific data for each loan portfolio, so if there are sudden mutations, management authorities will certainly have appropriate actions. Besides, the reduction of the risk factor and the utilisation rate of short term capital loans for medium and long term loans decreased also made the story of lending to the real estate sector not a too serious matter. In particular, for the control structure of risk factors, banks measure very carefully themselves.

“The credit growth of 18-20 percent calculated by State Bank of Vietnam on scientific basis, in line with the Objectives of Economic Growth and Inflation rate controlled by the government, and support enterprises for production and business development. Investing capital reasonably in real estate is not only positive impact on the economy, but also contributes to stimulate business production and job creation for the society “, Huong said.

Speaking about inflation goes up on forecast if credit growth augments, Huong analysed, inflation grows out of control due to two main reasons, demand-pull and cost-push, plus the impact of push psychology. Cost push caused not only by the fault of the credit growth, but also a strong influence from public finance, economic and social efficiency and demand-supply imbalances. The reasons for demand-pull imbalance are caused by many factors, including the cause formed by the fact that FMCG manufacturing companies are undercapitalised, as supply shortages, leading to push psychology.

“In terms of the last 6 months, an average credit growth of 2 percent each month will not cause inflation pressures, by ‘dropping point’ of the cost forming factors which cause inflation does not fall at the end of 2016 ” Huong said.

Huong also said, in the allocation of credit growth plan in 2016, the Governor of the State Bank had breakthrough and effective solution. It is not to indiscriminate growth targets for all banks, avoiding ” This man has much to eat but that man finds no small piece. ”

“Consequently, for the allocation of the last 6-month growth plan of 2016, the Governor directed: allocating on the basis of analysing the status of each commercial bank operations in the first 6 months and following up the targets set out in a scientific and controlled manner. This is a welcome signal of the banking sector and the economy “, Huong stressed.

In an interview with Security Invest, Izumi Devalier, an economic expert in charge of Vietnam market, the Economic Research Division of HSBC said that policy operators should be satisfied with the current growth picture, even when GDP is under target. According to HSBC, even growth is slow but it is sustainable, still better than strong growth based on credit, but concealing a lot of the potential risks in the macro future.


Category: Finance, Vietnam

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