Credit growth targets
The State Bank of Vietnam (SBV) has just approved adjustment of credit growth targets for 2021 for a number of domestic commercial banks. Some banks have adjusted credit growth for the whole year by 14% to 15%, compared to the highest level of 10% to12% granted at the beginning of the year. Specifically, the SBV has agreed to allow MB to adjust the maximum credit balance until the end of 2021 from 10.5% to 15% at the request of the bank. Vietcombank has also increased credit from 10% to 14%, VPBank from 8.5% to 12.1%, Sacombank from 6.5% to 10.5%, Techcombank from 12% to 17%, Eximbank from 6.5% to 10%, VIB from 8.5% to 14.1%, and even TPBank was allowed to raise the credit room to 17.4%.
The credit limit of many banks was raised in the context that it was only the first half of the year, but many banks were about to run out of room. According to a six-month business result report, Vietcombank credit has increased by 9.8%, MB by 10.5%, and Techcombank by 11.2%, compared to the beginning of the year. Therefore, since June, about ten banks have proposed increase in credit growth, namely, Techcombank, ACB, Sacombank, MB, VPBank, OCB, VIB, HDBank, Vietcombank, and LienVietPostBank.
In early 2021, the State Bank of Vietnam had developed three scenarios for credit growth. Scenario one was for mass vaccination and the control of the COVID-19 pandemic, with a credit increase by 12% to 13%, possibly reaching 14%. Scenario two was in the event that the pandemic would continue until June, with social distancing measures still implemented and the time for vaccination prolonged, when credit could increase from 10% to 12%. Scenario three foresaw the pandemic lasting until the end of the year, then growth would be from 7% to 8%. For the whole of 2021, the State Bank of Vietnam foresaw credit growth at 12%.
However, right from the beginning of the year, banks have been very optimistic that the State Bank of Vietnam would have to loosen the credit growth target. For example, VIB is granted a limit of 8% but aims to increase credit to 31%. VIB leaders told shareholders, that the SBV oriented credit growth of 12% for the whole of 2021 is quite flexible according to the growth of the economy. SBV is always cautious in assigning targets for the first time. However, at shareholders' meetings of banks, most of the joint-stock commercial banks confidently set credit growth higher than the assigned targets.
Monetary policy limited
The State Bank of Vietnam believes that adjusting credit growth targets for credit institutions ensures consistent principles, to achieve the objectives of monetary policy management. The adjustment of credit growth targets is made on the basis of the request of credit institutions, assessing the operational situation, financial capacity, management, and ability to expand credit health of each credit institution. Priority is given to credit institutions to implement the Government policy and the State Bank of Vietnam direction to reduce lending interest rates in order to share difficulties of businesses and people. The statement of the SBV shows that the bank is allowed to expand the credit room in a healthy category and participate in the activity of reducing lending rates.
In fact, at this time, the solution to increase the credit limit for commercial banks is the optimal choice to realize the goal of the banking industry to support the economy. As the room for monetary policy is currently quite limited, the SBV cannot further reduce the operating interest rate in the context of many inflationary pressures. Meanwhile, as a rule, the less credit, the higher the interest rate. When commercial banks are close to reaching the credit growth target, they cannot accept many loan applications and will be more stringent in filtering borrowers. Moreover, such a limited credit room will also increase lending rates, because credit is the main factor helping the banks to ensure profit targets.
The State Bank of Vietnam wants the banks to support capital for businesses and is forced to open a credit room. This solves many problems such as adding more capital to the economy and curbing lending interest rates. The decision to increase the credit room is also accompanied by a requirement to reduce lending rates. With the opening of the credit room, the SBV has partially solved the interest rate problem in the context that deposit interest rates tend to increase with inflation, leading to many forecasts that interest rates will increase in the third and fourth quarter of this year.
The question is whether the business sector will benefit from this decision or not. In fact, the capital needs of businesses are always very huge, but access to capital is not easy. For a long time, management agencies have to still resort to methods that are persistent, with reminders and constant inspections, and supervising commercial banks to direct capital flow into production and businesses. Currently, many production and business enterprises have been debt restructuring, but the ability to access new capital will be limited if they do not meet the appraisal criteria of the banks. Difficulties in accessing capital will multiply in the context that the pandemic has not been completely eliminated, and continuing efforts are affecting the operations of most enterprises.
Therefore, high credit growth may lead to capital flowing into other high risk areas, which do not support the economy. In fact, in 2020, the monetary policy had loosened but it did not bring many benefits to the actual manufacturing sector, but went more towards speculative sectors, as shown by an increase in credit growth of 12.13% while GDP only went up by just 2.91%. This is a matter that monetary authorities need to pay attention to right now and control immediately.