Banks to soon run out of credit growth room

11-Jun-2021 Intellasia | Dau tu Online | 5:02 AM Print This Post

According to information at the government’s regular press conference in May 2021, the credit growth of the entire banking industry reached 4.67 percent in May. Meanwhile, in the same period of last year, this number was less than two percent.

Previously, the State Bank of Vietnam (SBV) said that as of April 16th 2021, the credit growth was 3.34 percent compared to the beginning of the year, higher than the two percent recorded by the end of May 2020. Thus, despite the resurgence of the epidemic, credit still grew steadily.

The capital mobilisation grew more slowly than credit. Statistics of the general Statistical Office showed that as of March 19th, the mobilisation growth of credit institutions was only 0.54%, while the growth of outstanding credit was 1.47%. In the HCM City area, the total mobilisation of credit institutions in the city as of May 31st was more than 2,960 trillion dong, up by only 0.74 percent compared to the previous month and by two percent compared to the end of last year, according to director of the SBV’s HCM City branch Nguyen Hoang Minh.

While the mobilisation growth was slow, the outstanding credit of banks in HCM City reached more than 2,650 trillion dong as of May 31st, up by 1.02 percent compared to April and by 4.7 percent compared to the end of 2020. In particular, the short-term outstanding credit was estimated at 1,220 trillion dong, accounting for 46%, an increase of 0.9 percent compared to the previous month and an increase of 3.47 percent compared to the end of last year. Meanwhile, the outstanding medium and long-term loans were estimated at 1,432 trillion dong, accounting for 54%, up by 1.12 percent compared to the previous month and by 5.77 percent compared to the end of 2020.

Thus, the credit of the economy maintained a positive growth rate in the first five months of this year, amid the 4th outbreak of the Covid-19 epidemic. Banks said that the banking industry has continued to effectively carry out credit programmes, programmes to remove difficulties for businesses hit by the Covid-19, according to the guidelines of the government and the SBV.

Experts of Viet Capital Securities Company (VCSC), the credit tends to grow faster than mobilisation, causing the system’s liquidity to possibly be less abundant than last year. However, although credit recovers, the growth rate will not be too hot, because the SBV still assigns lower credit growth limits than in the same period of last year and the Covid-19 epidemic is still complicated.

Credit growth room to soon run out

The research team of Saigon Securities Incorporation (SSI Research) said that in the complicated epidemic developments, the demand for credit may be affected and the SBV will stick to the goal of keeping interest rates low in the second quarter of 2021due to banks’ abundant liquidity. The slower disbursement of loans to customers in late May and early June was because some banks have reached the credit growth ceiling assigned by the SBV.

At the beginning of the year, the SBV assigned the first credit growth limit to credit institutions in the system. For the group of state-owned banks, the credit growth limit is 6.5 7.5 percent for Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), and 10.5 percent for Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank). Meanwhile, the credit growth limit for some private joint stock banks is 8.5 9.5 percent for Vietnam International Commercial Joint Stock Bank (VIB), Asia Commercial Joint Stock Bank (ACB), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), and 10.5 12 percent for Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and Vietnam Technological Commercial Joint Stock Bank (Techcombank).

Overall, the credit growth limits granted to credit institutions this year are lower than 2020. In the last three years, the SBV often assigned credit growth limit twice a year. After granting a limit for each credit institution at the beginning of the year, the agency continues to have an expansion of credit limit in the second half of the year. This also leads to the situation when credit institutions to use up the limit right from the middle of the year, or in the third quarter, before the SBV approves the limit expansion.

According to Nguyen Tuan Anh, director of the Credit Department of Economic Sectors (SBV), this year, the SBV has made a big change in credit management. Accordingly, the SBV temporarily assigned the credit growth limit in the first quarter of the year for banks to closely follow, while the target for the whole year 2021 has not been calculated yet. It means that the SBV still uses usual method, granting annual credit lines to commercial banks.

In previous years, the SBV used the credit growth figures as of the December 31st of the previous year to assign credit growth targets for the following year.

In the long run, according to Dr Can Van Luc, an economist, the SBV should consider removing this administrative management method for credit, and instead, should manage it according to the Capital Adequacy Ratio (CAR).


Category: Finance, Vietnam

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