Credit growth can be better than 12pct

19-Feb-2021 Intellasia | VnEconomy | 6:02 AM Print This Post

Although the economy had been affected by the Covid-19 epidemic, credit growth was still surprising in the last months of 2020. So would this growth be maintained in 2021? VnEconomy Press had an interview with a financial expert, Nguyen Tri Hieu, about this issue.

How did Hieu rate the credit growth rate in the last months of 2020?

Since the beginning of last year, commercial banks had launched a credit package of about 300 trillion dong to support businesses in overcoming the Covid-19 epidemic. However, in fact, how many businesses had enjoyed this support?

Borrowing from banks was not easy, especially for small and medium businesses, and the more difficult it was because of the lack of collateral.

Therefore, the support packages were not really useful because they were still mainly aimed at loyal customers of the bank and customers who could repay debts.

On the other hand, when the demand for loans decreased due to the epidemic, banks had simultaneously tightened credit because of concerns about the risk of bad debts, so credit in the first half of the year could not increase.

By the end of 2020, the recovery speed of businesses as well as the economy had been quite good, and credit growth had also accelerated. Remarkably, by the end of July 2020, credit growth was just over four percent, but by December 21, 2020, it had risen to 10.14%. Even in only the last 10 days of the year, this index had jumped to 12.13%.

Thus, even when seasonal factors were included, this was still a sudden growth.

In the expert’s opinion, would this growth rate remain in 2021?

The factor affecting credit growth, stated by Hieu, was still the epidemic situation. There had already been a lot of good news about vaccines, but it would still take a long time to vaccinate all 90 million people in Vietnam.

Besides, the effects of the Covid-19 epidemic were beginning to settle. The ability to borrow from individuals and businesses would decrease if their revenue and income decreased.

As a result, credit growth would slow down in the first half of the year and accelerate in the second half of the year when resilience was strengthened.

Which industry would be the driving force to boost credit growth in 2021?

The sectors that boosted credit growth in the past year would still be the driving force for 2021.

In particular, the agricultural sector had always been the foundation and the backbone of the economy. Then the export industry was hoping to grow well this year, too. Although Vietnam’s significant markets were affected, there could still have excellent export power.

In another aspect, commercial banks would continue to focus on lending to areas with strong recovery and growth potentials such as wholesale and retail, petroleum, and areas serving life needs.

Given that interest rates maintained at a low level, could they continue to decrease? Moreover, if reducing, would interest become the driving force to promote credit growth in the coming year?

According to Hieu, there was room for interest rates to decrease. Currently, deposit rates in many countries around the world were still at damaging levels.

It was probably not negative in Vietnam because if it were negative, people would withdraw money to buy gold and real estate, would not store money in the bank. Compared with the government’s four percent targeted inflation, the interest rate for 12-month term deposits was still 1.5 percent to 3 percent higher.

In the case of a decrease, Nguyen Tri Hieu believed that interest rates would fall in Q1/2021 for both deposit rates and lending rates. The economy continued to be strongly influenced by the Covid-19 epidemic, which required a new push.

It was not until Q2/2021 that the actual situation could be stabilised and recoverable. If it recovered, the economy would be warmed up in the second half of 2021, leading to an increase in interest rates.

Nevertheless, in short, the demand for debt could be partly supported by low interest rates and the fact that banks might consider loosening their lending standards to pre-Covid-19 level when there were signs of more pronounced recovery of the economy.

It was reported that the State Bank of Vietnam (SBV) was currently allocating credit to commercial banks quarterly. Was that a new operating method?

The expert affirmed that it was a new way of operating.

However, he always agreed that any bank that could increase credit during this time should be encouraged because banks had all the tools to manage their risks, including the target of outstanding balance on mobilisation, capital preservation target, short-term capital target for medium and long-term loans. These targets would control the amount of credit pushed out of circulation rather than putting a specific limit.

On the other hand, the annual limit was often adjusted. Banks could handle their credit well based on their financial health. Operators should check their finances rather than open and close the credit tap.

Hence, was the 12 percent credit growth target reasonable this year?

As stated by Hieu, the credit growth target would depend on economic growth. Usually, it relied on a ratio of 2.5 times credit growth to the gross domestic product (GDP).

For example, if the GDP growth were about five percent, credit would increase somewhere around 12.5%.

If Vietnam wanted to have about 6 percent or even 6.5 percent GDP growth, the credit growth must be much higher than the 12 percent set out.

Simultaneously, with the existing advantages such as the gradual recovery of the economy, the ability to absorb capital well, and the slight inflationary pressure, Nguyen Tri Hieu believed that credit growth would be better than 12%.


Category: Finance, Vietnam

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