Business
Vietnam banks struggle with credit growth limits
According to economists, some banks could struggle with liquidity in a certain period under the current credit growth limit, especially in a peak period by the end of the fourth quarter.
A number of Vietnamese banks are approaching the credit growth limits as the government seeks to curb inflation, leading to a slowdown in lending expansion.
By the end of June 2018, most of the leading banks in the country have used up their credit growth quotas, which had been allotted since the beginning of the year, according to the State Bank of Vietnam (SBV).
Tien Phong Commercial Joint Stock Bank (TPBank)'s credit growth reached 14.5% compared to the beginning of the year, up 27.8% year-on-year and is fast approaching the limit of 15% set by the SBV for 2018.
Credit growth of Military Bank (MB) in the second quarter stood at 89% of the year's target, while other banks such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), KienLong Bank, Nam A Bank, AB Bank, Eximbank have their respective credit growth limits ranging from 9 to 12%.
Recently, SBV's Governor Le Minh Hung has issued Directive No.04, which strictly controls credit growth pace and credit quality of the banking system. Moreover, the directive ruled out any possibility of raising credit growth targets.
According to economists, some banks could struggle with liquidity in a certain period under the current credit growth limit, especially in the end of the fourth quarter when demand for loans surges.
Under this circumstance, banks would have to reduce capital from mobilization channels, while looking for other source of incomes such as services, trading securities and insurances, among others to meet the year's profit targets.
Capital mobilization rate could be increase in the remaining months of the year, coupled with unpredictable market conditions due to the credit growth limit, stated banking expert Nguyen Tri Hieu.
"Banks would be struggle to meet their profit targets for 2018," Hieu added.
Focus on credit quality
Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Program in Ho Chi Minh City stated that Vietnam's economy heavily relies on credit from the banking system. Thanh cited the low starting point of the economy, which leads to low capital accumulation of economic groups as reason.
Therefore, capital, regardless of short-, mid- and long-term to serve enterprises' needs, is provided by the banks. The goal would be how credit is utilized for a higher economic growth and more sustainable development.
Experts forecast that credit growth would slow down in the remaining months of the year, shifting the banks' focus in credit growth from quantity to quality.
As a result, bank have to be more cautious in providing loans, especially in high risk fields.
"By the end of 2018, credit growth in the banking system could reach 14 - 15% or even higher, but the maximum should be 17%. The most important thing would be to ensure the allocation of capital into business and production, restricting loans to risky fields such as real estate, securities and build-operate-transfer (BOT) projects," said Nguyen Quoc Hung, director of the SBV's Credit Department.
According to the General Statistics Office, total credit in the Vietnamese banking system grew 6.35% in the first six months of this year, slower than a 7.54% in the same period of 2017.
In February, SBV estimated the credit growth to reach 17% in 2018, which is lower than the rate of 18.17% last year, but said it would adjust the target in accordance with actual situations.
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Tien Phong Commercial Joint Stock Bank (TPBank)'s credit growth reached 14.5% compared to the beginning of the year, up 27.8% year-on-year and is fast approaching the limit of 15% set by the SBV for 2018.
Credit growth of Military Bank (MB) in the second quarter stood at 89% of the year's target, while other banks such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), KienLong Bank, Nam A Bank, AB Bank, Eximbank have their respective credit growth limits ranging from 9 to 12%.
Recently, SBV's Governor Le Minh Hung has issued Directive No.04, which strictly controls credit growth pace and credit quality of the banking system. Moreover, the directive ruled out any possibility of raising credit growth targets.
According to economists, some banks could struggle with liquidity in a certain period under the current credit growth limit, especially in the end of the fourth quarter when demand for loans surges.
Under this circumstance, banks would have to reduce capital from mobilization channels, while looking for other source of incomes such as services, trading securities and insurances, among others to meet the year's profit targets.
Capital mobilization rate could be increase in the remaining months of the year, coupled with unpredictable market conditions due to the credit growth limit, stated banking expert Nguyen Tri Hieu.
"Banks would be struggle to meet their profit targets for 2018," Hieu added.
Focus on credit quality
Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Program in Ho Chi Minh City stated that Vietnam's economy heavily relies on credit from the banking system. Thanh cited the low starting point of the economy, which leads to low capital accumulation of economic groups as reason.
Therefore, capital, regardless of short-, mid- and long-term to serve enterprises' needs, is provided by the banks. The goal would be how credit is utilized for a higher economic growth and more sustainable development.
Experts forecast that credit growth would slow down in the remaining months of the year, shifting the banks' focus in credit growth from quantity to quality.
As a result, bank have to be more cautious in providing loans, especially in high risk fields.
"By the end of 2018, credit growth in the banking system could reach 14 - 15% or even higher, but the maximum should be 17%. The most important thing would be to ensure the allocation of capital into business and production, restricting loans to risky fields such as real estate, securities and build-operate-transfer (BOT) projects," said Nguyen Quoc Hung, director of the SBV's Credit Department.
According to the General Statistics Office, total credit in the Vietnamese banking system grew 6.35% in the first six months of this year, slower than a 7.54% in the same period of 2017.
In February, SBV estimated the credit growth to reach 17% in 2018, which is lower than the rate of 18.17% last year, but said it would adjust the target in accordance with actual situations.
