Bank system’s credit growth target unlikely to be reached

According to the General Statistics Office, as of September 20, the banking sector’s credit growth was 9.52 percent, much lower than the 11.02 percent rate recorded a year earlier.

Analysts fear such a low rate means it will be difficult to achieve the full-year target of 17 percent set by the State Bank of Vietnam (SBV), especially when many major banks have almost used up their credit quotas.

They said according to current regulations, SBV sets a credit growth limit for each commercial bank depending on the bank’s health at the beginning of the year with credit growth limits ranging from 12 to 14 and 16 percent. This is done to control credit growth for the entire banking system and to support Government targets.

Ten major banks, including Vietcombank, HDBank, MB, Vietinbank, BIDV, VIB and VPBank, have nearly reached their credit growth limits.

Of them, six had exceeded 10 percent growth in the first six months of the year, with TPBank’s outstanding loans increasing by 16.2 percent, HDBank’s by 15.1 per cent, LienVietPostBank’s by 13.9 percent, Vietcombank’s by 11.4 percent, and MB’s by 11 percent.

Many banks are expected to petition the SBV soon for increasing their credit growth limits.

However, the SBV will not adjust upward credit growth limits for commercial banks, except in some special cases, for the rest of the year.

The special cases are banks that have been required by the SBV to support ailing credit institutions in their restructuring in 2018.

Banking experts believed that the credit slowdown would allow banks to pay more attention to credit quality and credit risk management.

Meanwhile, some lenders have seen very low credit growth. Techcombank, for instance, increased its credit by only 2.3 percent in the first half.

The low credit growth has made many people worried about that production activities would likely be affected.

But many analysts are not concerned about the low credit growth, and even say it would be best if it ends up under the year’s target of 17 percent because the global economy is facing problems and Vietnam’s inflation rate is increasing, meaning the economy could face risks in the case of high credit growth.

The dong is depreciating against the dollar because of the US central bank’s decision to hike the benchmark interest rate by 0.25 percentage points in late September and the escalating US-China trade war, and this would have an impact on Vietnam’s fight against inflation.

An SBV official said inflation remains under 4 percent but it needs to be closely monitored until the year-end, which is usually the time there is inflationary pressure due to many reasons.
So it would be better for Vietnam to focus on the quality of growth, he said.

A central bank spokesperson said the credit growth target of 17 percent set for the year remains valid, but would be amended if found necessary to meet the economy’s needs.

He also said that though credit growth might not be higher this year than last year, liquidity for the economy, especially for priority sectors, would be ensured.

On September 5, Sacombank increased the interest rate on 13-month deposits from 7.6 percent to 7.8 percent and for 18-month deposits from 7.1 percent to 7.2 percent in case of accounts with over 100 billion VND (4.2 million USD).

Viet Capital Bank has the highest interest rate of 8.6 percent for deposits of over two years.

Techcombank has increased its interest rates by 0.1-0.2 percentage points on short-term deposits.

Market observers said several banks have raised deposit interest rates by 0.1-1.4 percentage points in recent days.

In addition, the banks have also launched promotion programmes to attract more deposits.

Experts said banks’ liquidity needs have shown signs of increasing, and interest rates on the interbank market have followed suit.

According to data from the SBV, the overnight interest rate on interbank lending rose from 4.2 percent in August to 4.52 percent in early September.

The rate hikes have been attributed by analysts to banks having to ensure their maximum ratio of short-term funds used for medium- and long-term loans would be 45 per cent in 2018 and 40 per cent in 2019.

But many banking insiders also pointed out another reason: the US central bank’s hike of benchmark interest rate and the rate could be raised one more time before the end of the year.

This has caused the dollar to appreciate significantly against the dong in both the official and unofficial markets.

Meanwhile, the central bank has ceased its intervention on the exchange rate by selling the dollar cheaply to commercial banks as it did in past months, thus also contributing to creating strong increase in the exchange rate between the dong and the US dollar.

Faced with the situation, banks have been forced to hike interest rates on dong deposits to prevent people from withdrawing their deposits converting them into dollars.

Analysts expect the deposit interest rates to continue rising but at modest rates of up to 0.5 percentage points.

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