Concerns mount over low credit growth

Credit growth remained sluggish in the first half of the year at 3.52% and commercial banks are cautioning the State Bank of Vietnam (SBV) decision to continue lowering lending interest rates to stimulate credit growth and spending is likely to be ineffectual.

SBV Governor Nguyen Van Binh optimistically said the entire banking system may achieve an overall growth rate of 12% - 14% by the end of this year. However, a more conservative prediction is that it will peak at slightly over 10%.

Rising debt ratio

The Bank for Foreign Trade of Vietnam (Vietcombank) recently reviewed its operations for the first six months of 2014 and announced that its growth rate was above the national average.

Vietcombank Director General Nghiem Xuan Thanh said the bank’s capital mobilization was estimated at VND378,780 billion in the first half, up 14.2% compared to early this year and threefold the whole banking sector’s average growth rate (5.3%).

As a result, Vietcombank’s pre-tax profit hit VND5,178 billion in the first six months of 2014, nearly 14.2% higher than last year's same period.

The bank also enjoyed remarkable achievements in resolving bad debts, which is currently hovering around 3.06%, much lower than that recorded in the whole banking sector. Additionally, the bad debt reserve ratio is moving in a positive direction, approaching 90%.

Tien Phong Commercial Joint Stock Bank (TPBank) in turn reports it has earned more than VND263 billion in profits since the beginning of this year, fulfilling 60% of its annual plan in spite of encountering numerous challenges in its restructuring process.

Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) Director General Phan Huy Khang said since January 2014 its total assets have risen 10.8%, with its profit meeting 50% of the set target for the year.

Khang attributed the bank’s successful operations to high demand for capital from industrial and processing zones in Ho Chi Minh City and the central province of Khanh Hoa.

For a number of reasons, some other banks, such as the Bank for Investment and Development of Vietnam (BIDV) and the HCM City Development Joint Stock Commercial Bank (HDBank), are hesitant to reveal their profits.

Interest rates should not be lowered

Many commercial banks are concerned low credit growth may result in the central bank reducing interest rates further.

In the present economic climate with the inflation rate is in line with deposit rates, further reduction of interest rates will be counterproductive and adversely affect the economy as a whole.

Lower interest rates on bank loans require banks to lower the interest they pay on customer deposits which disincentives savings and does little, if anything, to stimulate spending, bank leaders say.

Lower interest rates are quite simply not the key to encouraging businesses to borrow and spur expansion of their operations, they say. 

At a recent meeting to review banks’ operation in the first six months of 2014, SBV Governor Nguyen Van Binh underscored that the banking sector’s decision to reduce interest rate by 0.5% resulted in commercial banks having to cut deposit rates by 0.5% - 1% to maintain their liquidity.

Binh revealed credit growth is set to be controlled at 12% - 14%, with a view to serving both investors and bankers. Currently, there’s a rising demand for bank loans, he said, adding this is a positive signal for improvements in credit growth. 

According to the SBV Governor, the credit growth in the second half is usually higher than that recorded in the first half. He forecast growth rate in the second half will hit 7% to bring the entire year’s figure to over 10%.

Binh pledged to strengthen cooperation between the SBV and relevant ministries and agencies to remove obstacles and help businesses and credit organizations iron out their snags in operations.